Sustainable buildings: China

Lean, green and in demand

11 January 2016

Green buildings are demonstrating their worth in rapidly urbanising China, as Stephen Tam reports

China’s Green Building Evaluation Standard (GB/T50378-2014) defines green buildings as those that save resources (energy, land, water and construction materials), protect the environment and reduce pollution during their life cycle, provide healthy, practical and highly efficient use of space and are in harmony with nature.

However, the development of green building in China began relatively late, and there is significant room for growth. The National Urbanisation Plan requires that 50% of new buildings should be green by 2020 in comparison to the 2% in 2012, pushing forward this growing trend.

Limited natural resources, the greenhouse effect, carbon footprint, air pollution, energy efficiency and other environmental issues have driven the agenda. Increasing concern over the transition to a more sustainable growth model has prompted the Chinese government to play an active role in promoting green buildings.

At the beginning of 2013, the country’s National Development and Reform Commission and Ministry of Housing and Urban-Rural Development jointly issued the Green Building Action Plan, putting forward the goal of completing 1bn sqm of new green buildings during the 12th Five Year Plan and pledging full implementation of green building standards for government-invested buildings from 2014.

Certification schemes

In addition to the government-led China Green Standard, the US Leadership in Energy and Environmental Design (LEED) has been widely adopted on many building projects, being well regarded among multinational companies and suitable for China’s geography and climate.

According to the US Green Building Council (USGBC), as of April 2015, 627 projects in China (excluding Hong Kong, Macao and Taiwan) with a total gross floor area (GFA) of 28 million sqm had obtained LEED certification, making the country one of the biggest overseas markets for LEED-certified GFA.

Most projects under the China Green Standard are certified only for their design phase, whereas LEED certification covers a building’s full life cycle (i.e. design, construction, operation, and demolition). Having a relevant assessment standard for different phases, the scope of LEED certification is also wider than the China Green Standard, with more sub-categories and appropriate evaluation standards fulfilling the various functions.

Value for money

Green does not mean expensive. According to statistics for domestic projects certified under the China Green Standard, the incremental cost of residential buildings in 2014 decreased by 31%-38% compared to its historical peak, while the incremental cost of public buildings decreased by 48%-64%.

Green building certification can have a positive effect on occupancy and rental and capital value performance

CBRE believes the incremental cost of green buildings will decrease in the coming years, primarily because of the rapid development of green technology, products and processes, and the selection of more effective green features by developers with the help of professional consultants. Market demand and supportive government measures will make investing in green buildings an attractive proposition.

Investment returns on green buildings are reflected in four main aspects; non-monetary benefits, property performance, operational cost saving and preferential taxes and subsidies. These merits will bring significant advantages to developers, owners and end users.

While it is hard to measure the non-monetary benefits of green buildings, the positive impacts for landlords and occupiers can be quantified. Green office buildings can provide a more healthy and comfortable working environment than conventional buildings, meaning that employees tend to take less sick leave, are generally more efficient. Therefore, green building certification – particularly for commercial property projects – is a powerful differentiator for marketing, sales, leasing, management and operations.

Green building certification can also have a positive effect on occupancy and rental and capital value performance. The business case for green buildings, published by the World Green Building Council in 2013, pointed out that in most cases green buildings command up to 17% rental premium, up to 23.1% higher occupancy rate and up to 30% increase in property selling price.

CBRE conducted a study of LEED certified Grade A office buildings in the five Chinese cities Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu and found that they commanded higher rents in Q4 2014 compared to non-LEED certified Grade A office buildings. The rental premium was between 1.5%-25.7%.

Saving energy

Cost savings are one of the most important considerations for investing in green buildings. Case studies show that not only do green buildings provide a comfortable living and working environment but they also help landlords and tenants to save energy and lower operational costs. In 2011, CBRE was hired by Galaxy group to provide LEED Certification consulting services for its Shenzhen Galaxy Center office project. Constructed in 2008, the building has a GFA of 54,178 sqm.

Five key energy efficiency approaches were implemented, including ASHRAE Grade 1 energy audit, test and commissioning of M&E installations, major electrical installation monitoring, test and commissioning of ventilation system and advice and training on LEED operation requirements. After obtaining LEED EB Gold certification, the annual energy consumption fell by 7.6% in the following year, and annual operational costs decreased by around RMB 460,000.

Government incentives

It should be noted that achieving energy and cost savings in buildings does not simply involve changing or upgrading the hardware. Very often, soft factors such as setting management targets and controlling processes can bring remarkable improvement. Meanwhile, making end users aware of the importance of being green has become a driving force for developers and owners to create their projects in a greener way.

Government subsidies and preferential tax policies are also an important component of green building investment returns

Government subsidies and preferential tax policies are also an important component of green building investment returns. Beside direct subsidy, local governments also implemented various preferential measures on plot ratio, bank lending and tax arrangement to encourage green building development.

The China green building market is already on a fast track. By the end of April 2015, the total area of domestic green buildings (including China Green Standard and US LEED) totaled 320m sqm, 154 times the figure in 2008 when the first batch of China Green Standard buildings were certified.

However, the green building journey still has a long way to go. A conservative estimate puts China’s current building area at more than 40bn sqm, of which less than 1% is certified to green building standards.

The rapid urbanisation of China means that buildings are playing an increasingly important role in controlling greenhouse gas emissions and energy consumption. In November 2014, the US and China released the US-China Joint Announcement on Climate Change, which stated that: “China intends to achieve the peaking of CO2 emissions around 2030 and to make best efforts to peak early.” This makes it clear that the focus on green building should be adopted as a long-term national strategy.

Stephen Tam is Senior Director, Asset Services at CBRE

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