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Three Australian capitals have been rated as some of the Asia-Pacific region’s best green-rated cities for commercial real estate.
Knight Frank’s APAC Sustainability Led Cities Index, which rates 36 cities in the region on matters such as urbanisation pressure, climate risk, carbon emissions and government initiatives, has now concluded, with Sydney, Perth and Melbourne placing in the top five.
Second only to Singapore was Sydney, with the NSW capital followed by Wellington, New Zealand and then Perth, before Melbourne rounded out the top five, with each city labelled as platinum standard.
Brisbane also performed admirably, with the Queensland capital coming in 11th, outranking the likes of Seoul, South Korea, and Shanghai, China.
The firm’s head of research for the Asia-Pacific region, Christine Li, said the index is “closely aligned to what investors are interested in when benchmarking their portfolio and individual buildings”.
“For example, the number of green buildings in the green score reflects the willingness and proactiveness of the local government and organisations in pushing for a more sustainable built environment. It also highlights those cities with an established market of investible green assets,” Ms Li said.
Knight Frank’s research found that each of the top five ranked cities shared a few common denominators, including having an availability of sustainably rated commercial buildings, low carbon emissions per person, ample green spaces, and low urbanisation pressures.
The report details that a green space is defined by the World Health Organisation as “spaces [that] may include places with ‘natural surfaces’ or ‘natural settings’, but may also include specific types of urban greenery”, with Ms Li outlining how these areas became “critical for inhabitants during prolonged lockdown, providing a reprieve from highly urbanised lifestyles”.
Knight Frank cited Sydney as a case study on green space development, focusing particularly on a $5 million plan to further develop Greater Sydney’s green canopy by planting thousands of new trees across the city, while also commending the city’s prioritisation of “green components” during the development of Ultimo’s Central Park.
The report also acknowledges that climate change and its impacts are gaining greater traction and influence in the region as more tenants opt towards buildings with green features,
Despite this, demand outweighs supply, which provides tenants with the advantage in allowing them to charge a 10 per cent premium on sustainably rated buildings.
To combat this and incentivise investment in sustainability, the report found that “most government organisations in APAC have in place various green certifications to reward the building if it meets their requirements, such as reduced potential environmental impacts, lessened energy, water and material resource consumption”.
Neil Brookes, the head of global capital markets at Knight Frank, commented that “investors are placing more emphasis on strategies that maximise their returns from their ESG efforts”.
He said the firm had seen a “swift uptake of ESG metrics benchmarking in the APAC region in recent years, motivated by the imminent need to curtail climate risks”.
“With debt cost-soaring, yield-seeking investors will also be compelled to move up the risk curve to secure the desired spreads. Many will gravitate to more active asset management strategies, such as repurposing and value-add plays,” he said.
Mr Brookes concluded that “adopting sustainable measures not only enhances portfolio security but has been proven to add a positive price premium to assets”.
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