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Green buildings unfeasible for at least two years in UAE

Developers and investors in the UAE are keen to invest in and construct green buildings, but it will be at least two-to-three years before a green property market is viable in the country, according to a new survey by Landmark Advisory. Overall, considerable progress is being made in sustainable real estate, particularly in Abu Dhabi, the study revealed.

The report, which was completed in conjunction with Cityscape Intelligence, surveyed 241 stakeholders in the real estate market throughout the UAE. The vast majority of respondents (96%) said they have an understanding of what a green building is, and 75% said they would be willing to establish or relocate their offices to a building if it was environmentally friendly or healthier for their employees.

“Through initiatives such as Estidama and Masdar City, it is clear that considerable progress is being made in sustainable real estate, particularly in Abu Dhabi,” said Jesse Downs, director of research and advisory at Landmark Advisory.

Developers and investors alike are keen to integrate green buildings in their business model, the survey found, with 66% of developers saying they are now willing to construct green buildings, and 60% of investors saying they are willing to invest in them. However, 25% of respondents said they believe it will be at least two-to-three years before it is feasible for developers in the UAE to build green properties.

Large pipeline delays green building roll out

When asked about potential implementation of green building regulations that would require new buildings to achieve a minimum green standard, 34% of respondents reported this should be put in practice immediately. However, given the high volume of property due to come online in the UAE in the next five years – thus limiting the launch of new developments in the short term –it would be years before new regulations have any impact, the survey noted.

Over 200,000 new residential units are expected to be delivered in the two emirates over the next five years, the survey reported. Similarly, office space is virtually doubling in both cities over the same period. Consequently, the market will need to absorb a significant portion of these units before developers consider launching new developments.

‘All else equal, the office market will remain stagnant much longer than the residential market with absorption of the anticipated office supply pipeline likely extending more than a decade,’ the report said. ‘Consequently, retrofitting existing office building with green products and systems is central to any discussion around improving sustainability in the real estate industry in the coming 5-10 years.’

However, most respondents (20%), said they would need a return on investment of a minimum of 16%-20% before they would retrofit their current building, followed by 18% of respondents who said they would need a return of 6%-10%.

Financial incentives needed

Overall, just 19% of respondents said laws requiring the retrofitting of existing buildings to achieve a minimum green standard should be implemented immediately, with most of those surveyed (29%) saying such regulations should imposed in the next 2-3 years.

“Implementing green development regulation locally is less contentious that green retrofitting regulation; this is most likely because of the current real estate market,’ said Downs. ‘Any green development regulation will have limited impact in the short-to-medium term because the development market will be extremely restricted over this period. Regardless, implementing both green development and retrofitting regulation is critical for improving the long term sustainability of UAE’s real estate market.’

Most importantly, new regulations need to focus on improving awareness and getting the right financial incentives for the residential market, such as reducing subsidies on utilities, she added.