A Closer Look at Bangkok CRE's Flight-To-Green

Thailand's commercial real estate landscape is undergoing a remarkable green transformation with a burgeoning market for green buildings. Sustainability efforts are reaching new heights, from the first green lease contract agreement signed last year, to the recent opening of Thailand’s tallest office skyscraper with focus on sustainability. The green building movement in Bangkok is not exclusive to new constructions but extends to older buildings as well. The city has experienced a substantial increase in the number of green-certified buildings from 17 before 2019 to 48 today and is anticipated to rise to 85 buildings by 2029. Among these, 15 buildings aged over 15 years old and recently adopted certifications after major renovations.

Moreover, the proportion of green-certified grade A office stock (NLA) in Bangkok has surpassed that of non-certified stock to reach 57% by the end of 2023 according to JLL research, signalling a tipping point in the industry’s sustainability momentum.

Underlying the green building surge are corporates’ climate ambitions. Currently, 34 companies in Thailand have committed to the Science Based Target Initiative[i], which is more than a tenfold increase from 3 companies in 2020. Occupiers are demanding for green certified buildings as part of addressing their carbon emissions. According to a JLL ESG survey, a staggering 96% of Thailand-based occupiers expect fully green-certified office portfolios by 2030 compared to only 17% today. The rising demand signifies the trajectory towards green building certification, where green building certification will become non-negotiable for two-thirds of occupiers by 2030.

Furthermore, occupiers have demonstrated their sustainability intentions through lease selection: leasing activity in Bangkok's central business area has shown a strong preference for ESG-compliant buildings, with approximately 80% of new leases for Grade A office assets in the past five years aligning with sustainability criteria.

Beyond just ticking the boxes, incorporating ESG into property management and investment yields clear financial benefits. Energy efficiency and waste reduction measures can potentially lead to cost savings of up to 6% of annual revenue. Additionally, JLL research shows that ESG-certified buildings can command an average of 14% rental premium compared to the market average in Bangkok, making them a wise investment choice. For instance, prominent office buildings with sustainability credentials such as One Bangkok, The PARQ, and Park Ventures are commanding higher asking rental rates at the top tier of the market, indicating the market's willingness to prioritize sustainable workplaces. Despite being built in 2011, Park Ventures remains one of the sought-after office buildings in Bangkok.

Comparing LEED Gold and LEED Platinum certifications, a Platinum certification demands a modestly higher initial investment in the realm of 1%-4%. This excess is indicative of the commitment to advanced sustainability measures. However, this upfront cost transforms into long-term returns via operational cost reductions, asset value enhancements, and potential tax advantages. A LEED Platinum certification not only boosts the project's market appeal but also amplifies the landlord's reputation, playing a key role in attracting top-tier tenants with a focus on sustainability.

- Nattapoom Vittavatchutikul, Sustainability Lead, JLL Thailand

With 60% of existing office stock in Thailand aged over 20 years, the time is ripe for occupiers to seek upgrades or transition to greener spaces. Additionally, the fact that 60% of current tenants have not relocated their offices in the past 15 years presents a unique opportunity for them to upgrade and adopt sustainable practices. This in turn implies untapped potential for further change and commitment towards sustainability and climate goals.

Securing a quality space is just the beginning; it is now imperative for occupiers to further act on reducing operational carbon and energy consumption. In our research, 4 in 5 occupiers consider reducing operational carbon through energy, water, and waste management as a top priority. Energy audits, efficient water usage, and waste management are becoming common strategies employed to achieve this. By embracing sustainability practices, occupiers can improve their environmental performance while enhancing the quality of their workspace.

While landlord collaboration and support have been lacking in the past, there is now a greater industry awareness regarding the importance of sustainable partnerships. A notable example of successful collaboration is the alliance between Frasers and JLL Thailand at The PARQ, which includes joint events to promote sustainability and reduce single-use plastic consumption. Increasingly, occupiers are expecting landlords to play an active role in supporting their net zero carbon journeys and by 2030, 3 in 5 will partner with landlords that have a net zero carbon pathway for their buildings.

Innovative models of partnerships, such as green leases, will mark a shift in how occupiers and landlords cooperate on sustainability initiatives to create mutual value. As seen in our research, half of occupiers in Bangkok will only partner with landlords that are open to signing green leases by the end of the decade. Collaborative models between landlords and occupiers are just beginning to take shape and there is still much progress to be made.

Several prominent green buildings provide tangible evidence of the potential of sustainable practices in Thailand's real estate market.

As exemplars of sustainable integration in commercial real estate, these buildings chart new pathways for Thailand's property landscape.

The opportunities for growth and commitment towards sustainability are abundant. In the race to net zero, occupiers and owners should seize the opportunity now and embrace sustainability as a strategic imperative.

Get in touch with our research authors and Energy and Sustainability Services experts to start a conversation about your sustainability needs.