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News Release

Hong Kong and Macau

Hong Kong Needs Stronger Power To Push Real Estate Sustainability

Although Hong Kong is a world-famous metropolitan, the city is lagging behind other advanced economies in the development of real estate sustainability and more efforts from stakeholders are needed to promote sustainable buildings in Hong Kong, according to Jones Lang LaSalle’s latest research report Is the Green Light On in Hong Kong? which studied the development of real estate sustainability in Hong Kong.

The concept of real estate sustainability development has been the subject of many discussions in Hong Kong for years.  With commercial real estate taking up two-thirds (66%) of the total energy consumption in the city, there is an enormous and largely untapped opportunity to save money and reduce greenhouse gas emissions by taking measures to increase energy efficiency in buildings in Hong Kong.  To  understand better the development of real estate sustainability in Hong Kong, Jones Lang LaSalle conducted a survey with major developers/landlords and corporate occupiers in an attempt to uncover the hurdles behind the issue and to shed some light on the possible way out.

Snapshots of sustainability movement elsewhere in the world indicate that more advanced Asian economies tend to take a proactive approach towards the promotion of real estate sustainability. Meanwhile, less-developed countries are less receptive. Although Hong Kong has a highly sophisticated construction industry with neon, high-tech skyscrapers, this city seems to be fallen in the latter group.

According to the survey, despite that all developer/landlord respondents and close to 70% of occupiers claim they have previously implemented sustainability measures in their real estate portfolios (Figure 1), almost one-third of respondents do not have any mission statements regarding real estate sustainability (Figure 2).

Nonetheless, results do show that stakeholders have a good sense of why they should be doing more. “Promotion of sustainability and social responsibility” was cited by all landlord and developer respondents as being the key factor. 75% believe that implementing these will help increase the marketability of their portfolios. However, only 25% suggest that they will enjoy cost savings from within (Figure 3). It appears that direct cost savings for developers through implementation of sustainability measures are perhaps negligible, while indirect benefits from enhanced competitiveness register far higher.  In fact, 46% of the landlord/developer respondents perceive the increasing public awareness on sustainability to be a business opportunity for them, whereas 27% suggest that sustainability issues are likely to create threats for their businesses (Figure 4).

On the other hand, occupiers revealed different priorities with the majority (80%) chasing a healthier work environment and 60% confirming that cost saving is a key factor (Figure 3). To this end, cost-saving benefits for occupiers are relatively more achievable in the short run, whereas for landlords and developers, the benefits will usually take a longer period to be realised and typically follow a higher initial set-up cost.  

Although many occupiers (40%) are willing to pay a premium of no more than 20% for green buildings, an equivalent of occupier respondents (40%) are not prepared to pay a premium (Figure 5), considering them only as “nice-to-have”. Given this mindset, and landlords’ and developers’ concern about the higher initial capital investment for sustainability features, both parties have taken a cautious approach towards green investment. 

When asked who should play the key role in driving sustainability in Hong Kong, about half of respondents believe that developers/landlords, who also agree so, have the largest responsibility, followed by the government (30%) and other related parties, and no respondents consider occupiers to have a critical role in promoting real estate sustainability (Figure 6). This suggests that Hong Kong’s office occupiers are not sophisticated enough to appreciate green features as a key office selection criteria, which is quite different from other advanced economies.

The survey findings also revealed some major hurdles to promoting real estate sustainability in Hong Kong (Figure 7).  Among these hurdles, the lack of widely available and understandable cost-benefit comparison data is seen by both the developer/landlord (80%) and occupier (87%) respondents as the key barrier to the effective promotion of real estate sustainability in Hong Kong.   A high proportion of developers and landlords (70%) and occupiers (67%) are also concerned about the high initial cost and long payback period.  In addition, about 60% of the developer/landlord respondents indicate that the lack of sufficient government incentives discourages the promotion of real estate sustainability in Hong Kong.  Other key hurdles include the lack of social recognition, the lack of organisation and coordination to implement/promote building sustainability, etc.

To eliminate these obstacles, the survey suggested that cost-benefit comparison of data should be more widely available and understandable, particularly, for developers and landlords, information about sustainable products and technologies, as well as their effectiveness and popularity.  The government can also deepen its provision for development incentives. In the long run, when green buildings start to become one of occupiers’ selection criteria, the stronger demand and derived rental premium should be able to remove some of the cost barriers.

Marcos Chan, Head of Research, Greater Pearl River Delta remarked, “We are caught in a blame cycle where occupiers claim they have few green choices, where constructors argue that developers do not demand them, developers believe investors won’t pay for them and in turn, investors believe there is no occupier demand, Hong Kong lacks an engine to achieve a sustainable environment.  Although there is plenty of professional assessment schemes and practices in place, they are mostly voluntary and have guided limited change and inspired relatively little private sector participation.”

“This dilemma can at least be partially removed if market transparency is raised and with the aid of government promotion. There is indeed demand, and a growing one, for green buildings.  The missing link stems from an effective communication of costs versus benefits between technical professionals and key property stakeholders. As the public’s mentality increasingly shifts towards a better quality of life, a more liveable world-class city, now is the right time to drive real estate sustainability,” concluded Marcos Chan.