Four Drivers of the Emergence of Green Real Estate in China

29/11/2019

Recent changes in the real estate landscape have played a significant role in beginning to drive the use of green leasing in mainland China. Green leasing in mainland China not only serves to address environmental concerns in the interests of preserving mainland China’s diverse and unique landscapes and biodiversity, but additionally can provide both landlords and tenants with tangible gains and savings that exist in a variety of forms, including reductions in energy-related costs, enhanced public image, and greater overall wellness for occupants of such spaces.

Green leasing is not simply another method of engaging in green real estate. It is more concerned with coordinating the interests of landlords and tenants without directly modifying physical assets or sources of financing. Green leases serve as a medium of communication between parties to mitigate immediate costs and ensure long-term improvements which leave both parties better off than they would have been without mutual adherence to green clauses. Green leasing is the most effective way to align the incentives of multiple parties to ensure that all facilities are utilised more efficiently and provide win-win situations for all parties involved in arrangements for the use of any variety of commercial real estate spaces.

In considering the growth of green real estate in the mainland Chinese market, there are four drivers that we have identified as directly pertinent to the emergence of green real estate as an increasingly common factor when leasing commercial space:

  • Decreasing costs of green technology;
  • Smarter commercial buildings and spaces;
  • Growth in industry demand for green space;
  • Government initiatives relating to green development.

While no single driver explicitly demands the use of green leases, each driver provides its own incentives for tenants and landlords to make green improvements, engage in green practices, and make use of green clauses in the contracts which they work to design. As green practices and improvements become more accessible and sometimes even necessary to remain competitive in various markets, it will be necessary for practitioners involved in the real estate market in mainland China to become accustomed to making use of green clauses with the well-being of the environment in mind, in addition to adhering to logical business sense.

Decreasing costs of technology

In 2017, Chinese companies filed 76% of the globe’s renewable energy patents, more than any other country. As the world enters the new decade, continuing growth in mainland China’s renewable energy sector is projected to provide Beijing with an influential position in a new global energy landscape. Rapid investment and development have been accompanied by the development of more efficient technologies with lower costs of production, implementation, and operation.

Three areas of renewable energy innovation have been identified as critical with regards to driving the increasing prevalence of green real estate in Chinese markets:

  • Energy storage;
  • Artificial intelligence, and;
  • Microgrids.

Each of these areas provide new opportunities for the expansion of green real estate and thus for the further usage of green leasing. Shrinking barriers restricting access to efficient technologies are a key driving force towards mainland China’s green real estate future.

The above is an excerpt from our Green Leasing: Greener, Cleaner and Meaner 2019 report. Download the full report here.

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