The UAE is leading sustainability goals in the Middle East region, according to Core Savills in its Green Report: Sustainability and Wellness in Dubai, and Dubai?s commercial property sector is taking bigger strides towards a green strategy than the residential property market
With 81 per cent of developments under certification in Dubai, the highest ratio on a global scale, developers are increasingly filling the gap created by the demand for LEED-certified Grade A buildings which still largely outstrips supply. As a global hub recognised for its strategic location within the region, Dubai continues to attract blue chip tenants who incorporate sustainability within their corporate governance.
According to the report, ?Despite buildings being built as per LEED guidelines, headline rents are still at par with other non-certified Grade A stock. Firstly, this can be explained by the fact that new developments are launching their initial phases at an attractive entry price point, in an effort to achieve critical mass and pave the way for future phases, where higher rentals may be justifiable. Secondly, these green developments still compete with established and centrally located non-certified Grade A stock. While global corporate occupiers do value sustainability, a larger section of demand is yet to quantify environmental and operational benefits over rental costs.?
Furthermore, the research highlights that with the market progressively moving towards prime office stock and LEED certification expected to become a norm rather than a feature, a gap in rental rates is predicted to start forming in Grade A stock between certified and non-certified products.
However, in contrast to the high ranking achieved by the office market in Dubai on sustainability issues, the residential segment lags far behind. Core Savills? The Green Report identifies another gap, which lies within the residential market between older and new developments, with a noticeable quality difference in build and finishing.
David Godchaux, CEO of Core Savills, explains, ?This disparity represents a pocket of opportunity in the market for landlords to upgrade their assets to higher standards, by investing in refurbishments over and above their initial acquisition cost. However, there is a ceiling to how much a unit can be upgraded within a given location.? He adds that owners risk reaching a point ?where the more they spend on upgrading their unit, the less additional return (rent or price) it will incur.? Landlords tend to upgrade basic quality and finishes first (kitchen, bathroom, floorings), as these factors are better valued by tenants and investors; additional green upgrades often push a unit?s price out of its original market, making it very difficult to sell or lease.
?Until a large proportion of the market achieves these upgrades and reaches a higher level of uniform build and finishes quality, we do not expect owners to replace basic upgrades with more sophisticated building improvements such as energy efficiency and sustainability,? Godchaux stated.
