Is Thailand’s commercial real estate industry really going green?

September 23, 2014 / By  

In 2007, Thailand’s first LEED certification was awarded to a new manufacturing facility built by InterfaceFLOR, an American carpet tile maker. Since then, the concept of “green building” has attracted widespread interest from the Thai media, academics, developers and operators. But has Thailand’s real estate industry really “gone green”?

As the internationally recognised United States Green Building Council’s LEED platform began gaining traction, the Thai Green Building Institute (TGBI) was founded in 2009 to offer domestic players a local alternative in the form of the TREES rating system. In the last five years, 46 projects have achieved some form of LEED certification while another 27 projects have been certified by the TGBI.

Of the 46 projects that have been awarded LEED certification since 2007, 29 have received certifications based on Commercial Interiors criteria. Nearly all of these projects have been developed by American organisations, including Starbucks, KFC, USAID and Citibank, all of which have global corporate mandates to incorporate green building standards wherever possible.

PTT’s Energy Complex was the first office project in Thailand to be awarded LEED certification in 2010. Including the Energy Complex, nine new Grade A office buildings have completed in Bangkok since 2010, including five additional LEED-certified projects.

Table: New Grade A Office Buildings in Bangkok since 2010

Source: JLL

What we know:

  • Green office building construction costs in Thailand are 5-15% higher than for a typical office development. To that end, Siam Cement Group has publicly stated that their THB 3.5 billion (USD 110 million) investment in a new headquarters is designed to enhance their corporate image as a leader in sustainable development, with less focus on construction costs or long-term operational cost savings. By the same token, we believe other developers are similarly focused on building their corporate image, particularly in the hopes of achieving high quality tenants, rather than achieving lower operating costs, which are ultimately built into rental charges. This strategy seems to be paying off, as new LEED-certified office buildings have experienced healthy demand and are achieving higher than average rents.
  • Both in terms of anchor tenants like Citibank and USAID as well as retail operators such as Starbucks, American firms are leading the way in terms of occupier preferences for green certification.
  • The previous Bangkok city plan (2006) did not make provisions for green buildings. As all of the aforementioned projects were approved under this regime, we can safely say that the initiative to “Go Green” has solely been the domain of developers and occupiers.

What does this mean for the future of Bangkok’s commercial real estate?

Eight of the 14 Grade A office projects in the development pipeline have already submitted preliminary applications for LEED certification. With new government incentives introduced in 2013 and an increasingly competitive office market, we expect that top-tier office landlords and developers will continue to leverage green building certification as a means for brand building and attracting the best quality tenants, ultimately leading to higher returns.

Whether or not developers and operators in other sectors across Bangkok and indeed Thailand pick up the green ball and run with it remains to be seen.

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