Post-covid, the rising trend of more and more residential and commercial real estate occupiers focusing on ECG ( environmental, social, and governance) strategy throughout the property lease or ownership cycle, has provided a big boost to green sustainable real estate, with the certified green office stock growing by 177 percent in the past five years to 212 million sq ft in Q3 2021.
According to the CBRE report that highlights Indian real estate’s ESG landscape, over the past decade, green real estate assets – across top six cities in India (NCR, Mumbai, Pune, Hyderabad, Bangalore and Chennai), grew tremendously, with their share in the total office stock increasing from 24% in 2011 to 31% in 2021. The certified stock also increased substantially, growing at a CAGR of 10.7%, compared to 7.7% for the overall stock, since 2011.
The NCR and Bangalore are ahead of the curve and together account for 54% of the total certified office stock of India. Both NCR and Hyderabad lead the fray in terms of the share of certified buildings in their respective total stock, with a 44% share each; followed by Chennai at 37%. Meanwhile, Mumbai (16%) and Pune (15%) have a significant potential to improve their share on this parameter. Cities such as Bangalore, Mumbai and NCR have a higher proportion of certified stock in their non-SEZ projects whereas Chennai and Pune showed higher share of certified stock in their SEZ projects. Among certified green SEZ projects, Pune has reported the highest premium of 11.1% compared with non-certified projects, followed by Chennai (9%). One city that stands out on this parameter is NCR, where the entire SEZ stock is certified green, thus making it a benchmark for other cities.
Mumbai leads the market in terms of rental premium in green non-SEZ projects, commanding a 33% rental premium over the non-certified stock; followed by Chennai (31%). Hyderabad and Pune were the laggards, with 11% and 5% premiums, respectively..NCR led in LEED certification followed by Bangalore with their major stock being Platinum and Gold certified. Under IGBC certification, Hyderabad is leading the way with a good mix of Gold and Platinum certifications followed by Bangalore with all certifications being of the Platinum category.
India is also witnessing a trend wherein city peripheries across almost all cities analysed have the highest share in green buildings, followed by secondary locations. Core or central locations have the lowest number of green buildings as it is usually a hub of older projects. Institutional asset owners are ahead of the curve as even though they own only 22% of the total office stock in India, almost 45% of it is green-certified. On the other hand, non-institutional asset owners hold a 78% share (539 million sq. ft.) in the total stock, but only 27% of it is green-certified. As of Q3 2021, over 35% of the total REIT assets were green-certified, which is anticipated to increase significantly owing to the evolving policy and regulatory ecosystem.
The heightened focus on ESG issues in view of the convergence of global challenges will see ESG emerging as a driving force for Indian stakeholders, helping to move the real estate industry towards a more sustainable future As businesses increasingly focus on developing forward-looking strategies that take climatic, societal and ethical issues into consideration, ESG will evolve from a peripheral balance sheet issue to a key decision making issue. From the real estate industry standpoint, we will see increasing spotlight on developer and occupier strategies, aimed at helping the sector to move towards a more sustainable future.