Green buildings turning into pots of gold for property developers, tenants

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Redefine Properties in 2021 received 40 green-star certifications, 24 of which were new.
Redefine Properties in 2021 received 40 green-star certifications, 24 of which were new.
Redefine Properties
  • Buildings with green features such as renewable energy have helped reduce operating costs for landlords and tenants.
  • There is a growing market appetite for green-certified buildings, which boast with financial returns.
  • Green star-rated buildings have lower vacancy rates which allow them to perform well in terms of rental income, says an industry analyst.

Apart from the environmental benefits, there is an investment case to have green-certified properties, according to industry players.

The MSCI South Africa Green Annual Property Index, which has been running for five years, indicates that green-certified buildings can attract and retain tenants and have helped reduce operational costs.

Pelo Manyeneng, head of listed property at Momentum Investments, says green star-rated buildings often perform better in terms of attracting tenants. Green certified buildings perform better in terms of net rental income growth than those that are not. Green buildings tend to have lower vacancy rates, Manyeneng told Fin24.

Citing the MSCI's index, which monitors green-rated buildings' performance against those that are not, Manyeneng said the results show that green properties generated higher returns than properties that are not. "... Tenants want to be in buildings that are green, and as a result, their total returns were better than non-green rated buildings," said Manyeneng.

Redefine Properties similarly has seen increased interest in their green star-rated buildings from prospective tenants.

Last year, the property developer, which is active in the retail, office and industrial space, had 40 of its properties green star-rated by the Green Building Council South Africa. This brought the total green certifications across its portfolio to 123. Redefine wants to continue to expand these green certifications as part of efforts to achieve net-zero emissions by 2050.

"We see the green star certification processes being an important step toward being able to transition those buildings to net zero," said Anelisa Keke, Redefine's head of ESG.

"We hope to achieve that by 2050 all of our standing investments, all of our current buildings will have been converted to net zero on a carbon basis. It is going to be a long and difficult journey, but I think it is important to start now," she added.

The financial benefits of green star-rated buildings also depend on the green features, such as renewable energy, waste management and water-saving technologies. Energy efficiency and renewable energy is linked to reduced operating costs, compared to buildings that do not have these features, explained Keke.

Redefine has a "pipeline" of buildings to expand solar PV and reduce water consumption from municipal supplies. The rollout of solar PV will be in achieving net-zero emissions.

"From our side, we have an aggressive solar PV programme which we plan to expand substantially in light of the lifting of restrictions on embedded generation," said Keke. Last year, the government raised the licence threshold for generation facilities from 1 MW to 100 MW.

Energy efficiency

Redefine is also working on energy efficiency initiatives at its buildings - such as retrofitting buildings with more energy efficient LED lighting.

Introducing energy efficiency will be a "long journey", Keke noted. "…[E]specially with older buildings, it will be difficult to replace all the air conditioning and lighting within the buildings. It will also require capital expenditure," she added.

So far, its initiatives - related to energy efficiency and renewable energy generation, helped the group reduce energy consumption by 36 619 MWh in 2021, up from 22 279 MWh in 2020.

During 2021, its solar PV fleet generated 5.83% of energy needs, its 2021 integrated report indicated. This is 36 315 MWh or enough electricity to power more than 3 099 households.

According to its 2021 integrated report, Redefine invested about R316 million in solar PV generation. This translated into a reduction of carbon emissions by 38 494 tons, compared to 33 607 tons in 2020. This is equivalent to the emissions produced from 5 597 passenger cars.

The group is also looking into energy storage solutions such as batteries. Preliminary studies indicate that Redefine could save costs through energy storage - by charging batteries during off-peak tariff periods and then using that stored energy during peak tariff periods.

READ | Gautrain looking into solar panels to power its stations

A lot of the interventions to get buildings to reach the net-zero target involve a behavioural change of tenants, Keke explained. Some tenants on their own sustainability journey have reached out to Redefine for support.

Keke sees these partnerships as a key factor in driving sustainable practices:

The 2050 goal of getting all our buildings to net-zero is not a goal Redefine can reach singlehandedly as a landlord. We are going to really need to take our tenants on that journey with us to succeed.
- Anelisa Keke

Among these behavioural changes are linked to water supply and consumption. Most of Redefine's buildings are located in water-stressed areas. Its strategy includes harvesting rainwater, which reduces reliance on municipal supplies.

Redefine also intends to engage with tenants and visitors to encourage responsible water use.

Its water management system includes smart water meters at some properties to measure water consumption, early leak detection and regular maintenance of equipment are performed. Total water use in 2021 was reduced by 10.26% compared to 16% in 2020.

READ | Africa's largest rooftop solar plant to be launched in KZN next month

Green buildings are also cheaper to fund. The group in 2021 launched a R1-billion sustainability-linked bond - which requires it to fund solar PV projects and water-saving initiatives to benefit from lowered interest rates. In other words - the cost of funding or interest rates is lowered if sustainability targets are met.

Whether Redefine will issue a further sustainability-linked bond, Keke said the group is keeping its options open. "Our long-term strategy around sustainable financing will be communicated to the market in due course," she added.

There is also appetite for green-rated buildings in the residential space, according to Mfundo Mabaso, growth head of FNB Home Finance. There is an uptake among customers for EDGE-rated buildings, which signals the market interest for green homes, Mabaso explained. The Excellence in Design for Greater Efficiencies (EDGE) rating is an initiative from the International Finance Corporation - a member of the World Bank.

The appeal of green buildings is the savings in energy and water. "The added benefit for customers buying a green home is that the value is likely to appreciate at a faster rate than a property that is not green," he said. "These properties are likely to be more valuable when compared with their brown counterparts," he added.

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