Green buildings turn into pots of gold for developers, tenants

  • Buildings with green features such as renewable energy have helped reduce operating costs for owners and tenants.
  • There is a growing market appetite for certified green buildings, which boast financial returns.
  • Buildings rated “green stars” have lower vacancy rates, helping them perform well in terms of rental income, according to an industry analyst.

Along with the environmental benefits, there is an investment case for having properties certified green, according to industry players.

The MSCI South Africa Green Annual Property Index, which has been running for five years, indicates that certified green buildings can attract and retain tenants and have helped reduce operating costs.

Pelo Manyeneng, head of listed properties at Momentum Investments, says star-rated green buildings are often more successful in attracting tenants. Buildings that are certified green perform better in terms of net rental income growth than those that are not. Green buildings tend to have lower vacancy rates, Manyeneng told Fin24.

Citing the MSCI index, which monitors the performance of green-rated buildings compared to those that are not, Manyeneng said the results show green properties generated higher returns than non-green properties. “…Tenants want to be in buildings that are green, and therefore their total returns were better than non-green rated buildings,” Manyeneng said.

Similarly, Redefine Properties has seen increased interest in its green buildings from potential tenants.

Last year, the property developer, which is active in retail, office and industrial space, had 40 of its properties green-listed by the Green Building Council South Africa. This brings the total number of green certifications in its portfolio to 123. Redefine wants to continue to expand these green certifications as part of efforts to achieve net zero emissions by 2050.

“We see the Green Star certification processes as an important step towards transitioning these buildings to net zero,” said Anelisa Keke, ESG Manager at Redefine.

“We hope to realize that by 2050 all of our permanent investments, all of our current buildings will have been converted to zero carbon on a carbon basis. It will be a long and difficult journey, but I think it is important to start now” , she added.

The financial benefits of green star rated buildings also depend on green features, such as renewable energy, waste management and water saving technologies. Energy efficiency and renewable energy are linked to lower operating costs, compared to buildings that do not have these features, Keke explained.

Redefine has a “pipeline” of buildings to develop solar PV and reduce water consumption from municipal supplies. The deployment of solar photovoltaic energy will achieve net zero emissions.

“On our end, we have an aggressive solar PV program that we plan to expand significantly in light of the lifting of restrictions on embedded generation,” Keke said. Last year, the government raised the licensing threshold for generation facilities from 1 MW to 100 MW.

Energetic efficiency

Redefine is also working on energy efficiency initiatives in its buildings, such as retrofitting buildings with more energy efficient LED lighting.

Introducing energy efficiency will be a “long journey”, noted Keke. “…[E]especially with older buildings, it will be difficult to replace all the air conditioning and lighting in the buildings. It will also require capital expenditure,” she added.

So far, its initiatives, related to energy efficiency and renewable energy production, have enabled the group to reduce its energy consumption by 36,619 MWh in 2021, compared to 22,279 MWh in 2020.

In 2021, its solar photovoltaic fleet generated 5.83% of energy needs, its 2021 Integrated Report shows. This represents 36,315 MWh or enough electricity to power more than 3,099 homes.

According to its 2021 Integrated Report, Redefine has invested around R316 million in solar PV generation. This translated into a reduction in carbon emissions of 38,494 tonnes, compared to 33,607 tonnes in 2020. This is equivalent to the emissions produced by 5,597 passenger cars.

The group is also studying energy storage solutions such as batteries. Preliminary studies indicate that Redefine could reduce costs through energy storage – charging batteries during off-peak tariff periods and then using that stored energy during peak tariff periods.

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Many interventions to get buildings to net zero involve changing tenant behavior, Keke explained. Some tenants on their own sustainability journey have contacted Redefine for help.

Keke sees these partnerships as a key factor in driving sustainable practices:

The 2050 goal of bringing all of our buildings to net zero is not something Redefine can achieve on its own as a landlord. We’re really going to have to take our tenants on this journey with us to be successful.

-Anelisa Keke

Among these behavioral changes are related to water supply and consumption. Most of Redefine’s buildings are located in areas of water stress. Its strategy includes rainwater harvesting, which reduces reliance on municipal supplies.

Redefine also intends to engage with tenants and visitors to encourage responsible water use.

Its water management system includes smart water meters in certain properties to measure water consumption, early detection of leaks and regular maintenance of equipment is carried out. Total water consumption in 2021 has been reduced by 10.26% compared to 16% in 2020.

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Green buildings are also cheaper to finance. The group launched a R1 billion sustainability bond in 2021 – which requires it to finance solar PV projects and water saving initiatives to benefit from reduced interest rates. In other words, the cost of financing or interest rates are reduced if sustainability goals are met.

Whether Redefine will issue a new sustainability bond, Keke said the group is keeping its options open. “Our long-term strategy around sustainable finance will be communicated to the market in due course,” she added.

According to Mfundo Mabaso, Head of Growth at FNB Home Finance, there is also an appetite for green listed buildings in the residential space. There is customer adoption of EDGE-listed buildings, which signals market interest in green homes, Mabaso explained. The Excellence in Design for Greater Efficiency (EDGE) rating is an initiative of the International Finance Corporation, a member of the World Bank.

The appeal of green buildings lies in saving energy and water. “The added benefit for customers buying a green home is that the value is likely to appreciate at a faster rate than a property that isn’t green,” he said. “These properties are likely to be more valuable compared to their brown counterparts,” he added.