Sustainable Real Estate Practices Reshaping India's Property Sector

In 2023, the office real estate market witnessed a significant shift towards sustainability, registering an 83 per cent growth in green office stock compared to 2016, as per a report by KPMG in India and Colliers. This remarkable transformation comes at a critical juncture as the real estate sector, a major source of global carbon emissions responsible for nearly 40 per cent of total emissions, faces mounting pressure to reduce its environmental impact.

By 2040, approximately two-thirds of the existing building stock is expected to continue contributing to CO2 emissions, posing a significant challenge to the climate goals outlined in the Paris Agreement, which aim to restrict global temperature increases to 1.5 degrees.

KPMG in India and Colliers report titled 'Sustainable Real Estate: An Opportunity to Leverage’ delved into the rising prominence of green building certifications, the increasing influence of informed investors and consumers, and the impending global building expansion.

These factors underscore the undeniable importance of adopting sustainable practices in the real estate sector.

In India, where 61 per cent of the office market stock turned green in 2023, this trend reflects a growing awareness of the need for environmentally responsible real estate practices. This transition is not merely an option but an imperative for the real estate sector, with both developers and occupiers increasingly integrating sustainable solutions into their operations throughout various project phases, the report added.

These remarkable developments in the office real estate market signify a pivotal moment in the industry's commitment to sustainability, as highlighted in the report.

Moreover, 94 per cent of the surveyed real estate companies acknowledged the potential of green buildings to boost valuations. This surge in interest aligns with the increasing demand for energy-efficient buildings, given the projected doubling of global building floor area in the next three decades. 

From the supply side, developers are making conscious efforts towards creating sustainable commercial real estate by following prevalent green building rating systems such as LEED (Leadership in Energy and Environmental Design), Green Rating for Integrated Habitat Assessment (GRIHA) and WELL building certification. 

India's sustainability goals, which include achieving net zero greenhouse gas emissions by 2070 and deriving 50 per cent of energy from renewables by 2030, highlight the nation's commitment to a greener future. 

At present, green penetration of Grade-A office stock has been significant in metropolitan and Tier-1 cities of India, which include Bengaluru, Delhi-NCR, Hyderabad, Mumbai, Chennai, and Pune, accounting for 421 million sq ft. 

About 16–26 per cent of the existing ageing buildings in the top six cities have scope for upgrading to improve building performance.   

“India contributes to about 7.3 per cent global emissions, with real estate being one of the largest contributors, hence, the importance of sustainability in the sector cannot be overstated. Carbon emissions may reach 4.48 giga tonnes by 2030 from 2.88 giga tonnes in 2021, however, a reduction in emissions by 22 per cent today can keep 2030 emissions lower, at 3.48 gigatons. Energy-efficient technologies such as automated HVAC systems, solar panels, and green roofs may result in 70 per cent less waste and 10 per cent savings in operational cost yearly,” said Neeraj Bansal, Partner, Co-Head and COO - India Global, KPMG in India.  

Bansal added, “Notably, about 56 per cent of the stakeholders shared high importance for sustainable buildings since these may have 5-10 per cent higher valuation and high occupancy rates and allow them to be better positioned to succeed in a rapidly changing market. It is time for the real estate sector to take a leadership role in promoting sustainability through buildings that are energy and resource-efficient and drive positive change for the environment and society as a whole.” 

Additionally, the report highlights that in top 10 office micromarkets in India, including Bengaluru ORR, Whitefield and SBD; Hyderabad SBD; Chennai OMR Zone 1, Pune-Kharadi; Delhi NCR- Noida Expressway; and Navi Mumbai, account for the bulk of country’s green building stock at 62 per cent.   

These top micromarkets are largely part of suburban and peripheral areas that consist of newer developments. At the same time, the vacancy levels in green buildings of most of these micromarkets are lower than that of non-certified buildings.  

"Green certified office buildings have almost doubled since 2016 to an impressive 421 mn sq ft, forming over 60 per cent of India's Grade A office stock. This showcases developers’ & occupiers’ rising commitment towards sustainability. This is likely to reflect favourable pricing and asset valuation, resulting in increased brand value, client retention and rental upside. As the industry looks into the future, developers and investors alike, are likely to remain focused on high-performing assets as more occupiers scout for sustainable workspaces." said Badal Yagnik, Chief Executive Officer, Colliers India.

Going ahead, faster adoption of sustainability in real estate, green financing, innovative interventions undertaken at portfolio-level, and attracting sustainable investment through dynamic policy making become imperative, the report stated. 

Simultaneously, concerted efforts towards provisioning better funding for sustainability research and development must be augmented, it added.  

Lastly, the report delves deeper into the multifaceted facets of this transformative journey, exploring green building standards, occupier initiatives, and actionable recommendations to shape a more sustainable future.