RETROFITTING REACHES ASIA

GOOD AS NEW

While the appetite for constructing buildings is strong, retrofitting Asia’s existing stock may hold the key to lower carbon emissions in the real estate industry

BY LIAM ARAN BARNES

The built environment sector can provide powerful solutions to the climate crisis. With buildings responsible for 39% of global energy-related carbon emissions and building stock expected to double by 2050, the time to act is now

The Kleofas coal mine winding tower symbolised Katowice’s heavy industry heritage for decades. These days, the once-abandoned edifice is a testament to the Polish city’s recent transformation. Reimagined as an observation deck, the tower offers visitors sweeping vistas of the dynamic city and its surrounding nature.

Katowice is now one of Europe’s most eco-friendly urban areas. More than 40% of the area is covered with forests, parks, and green pockets. It was the first city in Poland to introduce the country’s economic plan for lower emissions, considerably improving air quality and energy security. Educational events such as ‘eco-picnics’ are frequently held. And the local government recently introduced a clean urban transport program featuring 400 bicycles for public use. Many of Katowice’s public buildings were also retrofitted in 2018 to slash carbon emissions.

But why do the eco-credentials of a provincial Polish city count in the grand scheme of things? This June, Katowice succeeded global metropolises, including Rio de Janeiro, Kuala Lumpur, and Abu Dhabi, in hosting the United Nations’ 11th World Urban Forum (WUF). Like other ambitious international sessions such as COP26, the biannual seminar invites hundreds of high-level policymakers to drop in, dialogue, and commit to pledges to save the planet. The grandiose topics up for discussion at the 2022 instalment ranged from “Extraordinary Dialogue: Urban Crises and Urban Recovery” to “Resilient Economies” and “Sustainable Finance”. One term, however, was absent from the official 128page WUF program: retrofitting. Loosely defined as changing a building’s systems or structure after its initial construction and occupation to improve amenities and performance, retrofitting is currently one of the hottest topics in the battle to combat climate emissions.

Some of the world’s most famous landmarks have benefitted from a process that could be poised to revolutionise the real estate sector. They include Tower Bridge, which was retrofitted with an LED lighting system that reduced the structure’s energy consumption by 40%. In recent years, other famous buildings have adopted a similarly proactive approach to reducing their carbon output. The Vatican City, the Empire State Building, and the Sydney Opera House have all employed low-energy solutions in one form or another.

Simply put, rejuvenating old buildings and structures for new uses avoids the carbon emissions that would otherwise be released in the process of demolishing and rebuilding. And given the common consensus that 80% of all buildings worldwide in 2050 already exist, it is clear why improvements to existing stock are viewed with such optimism.

CORPORATE NAMES AROUND ASIA HAVE INVESTED IN RETROFITTING OFFICE BUILDINGS TO MAKE THEM MORE ENERGY-EFFICIENT

TAMPINES WILL BECOME SINGAPORE’S FIRST TOWN CENTRE TO RETROFIT A CENTRALISED COOLING SYSTEM IN A PROJECT THAT WILL SLASH THE ENVIRONMENTAL COST OF AIR-CONDITIONING

This stat might be hard to swallow in Asia, where construction sites litter the cities. But the movement is vital for addressing carbon emissions in areas especially prone to natural disasters.

“In 2018 alone, almost half of the world’s 281 natural disaster events occurred in the Asia-Pacific region, including eight of the 10 deadliest with an increasing number of these events being linked to environmental degradation and climate change,” explains Victoria Burrows, director of Advancing Net Zero at the World Green Building Council (WGBC). “The built environment sector can provide powerful solutions to the climate crisis. With buildings responsible for 39% of global energy-related carbon emissions and building stock expected to double by 2050, the time to act is now.” According to a 2017 WGBC report, there are only about 500 net-zero commercial buildings and 2,000 net-zero homes around the globe — well under 1% of all buildings worldwide. The report stated that the building sector must therefore operate at “net zero carbon” by 2050 if global warming is to remain under two degrees Celsius, the limit enshrined in the 2015 Paris Agreement. In its long-term strategy for 2050, the European Commission also recognised the need for near-complete decarbonisation of the building sector to meet its climate goals. “To achieve net-zero targets by mid-century and sustain predicted growth and urbanisation, we must decarbonise the whole lifecycle of our built assets — buildings and infrastructure,” Burrows adds. “If we act now, Asia Pacific can create economic benefits, benefit from competitive advantage, and minimise the consequences of catastrophic climate change.”

