The rising demand for certified green buildings is transforming India’s commercial real estate sector, with a substantial portion of Grade A office demand driven by global capability centres (GCCs) and IT/IT-enabled services (ITeS) firms.
These companies, which account for 50-60% of net office leasing, are prioritizing sustainable workspaces to align with growing environmental compliance requirements and corporate sustainability goals. A similar trend is evident on the supply side too, showed a CRISIL Ratings study.
A cost-benefit analysis further highlights the appeal of green buildings, as their slightly higher initial costs are outweighed by substantial long-term benefits for both developers and tenants.
“Though green buildings typically incur a 3-5% higher upfront construction cost compared with traditional buildings, tenants are willing to pay a slight premium as rentals in India are still globally competitive. Green buildings provide enhanced employee experience and long-term cost savings to tenants, with lower energy consumption and water usage, due to the integration of energy-efficient technologies and sustainable materials,” said Gautam Shahi, Director, Crisil Ratings.
According to him, this translates to a significant reduction in utility expenses, resulting in tenants saving up to 30-35%4 in energy costs compared with a traditional building.
The shift towards sustainable buildings is particularly relevant in India, where GCCs are expected to drive a significant portion of net leasing over the next two fiscals. As global corporations prioritise their environmental, social, and governance (ESG) targets, Grade A developers are responding by developing green buildings to maintain high occupancy and healthy rentals.
“The growing prominence of green buildings is evident from 95% of assets rated by Crisil Ratings achieving green certification as of September 30, 2024, and nearly 100% of office Real Estate Investment Trust stock being green certified. As this trend continues, developers with a higher proportion of green buildings will see better business risk profiles as multinational tenants increasingly occupy these high-quality, environmentally responsible spaces even at slightly higher rentals,” said Pranav Shandil, Associate Director, Crisil Ratings.
Investors focused on green projects have the potential to play a significant role in accelerating the growth of sustainable spaces as green-focused funds are still nascent in India. As these funds gain momentum, they could provide developers with access to more diverse and affordable financing options, making it easier to bring green projects to fruition.
Additionally, developers of green buildings benefit from incentives such as increased Floor Area Ratio (FAR), with some states offering FAR related incentives along with other subsidies for green projects, allowing for more efficient use of land and increased project viability.
