Dubai’s next-generation office buildings are certainly going green — 81 per cent of ongoing office projects come with a LEED-certification, the highest ratio among all global cities. Not just that, the UAE ranks among the Top 10 countries in LEED-certified buildings outside of the US. (A LEED certification confirms that a project has been built and operates on certain optimum sustainable methods. LEED stands for “Leadership in Energy and Environmental Design”.) But despite going the extra mile for a green status, the rents on these buildings don’t seem to have created a wide enough gap compared with those for non-LEED office properties,” states a new report from Core Savills, the property consultancy. Currently, an office address for an onshore licence at the One Central (part of the Dubai World Trade Centre district expansion) would average above Dh150 a square foot. This is more or less on par with an office at a prime office high-rise on Shaikh Zayed Road or one in the Downtown. For a free zone licensed entity, a One Central LEED-certified location would mean a rental of around Dh180 a square foot. A non-LEED office space in DIFC commands more than Dh200 a square foot, according to Core Savills. Balance The gaps “can be explained by the fact that new developments are launching their initial phases at an attractive entry price point in an effort to achieve critical mass and pave the way for future phases, where higher rentals may be justifiable,” the report adds. “Secondly, these green developments still compete with established and centrally located non-certified Grade A stock. “A larger section of demand is yet to quantify environmental and operational benefits over rental costs.” But at some point, the balance should tilt decisively in favour of Grade A “green” buildings with “LEED certification expected to become a norm rather than a feature”. But on the residential development side, Dubai’s developers — with a few exceptions such as the developer of Sustainable City in Dubailand — seem to assign less priority to incorporating green credentials. For those developers with existing properties, making the leap to integrating sustainable practices comes with a steep cost risk. “There is a ceiling to how much a unit can be upgraded within a given location, after which it risks being priced out of its submarket,” states the report. “Excessive upgrades will not be valued by the market [tenants or buyers alike] in a similar degree. “It will eventually reach a point where the more one spends on upgrading a unit, the less marginal return (rent or price) it will incur. For example, a large villa in The Springs when upgraded to a certain level competes well with a non-upgraded villa in The Meadows. Any further upgrading to the same unit will nevertheless price it out of its submarket, as it would then compete with an upgraded villa in The Meadows. Refurbishments “This illustrates the fact that the existing market has limited room for upgrades, hence basic refurbishments are largely preferred over sustainable and green renovations.” As such, local developers play more on the fringes when it comes to makeovers, typically involving the kitchen, bathrooms and flooring renovations to “maximise their return on refurbishment cost”. But the report notes that where done with a well-defined intention, refurbishments can help the developer’s bottom-line. “A gap between these older and new developments has been forming, with a noticeable quality difference in build and finishing,” it states. “This represents a pocket of opportunity in the market for landlords to upgrade their units to higher standards, by investing in refurbishments over and above their initial acquisition cost. “Anecdotal evidence suggests that typically, for every Dh1 spent to renovate an old unit, the market will price the renovation and/or refurbishment at a ratio of 3:1. Hence, making every dirham invested above the acquisition price worth 3 to 4 times more when exiting.” Factbox: Dubai’s ‘green’ developers keep chasing the premium A handful of Dubai’s developers have gone out of their way to build and operate on sustainable practices. But the returns for doing so are still slow in coming through, states the Core Savills report. “Sustainable City, for instance, is a pioneer in green living in Dubai,” it says. “Nevertheless, it is not commanding a distinctive premium over its peer communities in the vicinity [in Dubailand], confirming the point illustrated above. Although it certainly appeals to a limited market where occupiers are passionate about sustainable living. “For all these reasons, we do not foresee the residential market to witness a significant shift towards green initiatives. Until a large proportion of the market achieves these upgrades and reaches a higher level of uniform build and finishes quality, we do not expect owners to replace basic upgrades with more sophisticated building improvements such as energy efficiency and sustainability.”