Improving existing buildings offers the greatest and lowestcost potential for reducing cities’ carbon emissions. Case studies show that retrofitting projects implemented across various commercial buildings with high operational intensity — hotels, hospitals, data centres, airports, and malls — have an average return on investment period of 12 to 18 months. It varies from three to five years with low operational intensity buildings like offices and educational institutions because they tend only to operate approximately 10 to 12 hours a day for five days a week. “ROI periods also depend mainly upon prevailing energy tariffs,” explains Vinod Jethani, Asia-Pacific commercial buildings business development manager at global engineering firm Danfoss. “And as such, payback periods in Thailand, Vietnam, Malaysia, and Indonesia are generally longer than those in the Philippines, Cambodia, and Singapore, where we see higher electricity tariffs.”

THE EMPIRE STATE BUILDING IN NEW YORK AND SYDNEY OPERA HOUSE IN AUSTRALIA ARE AMONG THE ICONIC BUILDINGS TO BENEFIT FROM MEASURES DESIGNED TO REDUCE THEIR CARBON OUTPUT

Singapore, unsurprisingly, is spearheading city-scale retrofitting initiatives in Asia. Earlier this year, the country’s government rolled out the Green Mark Incentive Scheme for Existing Buildings 2.0. It is making SGD63 million available for building owners to reduce emissions through upgrades to older systems, expanding on the initial SGD100 million iterations introduced in 2009, and helping more than 80 buildings with retrofitting costs. The scheme is critical as Singapore works towards its 2030 target of greening 80% of buildings by gross floor area — the total currently stands at 43%. Retrofitting initiatives are proceeding around the country. Tampines will become Singapore’s first town centre to retrofit a centralised cooling system in a project that will slash the environmental cost of air-conditioning. Other existing buildings, including the 85-year-old Old Hill Street Police Station and the National Library, are retrofitting solar panels to keep utility costs down.

“Singapore is a leader in sustainability, and the government’s recent incentive scheme will make projects more environmentally friendly not just for the building users but the environment in general,” says Thien Duong, managing director of Transform Architecture and chairperson of the PropertyGuru Vietnam Property Awards. “I can only hope the rest of Asia follows suit. Unfortunately, this will take time, FROM THE GROUND UP

In cities lacking government incentives, the onus is on developers and building owners to breathe new life into buildings. But the biggest challenge is often knowing where to start. One of the most feasible — and financially appealing — solutions is the installation of battery storage and renewables, which both reduce buildings’ emissions and lower utility bills. By prioritising the retrofit of existing buildings, cities can also reduce the need for new construction, avoiding emissions related to the production and transportation of new building materials. Examples include replacing cooling systems with more efficient chillers and utilising Smart Energy Systems, natural ventilation, LED lights, and solar panels.

THE OLD HILL STREET POLICE STATION IN SINGAPORE IS RETROFITTING WITH SOLAR PANELS TO KEEP UTILITY COSTS DOWN

but I’m confident that as the public becomes more exposed to sustainability and understands its importance, the public response will push governments to follow Singapore’s lead.”

