Research suggests the real estate industry is responsible for around 40% the world’s carbon emissions and Asia Pacific is said to account for 52% of global building emissions. This means it is critical that stakeholders in the region step up their decarbonisation efforts.
Many organisations have already made significant sustainability commitments, including racing towards net zero. As the race becomes more intense, it is the responsibility of the real estate industry, whether development, investment, tenancy and or property management, to lead the charge.
Reducing energy consumption and minimising other environment impacts are crucial to achieve building owners’ environmental goals. Assets that fail to meet green standards risk obsolescence. There is also a strong business case for sustainability at a time when major occupiers and tenants have their own ESG targets.
As early as 2026, green lease is expected to become universal in Europe. Asia will have to move fast to keep up.
What is green lease?
A green lease is one where landlord and tenant agree to sustainability-linked targets and measurable key performance indicators as part of the lease agreement. A green lease might place requirements on the landlord, the tenant, or more usually both, and locks in collaboration between the two. Green lease is yet to gain significant traction in APAC, but inter-organisation environmental collaboration and voluntary sustainability partnerships are emerging.
From 2025, all the 2030 commitment deadlines will be fast approaching, wider adoption of green lease is the quickest and most effective means to meet targets can be expected. A quick and easy solution is in the form of a memorandum between the parties to the lease which is more likely to be on a voluntary basis than legally binding. Where these are being used, they tend to be driven by the landlord. Where tenants try to introduce them, our experience is that landlords are resistant. This apparent contradiction is due to different landlord attitudes. Tenants keen to have voluntary partnerships need to understand their landlords sustainability strategy and it’s application at asset level.
Standard terms or add-ons: the right model
There is no fixed or regulated model for green lease. Conditions can vary widely depending on the location, the age and type of the asset, and the investor, owner or operator’s own green policy. Green lease clauses and implementation arrangements can include separate metering for energy and water use, fit out standards, improved operating procedures, data sharing, indoor air quality and waste monitoring and management, implementing green technology and community engagement.
Rather than being part of a green lease clause or a full green lease agreement, ESG initiatives may be documented as an appendix to a lease or be rolled into a tenant’s handbook or similar separate documentation that aims to realise the benefits of a green building. They may be legally binding, as Savills Australia reports or on a voluntary basis as is emerging in Hong Kong.
Why green lease?
Green lease can also be an invaluable contributor to an effective ESG strategy and future-proofing investments. The post-pandemic-built environment, particularly for commercial assets, has been transformed. Not only are mitigating environmental impact and reducing carbon footprints key to fighting climate change, but they are also vital to tenant satisfaction and thus retention and extend to tenant talent retention too. Human health and wellness, and the quality of a building’s indoor environment can have a major impact on asset performance.
Advantages of green lease
A tenant might agree to implement measures which reduce their own energy use, this would be reflected in both the tenant's scope 2 emissions and the landlords Scope 3 emissions. While a landlord might provide a recycling service as part of its property management, this would help the tenants greenhouse gas reporting and support their Sustainable Development Goals.
- Longer lease terms gives tenants more time to benefit from additional investment in a sustainable fit out and reduced tenant turnover results in reduced fit out related building waste.
- Tenants with net zero targets may request their landlord helps procure renewable energy where possible. This will help progress towards net zero. They may also require separate meters to improve data quality enabling better management of utilities.
- Joint management of waste and recycling reduces waste going to landfill and encourages behavioral changes.
- Sustainable fit out standards results in lower embodied carbon in the building.
- Sustainable operating standards helps target specific operational issues e.g. eliminating single use plastics from F&B outlets.
How Savills Can Help
Savills Sustainability and ESG Services include workshops for both landlords and tenants, designed to help them better understand how green lease and voluntary partnerships can help them in building an effective sustainability strategy and achieving their sustainability targets, in particular with regards to the impact of energy efficiency and reaching net zero.
Other services include:
- Organisational sustainability strategy and implementation
- Asset sustainability strategy
- Occupier sustainability strategy i. green lease
- Sustainability data analytics
- Renewable energy
- GRESB submission services
ii. sustainable workplaces
In addition, we also help with:
- Climate risk assessment
- Waste management and recycling
- Green building certification
- Social sustainability
We are happy to discuss any other sustainability and ESG requirements.
Individual Cases, Individual Solutions
A green lease in a data center has distinct requirements from a green lease in an office space, for both landlord and tenant. Each case is different and so Savills green lease services are tailored to the specific elements stakeholders wish to focus on as part of going green in the workplace, and to meet different needs and stages in the lease cycle, which can include:
- Lease with incomplete terms
- Renewing or negotiating a new lease
- Marketing a new building
- Tenant plans to upgrade/refit offices
Which scenario fits your situation?
- Scenario A Your current lease has some time to run.
- Scenario B You are about to renegotiate your current lease or you are negotiating a new lease.
- Scenario C You are looking for new premises.
- Scenario D You are undertaking a new fitout or planning to upgrade/refit your boutique.
Which areas do you want to focus on?
- Sustainability management collaboration
- Metering and monitoring
- Data sharing
- Social initiatives
- Energy management
- Water management
- Waste management
- Indoor environment
- Renewable energy
- Sustainable utilities
- Sustainable cleaning
- Staff commuting
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