Green buildings command rental premiums of 13-36% as demand grows: JLL

• Almost 44% of the total office building stock across top seven cities in India is green certified, says a JLL report.
• Delhi NCR and Mumbai which contribute over 41% of total green-certified stock in the country.
• There is a 13% average rental premium in green-certified IT buildings.

Almost 44% of the total office building stock across top seven cities in India is green certified, says a report by Jones Lang LaSalle (JLL).

However, most of these green buildings are in Delhi NCR and Mumbai which contribute over 41% of total green-certified stock in the country. Most of the green buildings stock is owned by institutional investors and real estate investment trusts or REITs.

The JLL report also throws light on why green buildings are becoming popular. “Going green has its advantages. There is a 13% average rental premium in green-certified IT buildings and a 36% average premium in non-IT buildings,” the report says.

Green buildings, also known as sustainable buildings, use sustainable material and processes and aid efficient use of natural resources like energy and water, reduces pollution and uses waste reduction measures.

Organizations are keen on choosing office spaces that help them reduce carbon emissions, and this is driving demand for green buildings.

“Even in the two-year period immediately preceding the pandemic, the share of gross leasing in green-certified buildings was higher at 53% and rose further to 57% during the pandemic period. This clearly outlines the greater shift underway in occupier preferences for sustainable, green-certified buildings,” said Radha Dhir, CEO and country head - India, JLL.
Green buildings less likely to remain vacant, more likely to command premium
In addition to higher rentals, green buildings are also less likely to remain vacant. According to Dr. Samantak Das, chief economist at JLL, vacancies are lower by 3-12% in green buildings across prominent submarkets. In

He says that rental premiums are as high as 15-54% for green buildings while its non-green counterparts have to deal with brown discounting – a rating term that describes buildings that would need maintenance investments going ahead.

“Across all core submarkets in the top seven cities where IT/IT SEZ projects form a significant proportion of total Grade-A stock, green-certified buildings enjoy higher occupancy compared to non-certified counterparts,” said Das.

In general, most of India’s Grade-A stock is predominantly for IT/IT SEZ usage – and this share is at 71% share. Within this stock, half of it is green certified. For the non-IT stock, green penetration is much lower at 28%.

“The lower vacancy levels in this green-certified non-IT stock also underline the impact of green certifications on occupiers’ space decisions, more so in the case of their corporate offices which are representative of the firms’ ethos and corporate responsibility statements,” he added.

The report predicts that over the next decade, the penetration levels of green-certified buildings will cross 50% overall.

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