Market Talk: How Green is Budapest?
With green accreditation becoming the norm in both the property development and the asset management segment, market players are increasingly aiming to secure more than one green accreditations. With technology improving at break-neck pace and ever more demanding tenants, disregarding the trend is not an option. In September, the Budapest Business Journal approached leading market players in property development and management to find out how they assess the market’s readiness to comply with requirements for sustainability and eco-friendliness. Replies elaborated on the ultimate matter of whether the now commonplace green accreditation is a genuine attempt to improve the environment, or it could be considered simply as window dressing, based on the fact that clients demand it. The findings further touch upon the extra cost burden green investments bear on future ROI. The BBJ was also curious about whether any developer would still consider investing into non-ecofriendly projects at all. From TriGranit’s side, Marcell Laczkó, Project Director told his opinion.
Here’s what the market players have to say. Tibor Gasser general manager Gamma Properties Implementing sustainability and green strategies in the category “A” office sector is still decisive for both property development and asset management. The global trends, the development of the market, together with more informed tenants are all behind the process. Nevertheless, green accreditation alone plays only a small part in property marketing, since the market is already devoted to green aspects and the technological development is extremely fast; thus, those who disregard these factors are already at a disadvantage. In the office buildings managed by GAMMA Properties, “sustainable facility management” is a priority.
In our experience, the extra greenrelated costs amount to approximately 1% of the total project. Its negative impact on ROI is balanced by faster achieved, higher cash-flow as a result of the accreditations, even if its effect is becoming more marginal. Considering ongoing office developments – and also those in the next couple of years – developers aim to get at least one green certificate, but we see more and more buildings with double accreditations. We welcome the fact, that in addition to the BREEAM and LEED certifications, new systems such as WELL Building Standards have appeared on the market. These new system – beside development, mechanical or maintenance aspects – focus on employee well-being as well.
All in all, each new development aims to get some kind of green certificate, but we see the demand for existing buildings without green accreditations as well. Edina Hornok head of sustainability consultancy, DVM group The beneficial effects of sustainable developments are visible, thanks to the follow-up tools of the certification schemes, and the impact studies that regularly analyze the energy savings and productivity changes related to green buildings. The studies report improved performance from year to year. The incremental construction cost is 1-2% for a sustainable building. Owners cannot recover this cost simply through energy savings, because operating costs are passed on to the tenants.
However, the increased value of the building and the higher rents improve the ROI compared to regular buildings.New developments without green certification are not competitive in the real estate market any more. Sustainability is a major factor for tenants when considering relocation, a large part would not move into a noncertified building. We can say green accreditation is now compulsory for new office developments. Viktor Nagy country manager IMMOFINANZ Hungary Green accreditation does indeed help to position our properties, but it is certainly not only a marketing tool.
IMMOFINANZ is firmly committed to environmental issues across our portfolio, and over half of our Hungarian offices now have BREEAM “In-Use” certification. So, as responsible real estate owners, we consider this task a priority. Of course, it is also expected by clients, who increasingly see the clear advantages of being in a building that is environmentally friendly, or at least environmentally neutral. If we start from a blank page, then of course there is more scope to examine every aspect of the functions of a building. It is now the norm, and is expected by clients, and almost all new developments are certified.
The demand is continuously growing because the advantages are clear in terms of cost savings, operating efficiencies, and overall comfort for tenants and employees. IMMOFINANZ is taking the lead in this area, and making great strides in achieving our green aims across our portfolio. I believe that other developers will increasingly follow our lead because it makes market sense, so the percentage of new developments which can be considered green will steadily rise. Gergely Árendás managing director, Property Market Real Estate Development Ltd. The real estate development community has improved greatly in delivering ever more efficient and higher quality buildings, that is buildings that are therefore more sustainable in the long run.
Whether green accreditation by itself adds value to a building is another matter. According to one argument, the additional costs of such accreditation may be better spent on improving the sustainable features of a project. The office projects we are developing at BudaPart are already budgeted to be sustainable and achieve at least LEED “Gold” status; therefore, for us, there is no extra investment. Most of the new developments have environmental certification; it is one of the arguments for moving into a new space. Not taking sustainability into account harms a new project in two ways: certain tenants will only consider certified buildings, and it also may negatively affect the exit value, as this is something most investors are looking for as well.
Mátyás Gereben general manager CPI Hungary Kft. According to the relevant European legislation, by 2020 significant pollutant emission reduction has to be achieved by all commercial buildings and developers invest heavily in their existing and newly built portfolio to comply with those regulations. But there are many soft elements on the market as well that have a serious impact on the green accreditation rating, even if they mainly serve tenant”s comfort and wellbeing. Increased green surfaces around the building and on the roof, amenities supporting bikers or paper free/digital building management are good examples. Green-related costs depend on to what extent you would like your building to be green.
There are multiple levels of a green accreditation and the costs depend on which classification you would like to achieve with your building. The rating assessment of an existing building refurbishment differs from a new development. CPI is more involved in implementing refurbishment programs in its existing portfolio, whilst applying solutions such as advanced HVAC [heating, ventilation, and air conditioning] technology, integrated BMS [building management system], energy efficient illumination etc. Extra investment related to green solutions in the case of redesign normally represents 10-15% of the total expenses, whereas for new developments the figure ranges rather between 5-20%, depending on the level of accreditation the developer desires to achieve. Nowadays, eco-friendly and energy efficient buildings are considered a must.
The scale of environmental friendliness can vary, but this will not substantially affect rents. However, human factors, including well-being at the work place, are gaining ever more significance and CPI prides itself on being a pioneer in this respect. Marcell Laczkó project director TriGranit Over the last few years, sustainability and green buildings have moved to mainstream in the real estate industry. Nowadays, not only due to tenant requirements, but to more restrictive energy efficiency regulations, new office buildings are subject to strict technical requirements and solutions, and they are built in a green way. In other worlds, each new office development is green nowadays.
And this also hints at what the future holds. Due to an EU regulation, buildings receiving an occupation permit after the end of 2020 will be subject to much stricter technical regulations, and as an effect, buildings will tend to reach zero emission. As for the extra cost of green buildings – though it may sound strange – if an office building aims at receiving an average certification like BREEAM “Very Good” or LEED “Silver”, it means no extra cost, as today”s average technical solutions are already green compatible. In this case, the extra cost is only the certification fee itself. However, in the case of LEED “Diamond” or BREEAM “Excellent” certification, the extra costs can reach at least 10-20%, or even more, of the total project cost.