A major barrier to developing more sustainable buildings in South Africa was the perception that green developments came at a significantly higher cost than standard developments, Green Building Council of South Africa (GBCSA) CEO Brian Wilkinson said on Thursday.

“Research showed that the perceived cost premium on green buildings was 17%. Reality showed premiums were far less. Some of the early starters in South Africa had premiums of up to 10%, but the more recent developments are showing pretty insignificant premiums of 1% or 2% and in some instances even less than 1% for four-star [Green Star SA] certification,” he told delegates at the organisation’s 2012 conference in Cape Town.

Research carried out by former GBCSA CEO Nicola Milne and documented in a recent report titled,  ‘The Rands and Sense of Green Building’, gives further details of case studies where these costs have been examined.

The first five-star Green Star SA Office Design v1 rated building, and the first Green Star SA rated building in Cape Town, the R130-million Aurecon Century City building, was estimated to have had an additional capital cost of between 5% and 8% in order to achieve the Green Star rating. The actual Green Star SA submission was 1.7% of the total capital expenditure for the project.

While the building had not yet been valued, the report stated that the Rabie Property Group, which were the developers and co-owners of the building, believed that the building should be worth at least 6% to 10% more as a result of its Green Star rating.

The captial premium for developing 24 Richefond Circle, in Umhlanga, the second building in Durban to receive a four-star Green Start SA Design v1 rating in December 2010, was in the region of 10%, which is the highest greening premium of all the case studies in the GBCSA report. The cost of obtaining the actual certification was approximately R750 000, which included green building consultant fees, energy modelling and an acoustic engineer, among others. 

More recently Green Star SA-rated buildings have been showing lower greening premiums, with the Absa Towers West's five-star Green Star SA Office v1 as built rating in February 2012 having a capital cost premium to green the building of less than 2%, which included the costs related to the Green Start SA certification.

Global Real Estate Sustainability Benchmark cofounder Nils Kok said developers should be seeing the benefits of green buildings in improved rental levels and transactions prices, as has been observed in other countries.

From studies focusing on the US market, it was found that Leadership in Energy and Environmental Design-rated buildings had rents that were on average 3% higher. “If we also take occupancy rates into account, so we look at effective cash flows, we find that these are higher by about 7%.”

With the green building market in the US being more developed, Kok said that they have also been able to carry out an analysis of the sale prices of green buildings and have found, when comparing green buildings to standard buildings in the same areas and of similar quality, that green building transaction prices were on average 13% higher. “There is also, of course, an input cost side to this, but on average, a green building is not 13% more expensive to build. It seems to be a positive return perspective and this is important if you talk to investors and developers,” said Kok.

While tenants pay higher premiums for green building rentals, they should see the benefits in other areas, specifically energy usage. With electricity cost increases far outstripping the rise in rental costs in South Africa, the cost of energy relative to rental will become increasingly significant and thus it was expected tenants should have a growing interest in leasing green buildings.

While Kok didn’t believe that energy savings were a significant motivator in tenants looking to lease green buildings, particularly in the US, where energy costs were still low, he proposed that there were other significant benefits for tenants, not least of which was improved employee productivity that could have a significant effect on a company’s finances.