Duong’s firm has already worked on several small-scale retrofitting projects in Vietnam, including the transformation of a dated serviced apartments in Ho Chi Minh City into a contemporary green office building. The firm upgraded the mechanical, electrical, and plumbing engineering systems at Saigon View and updated the building’s water fixtures to be more energy-efficient and reduce waste. Still, obstacles to making improvements include a reluctance to make financial commitments due to initial costs and slow or no returns. Another recent WGBC survey shows nearly 53% of respondents cite upfront costs as the biggest barrier to investing in emissions targets. That is despite new sustainable buildings representing a USD24.7-trillion investment opportunity in emerging markets through 2030, according to the Taskforce on Climate-Related Financial Disclosures.

Other hurdles include space constraints, needs for additional technology, and the diversion of existing services, such as electricity and plumbing, particularly in commercial buildings. For single-owner (serviced apartments) and individually owned (landed houses and condos) properties, the difficulty may lie in identifying suitable retrofits. “The economics typically favour redevelopment over retrofitting for single-owner buildings, even more so in markets such as Singapore and Hong Kong where land prices are very high,” says Kah Poh Tay, an associate professor at the National University of Singapore’s real estate department. “The owner would not, for example, be able to alter building orientation to tap natural cooling for better wind flow or reinstate natural biodiverse habitats.”

Individual property owners are even more limited when units are part of multi-storey developments as rules for communal living circumscribe their rights. Then there are the high upfront capital costs, and rapid technological changes can quickly make the latest eco-friendly infrastructure obsolete. “At best, they can only do interior retrofits like installing energy-efficient appliances,” Kah Poh says. Small-scale retrofitting is unlikely to hit the mainstream in Asia any time soon. That is, at least, until entry-level costs decline, and the technology becomes more consistent and affordable for private homeowners. In the absence of government incentive schemes, large-scale retrofitting may also remain limited in the near term. But where Singapore leads, other countries in the region do occasionally follow. And with ever-clearer data demonstrating the financial benefits, city-wide retrofitting schemes could prove an easy win for countries’ carbon-slashing efforts. GREEN SHOOTS

Green financing is another notable trend already taking hold in global real estate markets. The term refers to a loan or a bond marketed or drafted specifically as environmentally friendly. It either entails proceeds being used to fund green projects or the income stream being generated by green assets.

In the last couple of years, central banks and governments worldwide have announced new frameworks designed to promote sustainable finance, contributing toward sustainable lending across the commercial real estate sectors. While Europe remains a leader in this space, other locations, from China to Canada, are rapidly catching up.

In Asia Pacific, several governments are actively fostering an ecosystem for sustainability. There are now sustainability reporting requirements in stock exchanges and green lending facilities across the region to incentivise ESG goals and investment into green technology. Singapore’s Green Plan 2030 aims to transform the country into a green finance hub for the region, while South Korea has announced a bolstering of its green finance program through several measures, including a public-private joint task force.

Dispatch

Calm after the storm

The recent Philippines election may have been divisive, but the ascent to power of Bongbong Marcos has coincided with a tentative recovery in the nation’s real estate sector

By Steve Finch

When Ferdinand Marcos fled to exile in Hawaii after 21 years of authoritarian rule, state debts in the Philippines had accrued to such a level that financial experts say accounts will not be settled until 2025. By then, Bongbong Marcos, his son, will be nearly halfway through his six-year presidential term.

There are no signs thus far, thankfully, that the country is headed for similar economic

CONFIDENCE IN THE PHILIPPINES’ POST-PANDEMIC REAL ESTATE RECOVERY IS BUILDING EVEN IN THE WAKE OF A BITTERLY DIVISIVE GENERAL ELECTION

turmoil as timid yet growing confidence in the country’s post-Covid real estate recovery builds.

In the two weeks leading up to polls on May 9, property platforms noted a big dropoff in leads. A strong recovery the week after the vote demonstrates that Filipinos remain confident in the political process today—despite the return to power of the Marcos family after 36 years.

