Cost centre or competitive advantage? The reality of sustainability in commercial real estate

As world leaders at COP28 focused on the imminent threat of climate change, close to home in India, the devastation caused by Cyclone Michaung in Chennai offered an eye-opening glimpse of this looming threat. It reinforces the fact that anyone, from film stars and politicians to the common man, cannot be immune when it comes to Mother Nature’s fury. Blame it on the gaps in infrastructure, lake encroachments, record-breaking torrential rainfall, or merely climate change, we, as a nation, can no longer offer mere lip service when it comes to embracing sustainability.

When it comes to sustainability, it is vital to note the fact that 39% of global carbon dioxide emissions are a result of buildings and the construction sector. An average building in India emits approximately 300 tons of carbon dioxide per year. If you look at the economic impact, India loses an estimated Rs 1.7 trillion annually due to energy inefficiency in buildings, a number worth noting as we inch towards becoming the third largest economy by the end of the decade. How “sustainable” can embracing sustainability be in commercial real estate?

It is a known fact that we have limited real estate, and new supply of commercial properties alone, will not be able to cater to the growing demand for office spaces.

The only way out of this conundrum is reimagining older properties and bringing them back to life to meet new-age needs. Research from ReQube showed that with an investment of Rs 500 per sq ft we could easily revamp an old property, create modern amenities and provisions for multi-tenancy, enhance floor efficiency, increase energy savings, reduce freshwater consumption, enhance air quality, and create abundant natural lighting.

Results have shown that this investment in renovation improves the rentals by at least 15% and the occupancy by around 20% resulting in a payback period between two to three years. Its surely a commercial win for the landlord over the long term with an added benefit of enhanced tenant experience. If it’s a win-win for everyone then what’s the catch?

For the developer and the landlord community of mid-sized commercial buildings, sustainability has often been a pipe dream and a cost centre. The benefits accrued over long term, while the capital requirement was immediate. The landlord had to invest capex while tenants enjoyed all the benefits. On top of this, a single renovation project needs support from multiple stakeholders including architects, structural experts, interior designers, MEP specialists, vendors for landscaping, rainwater harvesting, sewage treatment plants and rooftop solar panels among several others. It’s a mammoth task for a landlord to pull this off all by himself.

This is where a new model of “Sustainability as a Service” is necessary. A model where the landlord has a single partner who specialises in renovation and upgradation of old properties. This SaaS partner takes end-to-end ownership of the project, right from design to development and maintenance, and, in certain cases, also shares the capex required for renovation in return for an assured opex of managing the property.

As climate change hits close to home and companies start questioning the “sustainability quotient” of their office space, embracing sustainability is no more a question of if, but a question of how soon.

_{Ananya Agarwal is the Co-founder of ReQube.}

_{(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of You}rStory.)