Green building costs

Green and efficient building has been an area of growing focus in the commercial property and construction industry in South Africa.  

This follows the severe electricity shortages and large increases in electricity prices over the last few years, together with the launch of the Green Star SA rating system for buildings locally. But for green building to be taken up by the mainstream property and construction industry, the financial and business case must be clear too. 

Global trends 

Markets such as the United States of America (USA), Australia and the United Kingdom (UK) are relatively advanced due to a combination of voluntary market drivers like rating tools and regulatory forces. 

Green building costs

Knightsbridge A (Building) Certifications achieved: Net Zero Carbon – Level 2, Building & Occupant Emissions (modelled). 4 Star Green Star – Existing Building Performance v1. 4 Star Green Star – Office Design v1.1

A number of these more mature international green building markets have done large-scale, evidence-based studies on the costs and benefits of green building. Results clearly show that there is no significant difference between the cost of green buildings, compared to conventional buildings, and that green buildings achieve better investment returns and higher valuations. 

The research from emerging green building markets like South Africa mirrors these international findings. 

Green cost premium (GCP) 

The GCP is defined as the additional cost of green building in addition to the cost of conventional construction, expressed as a percentage of the total cost of the project. 

For example, a green building project that costs R100 million in total and includes green building costs of R3 million in addition to the cost of conventional construction, is considered to have a green cost premium of R3m/R100m x 100/1% = 3%. 

Young green markets 

Green building costs

Knightsbridge Precinct Interior. Certifications achieved: 4 Star Green Star – Office Design v1.1. A great example of healthy, naturally lit and flexible layouts.

International and local green building projects note that, in relatively young green building markets like South Africa, sustainable buildings generally incur a small green premium above the costs of standard construction. Once these markets mature and green building practices become more prevalent, these “new market premiums” decrease and green building can be done at similar costs to traditional buildings.  

Barriers to green building 

The major barrier to green building is the perception of increased cost. 

Cost premiums are often perceived to be far higher than they really are, and in several markets green buildings can be built for minimal or no increase in cost. Studies show perceived cost premiums still to be 12,5% in Australia and 17% in the USA, with the relevant actual cost premiums in fact being negative in some cases and an average of just 1,5%. 

The Green Building Council of South Africa (GBCSA) has reported that the total average GCP, in addition to the cost of non-green buildings, has reduced from 5.95% in the 2016 report to 3.63 in the 2022 report. The average GCP of office projects decreased from 3.9% for the period 2009-2018, to 3.15% for the period 2019-2021 The lowest cost premium reported in South Africa for the period 2019-2021, was only 0,47%. 

Local GCP trends 

The Green Star SA case studies set out in the GBCSA 2022 edition of Green building in South Africa – guide to costs and trends show that the South African property industry should expect the cost premium of building a new commercial green building to be an average of 3.15%. This GCP is diminishing over time, as the green industry matures, and there is a positive correlation between GCP, and star rating achieved. This means that a higher star rating is associated with a higher GCP, i.e. pursuing a more comprehensive 6 star rating is likely to have a higher cost premium than a 4 star rating. 

  • When compared to smaller office buildings, large office buildings generally achieved Green Star certification with lower GCPs. 
  • Higher levels of certification (4 star vs 5 Star vs 6 star) have shown a progressive increase in the GCP. 
  • Office buildings with a vertical façade: construction area ratio that is lower or higher than the average ratio tended to have higher GCPs. 
  • Office buildings that were developed for single corporate tenants had initially attracted higher GCPs compared to buildings developed for a multi-tenant mix (4.73% for 2009-2014 projects). However, since 2015 this gap has narrowed to 0.76% for 2019-2021 projects. 
  • In the 2009-2014 data set, office buildings with higher base building costs did not necessarily achieve a lower GCP, but in later data sets buildings with higher base costs do tend to show a lower GCP than buildings with lower base costs.

People must take note that the cost data used in the above-mentioned report was not normalised to allow for differences in specification level required by the specific grade of office space provided (i.e., premium grade, A grade, B grade, etc.), other than to evaluate the effect of the base building cost on GCPs. 

What is the payback? 

Green building costs

According to Greg Kats, in the publication Greening our built world – cost, benefits and strategies, the cost of building green is minimal and makes for a very good investment. From energy savings alone, the average payback time for a green building is six years. 

Additional benefits include reduced water and infrastructure costs, and health and productivity gains. These benefits more than double the financial gains for green building owners and occupants. Over 20 years, the financial payback commonly exceeds the additional cost of greening by a factor of between four and six. 

There are already strong signs that South Africa is moving in the right direction, with the GBCSA celebrating its 1 000th green building certification last year. Through a series of publications and studies, it debunks the myth that green buildings cost more and provides answers as to why green buildings make sense through international and local evidence. 

 

Defining the cost of green building and the trends for green cost premiums internationally, and in South Africa. 

 

Full acknowledgement and thanks go to https://gbcsa.org.za/ for the information in this article.  

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