UNITED STATES - Tenant demand will eliminate non-green new-build real estate in the US, according to a report published by Prudential US' subsidiary Pramerica Real Estate Investors.
 
The paper claims "the case for green development seems to have gained mainstream acceptance", with sustainability quickly becoming a corporate
"core objective".

Allen Smith, managing director of Pramerica's US business, told IPE Real Estate: "There is regulatory pressure but the primary driver is tenant demand.  It's the result of a confluence of events, chief among them broad public consciousness. The level of discourse today is much more sophisticated today than it was 40 years when the environmental movement started."

Cost has effectively been eliminated as a market obstacle to sustainable real estate development, he added. "The green industry has grown substantially, which has meant new buildings can be constructed cost-effectively. You can develop them at a cost that makes them competitive with non-green buildings. Among our clients, we don't have a single office developer building a non-green building."

The report instead pointed to risks - including financial risks - associated developing non-green buildings.

"The most obvious market risk could be the functional obsolescence of a non-green building in an increasingly green world. One can certainly envision a day when the green standing of a building will be one of the dimensions that distinguishes class-A from class-B space," said the paper.

Smith warned the percentage of sustainable buildings would remain small for the foreseeable future because of the cost-ineffectiveness of retrospectively greening existing buildings, though he added: "Standards for existing buildings will increase over the next 10—15 years."

A separate study published by Deutsche Bank subsidiary RREEF agreed sustainability would in future determine assets' "investibility" as a result of institutional investor demand.

"Green building is fundamentally altering real estate market dynamics -
the nature of product demanded by tenants, constructed by developers, required by governments and favoured by capital providers," claims the report. "The upshot will be a redefinition of what constitutes class A properties and even institutional-quality real estate."

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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