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Conventional leases are a dying breed as more individuals turn towards a sustainable future; however, the uptake of green leases faces barriers.
Green leases, defined as agreements that outline shared objectives on how a building is to be approved, managed, or occupied sustainably, will become universally accepted and incorporated in the industry over the next three years, according to 65 per cent of respondents in a recent survey by JLL.
The group’s latest report, Green leases: Setting the tone for responsible leases, found that eight in 10 sustainability professionals in the Asia-Pacific region view green leases as essential to ensure tenants and landlords cooperate on sustainability initiatives.
Jeremy Sheldon, JLL head of leasing (Asia-Pacific region), explained that “one of the biggest value drivers for the adoption and execution of green leases is reducing building energy”.
“A green lease creates mutual value between owners and tenants by reducing overall energy consumption, which translates to overall cost savings,” he said.
However, the report detailed that one of the main barriers to the blanket implementation of green leases is cost barriers, which “often lead to discussions on split incentives, where landlords can be unwilling to cover upfront costs if the tenants alone benefit from the improvements, or if tenants are not able to make modifications to the space due to the constraints of the lease”.
Such barriers threaten the chance of green lease adoption levels improving drastically by 2025, with year-on-year growth in the Asia-Pacific region sluggish. Presently, 42 per cent of occupiers and large developers detailed they have already signed a lease incorporating green clauses — just a 2 per cent jump on the previous year.
As such, demand for assets that meet sustainability criteria is likely to outpace supply, with 43 per cent of respondents claiming their organisation has intentions to sign a green lease by 2025 either as part of the renewal process or for a new lease.
Moving forward, JLL’s research concluded that “data sharing, transparency, energy efficiency and waste management are the most adopted themes for green leases, which are more in line with the ‘E’ of environment, social and governance (ESG)”.
“A green lease that incorporates social impact actions and good governance practices is a responsible lease that fully reflects wider ESG objectives,” said Kamya Miglani, JLL head of ESG research (Asia-Pacific region).
She explained that “this is important as the world emerges from the pandemic and competition for talent, coupled with changes in how and where we want to live and work, have increased the importance of creating healthy spaces for inhabitants and inclusive places for thriving communities”.
“Responsible leasing can unlock both short and long-term benefits for occupiers and owners, creating a framework for collaboration to drive sustainable value creation and help both sides achieve mutual goals,” she said.
Ms Miglani concluded that “moving forward, we foresee more corporates asking for social and governance clauses to be made part of commercial leasing agreements, thus broadening the scope of green leases to responsible leases”.
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