Making money in the new property era

Astute entrepreneurs, investors, developers can get in now on the groundfloor of the next big property wave - real estate experts

Can you make an odourless, waterless urinal? Perhaps producing toxin-free paint is something that appeals more? Maybe you'd prefer to be an adviser, offering tips on global trends and looming legislation.

These and many other business opportunities are emerging as South Africa's commercial property developers and investors enter a new era of designing and constructing "green buildings" - those that are more friendly to the environment.

Building design is evolving, this time away from producing working environments that are enclosed and cut off from the outside world in favour of premises that harness our natural surroundings.

Offices where power-draining conditioners circulate stale air and shimmering glass towers that trap heat are set to become passé as landlords and tenants increasingly opt for real estate that relies more on renewable energy and re-uses materials.

The global trend towards constructing and refurbishing buildings so that they are environmentally-friendly was a major focus at the recent IPD/Sapoa Property Investment Conference Cape Town.

Delegates heard how the commercial property industry is a major sinner, along with the world's airlines, when it comes to producing the carbon emissions that are rapidly thinning the globe's ozone layer and, as a result, contributing to global warming.

In South Africa, the real estate sector has only started tinkering with the concept of green buildings. However, the green building movement is expected to gather momentum.

South Africa is introducing a system to rate the extent of a building's environmental friendliness, through the Green Star SA rating system.

The ratings will not be compulsory, however there is expected to be pressure from corporates - particularly those with international shareholders - who will want to be seen to be making an effort to be socially and environmentally responsible.

They will opt for premises that help them earn extra kudos when it comes to non-financial reporting requirements.

Bruce Kerswill, chairman of the Green Building Council of SA and champion of the green initiative in this country's real estate sector, says: "We in South Africa haven't felt the sense of urgency on this yet. But we can expect to see stakeholder and government pressure here soon. South Africa has agreed to cut carbon emissions."

(Read Property national budget shocker and ANC resolutions for more detail on the South African government's view on green buildings.)

For those who don't feel the moral imperative to helping to slow climate change, there is a compelling business case to opt for greener buildings, says Kerswill.

He says research suggests that productivity can increase from about 5% to 15% where employees work in a "green" building.

And, as a salary bill can be such a large component of a company's expenses, a figure like this is likely to be a decisive factor for a corporate tenant deciding on premises.

Just like the other healthier things in life, for example organic food, green buildings do indeed cost more than their unhealthy counterparts to build and, by implication, rent.

However, Kerswill says the extra cost is not as much as one might expect.

In Australia, for example, a four-star building would cost the same as a non-green building in capital costs, while a five-star rating will need more technology and therefore cost about 5% extra.

A six-star building, at about 11% more, is "not a huge premium" to pay, he says.

In the long run, companies can expect to extract savings by, for example, reduced energy bills and a reduction in the amount of water used in a building.

Also included in the categories for scrutiny when a building is rated is the transport segment.

Buildings that promote public transport rather than private car use - for example through being situated close to major transport nodes or because smaller cars have the best parking spots - will get more points than those that don't.

There is a huge emphasis in the rating system on recycling and you score for sourcing local products rather than importing cheaper ones from elsewhere.

As expected, points will be awarded for building where land does not have a high ecology value and where you preserve top soil and re-establish indigenous vegetation.

One category rewards "innovation". This is to "stimulate out-of-the-box thinking rather than just slavishly following the ratings," says Kerswill.

Internationally, some tenants are prepared to pay more for "greener" premises, he says.

"An additional green building rental premium of 10% pales into significance if you can achieve more productivity. So there is a strong value case for green buildings."

Kerswill is adamant that this is not a passing fad.

Brent Wiltshire, development director at Old Mutual Investment Group Property Investments which is one of the country's bigger landlords, says his organisation had a look at "our top eight" buildings "to see how we can make a difference".

At the IPD/Sapoa Property Investment Conference, Wiltshire produced some startling figures indicating the extent to which these buildings guzzle natural resources.

A 20% reduction of water usage at these buildings alone will conserve enough water to fill 133 swimming pools each day, he says.

"The important thing is you need to be able to measure; then you can set targets," says Wiltshire, underscoring the value of a green building rating system.

"In our new assets, the green building principles are best practice. What is important is to get the right team in place. It's about putting the philosophy in place upfront and making sure the team buys into it - it's about an attitude."

Wiltshore, notes too, that there is a growing need for "green experts" and that entrepreneurs are quickly spotting the opportunities.

"A year-and-a-half ago there was no-one we could call on who were green experts. Eighteen months' later there are a whole lot of experts," he says.

Christopher Hedley, managing director of IPD Occupiers and Management in the United Kingdom, points out that corporate property will come under increasing scrutiny for environmental performance.

"Property investors face risks. Tenants will act and valuers will respond." There will be a rental difference, but it will be a discount for non-green buildings, he believes.

And, "as more and more green buildings come onto the market, non-green buildings will become much, much cheaper".

"There'll be a tipping point," predicts Hedley, who says that in the UK, about 1-2% of stock is being replaced each year - less than in South Africa - and it takes a long time to turn around the whole stock in an industry. Retrofitting is vital, he says.

Hedley says, based on discussions with commercial property players, that "not many are doing very much" in South Africa.

Investors like green buildings, he says, and there is "money to be made out of that".

"There is an increasing pressure to deliver. We have the need for accurate information. We've got to create monitoring and targets and need to be able to prove performance," adds Hedley.

Have South Africa's landlords and property developers got more important thing to worry about than global warming? Where are the opportunities? Tell us, below.

Article by: Jackie Cameron - www.realestateweb.co.za