A recent JLL report highlights a noteworthy surge in the adoption of green leases in India’s office market. The report, which thoroughly examined over 1,530 leases encompassing more than 225 million square feet from January 2018 to September 2023, sheds light on the remarkable growth of sustainable leasing practices in the post-pandemic era. Notably, the share of green leasing has quadrupled during the 2022-2023 period compared to the pre-COVID years of 2018-2019. This translates to a staggering 132% increase in leased area, from 3.7 million square feet to an impressive 8.6 million square feet. This remarkable surge serves as a testament to the joint efforts of asset owners and occupiers to promote responsible leasing practices in the industry.
However, widespread adoption is still a long way, and this can be attributed to the lack of industry-wide guidance, transparency, legal complexities, and split incentives. While the beginnings of change are already evident, India still has a long road to travel on the green lease continuum.
Global occupiers lead the way in sustainable practices
Global occupiers and institutional landlords are at the forefront of sustainable practices, with GCCs accounting for over three fourth of the overall green leasing activity in India. Moreover, it comes as no surprise that the two largest GCC markets of Hyderabad and Bengaluru lead the adoption of green leasing practices, accounting for 64% of the overall green leasing in India.
Waste management, energy efficiency and data sharing are key aspects
Green leasing clauses mainly focus on waste management, energy efficiency and data sharing aspects, with waste management and recycling obligations finding their way into most green lease agreements and some standard lease agreements as well. Energy efficiency is an important instrument towards reducing a building’s carbon footprint and hence, multiple clauses are centred around it.
“Sustainability has now firmly been incorporated into the board room agenda. Various strategies are being devised to reduce carbon emissions from the built environment, and green building certifications and green leases play a crucial role in this endeavor. The Indian market is making significant strides towards sustainability and the increase in green-certified office penetration from 39% in 2020 to 53% in 2023, is a clear indication of this progress. However, environmental performance results will still be lackluster if the building is not operated efficiently. Given the important role of occupiers in ensuring operational efficiency, moving from ‘traditional leases’ to ‘collaboration based green leases’ that enable data sharing and active collaboration between building owners and occupiers, is the need of the hour”, said Dr. Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.
“The office segment saw the last two decades focus on Green Buildings. We believe this contributed to India reducing its GDP emission intensity by 33 percent between 2005 and 2019, achieving the target 11 years in advance. Next target is to reduce GDP emissions by 45% by 2030 and achieve net zero emissions by 2070. The realty sector will play a key role in this mission and The next two decades are going to see the focus move to Green Leasing. Green leases, accounting for around 15% of overall leasing today, are bound to reach around 15-20% penetration within the next 1-2 years. As both parties, landlords, and occupiers realize the benefits of green leasing, we believe a significant rental arbitrage to the tune of 10-15% will soon be visible between green and non-green leases”, said Abhishek Kiran Gupta, CEO & Co-founder, CRE Matrix.
Outlook
Looking ahead, green building certification will become a de-facto requirement for prominent occupiers in their selection of office spaces. As occupiers integrate environmental, social, and governance (ESG) factors and net zero carbon (NZC) targets into their decision-making, the green lease contract will play a crucial role. It will go beyond basic energy conservation ambitions to include clauses related to social value and good governance. Occupiers and landlords will engage in active mission-aligned collaboration throughout the life of the lease with measurable goals and corresponding KPIs to ensure desired outcomes. Importantly, a building’s value will increasingly rely on its environmental performance, and collaborative green leases will be a critical part of asset management strategies.
