APREA 2013: Sustainability ‘key to profit in Asia’

Asian real estate investors and developers score below the global average on sustainability measures, but a select few investors – especially private investors – are pushing environmental, social and corporate governance standards in real estate aggressively.

Sustainability practices by private equity real estate firms in Asia lag those in other regions, but delegates at the APREA Property Leaders Forum in Singapore heard today how they will be a major driver for increased profits in the future.

Only around 35 percent of Asian real estate investors and developers pay sufficient attention to environmental, social and corporate governance (ESG) standards compared to over 40 percent globally, according to a recent survey by APREA and the Global Real Estate Sustainability Benchmark.

The most significant barrier to sustainability in Asian real estate was education, delegates heard today at the APREA Property Leaders Forum in Singapore, where the survey was presented. Even though international investors have been pushing the sustainability agenda for some time, ESG has not been a priority for real estate investors simply because they haven’t felt they needed it.

However, as Asia’s urbanization accelerates, panelists on APREA’s sustainability panel believe that situation will change.

Low Whye Choong, managing director of investment management at Land Lease, encouraged investors to look at sustainability improvements not as a cost, but as a value-add proposition. Land Lease’s investments that meet sustainability standards demand at least 6 percent higher rent, but have a higher retention of tenants, Choong said.

“It just makes great business sense to be energy-efficient and water-efficient,” Patu Keswani, the director of Lemon Tree Hotels in India, said on a panel. “Sustainability will be the key to profit in Asia.”

Esther An, general manager of corporate affairs at listed developer City Developments, said that she has found the rewards of sustainability in real estate to be quite tangible. Environmentally friendly measures actually save the company $4 million in energy every year, while at the same time raising the capital value of a property by 2 percent.

Sustainability is one area where private investors focus more attention than public investors, Choong adds. Private investors are far more demanding in their sustainability requirements for investments, and encourage property managers and developers to participate in research and surveys pertaining to it, delegates heard.

At the same time, however, foreign private equity and institutional investors pushing ESG remain a minority. The conference heard how institutions from certain countries, such as Japan, have remained relatively silent about ESG standards in real estate investments, according to APG Asset Management senior sustainability specialist YK Park. In order for ESG to really take off in Asia, she believes foreign investors will need the cooperation of local investors  but she said: “It’s just going to be a long process of educating Asian developers.”