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POSITIVE SIGNS INCLUDE CONTINUED LANDBANKING OUTSIDE OF METRO MANILA AS DEVELOPERS LAUNCH MORE OFFICES AND RESIDENTIAL PROJECTS. THE PROPERTY MARKET IS STARTING TO RECOVER, AND THIS SHOULD KICK IN DURING THE SECOND HALF OF 2022

“Property buyers took a wait-and-see attitude to the market ahead of the elections,” says Claro Cordero, director of research and consultancy at Cushman & Wakefield Philippines. This has been a feature of recent elections and was not particular to this especially divisive election, he said, adding that supply-side concerns were proving a greater challenge to a full-blown real estate market rebound.

Promising signs have emerged in recent months. During Q1, the office sector saw positive market absorption for the first quarter in two years, according to Colliers. It’s a sign that companies are switching back to formal workspaces, albeit amid a further 3.1% fall in rents. Many organisations quickly shifted back to office work in Manila and elsewhere in the country after the previous administration downgraded the pandemic alert level at the start of the year, causing a run on office space. Still, new completions and enduring vacancies pushed the office vacancy rate in Manila to 15.8% in the first quarter, a new record surpassing the downturn after the global financial crisis, according to Cushman & Wakefield. The residential market has shown similar mixed signals. Many agencies have reported an uptick in leads and occupancies, particularly in sought-after locations including upmarket Makati in Metro Manila. Yet an unconvincing recovery has been driven by low borrowing rates and favorable offers by many developers including unusually low downpayments of just 5% on some properties. Wider economic trends also remain confused. The Philippines recorded stellar economic growth of 8.3% in the first quarter, according to central government data. But some of this was attributed to spending ahead of the election. Growth is tipped to be lower for the whole year but is still expected to reach a respectable 5.7% in 2022, according to the World Bank. Headwinds remain strong. Inflation continued to climb in May, up 5.4% compared to 4.9% the previous month, according to government data.

Within ASEAN, the Philippines has fared less well than neighbouring Malaysia and Indonesia, but better than Thailand and Myanmar—and far better than 1984 under Marcos Snr when annual inflation spiraled to 50%. “Rising fuel prices and inflation have been prohibitive for new builds as construction costs have increased significantly,” says Jan Custodio, senior director of research at Santos Knight Frank in Manila. There is anecdotal evidence that inflation pressures on real estate purchasing budgets for some in the country have caused property purchases to drop by

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half in recent months, particularly in the residential sector, adds Custodio. “Decreased spending would cause more delays in economic recovery,” he says.

Among the most optimistic signs in the market are property development in and around new major infrastructure carried over from the Duterte presidency into that of Marcos Jnr who, in turn, has promised a ‘Golden Age of Infrastructure’ echoing a term previously used by his father.

Metro Manila remains the focus. A new subway remains underway in the capital, as does the new airport, a USD14-billion project built on reclaimed land in Central Luzon, expected to be operational by the end of 2024. Developers were “far more concerned” about continued government focus on infrastructure from the new administration than they were about the election result itself, says Joey Bondoc, associate director of research at Colliers Philippines. “[Further positive] signs include continued land-banking outside of Metro Manila

PRESIDENT MARCOS HAS PROMISED A ‘GOLDEN AGE OF INFRASTRUCTURE’ FOR THE PHILIPPINES, A TERM PREVIOUSLY USED BY HIS FATHER

as developers launch more offices and residential projects in anticipation of pentup demand,” says Bondoc. “The property market is starting to recover, and this should kick in during the second half of 2022.” Many of the variables impacting the Philippines’ property sector—as in many countries—remain far outside of its control, warns Cordero of Cushman & Wakefield. China’s unusually low economic growth is a restraining factor, and so too is the enduring conflict in Ukraine. He urged the new administration in Manila to provide fiscal support to help ride out these unexpected post-pandemic challenges.

“Real estate recovery in the Philippines has commenced,” says Cordero. “But it is off to quite a slow start.”