Institutional investors investing in property are expanding the use of green leases in Asia and Europe to help reduce the emissions footprint of buildings they own, even as challenges persist in certain sectors, such as cold storage logistics and data centres, where energy use is high.
Suat Ghee Ong, head of asset management in Asia at Allianz Real Estate in Singapore, who manages the entity’s decarbonisation project in Asia, told AsianInvestor that green leases with tenants across Asia cover 22% of its total leased area at the end of June.
“The aim is to encourage tenants to pursue green initiatives on a best-effort basis,” said Ong. Green leases include clauses where the owner and occupier agree to exchange data, as well as set and meet targets around ESG.
Buildings featuring green leases include all four of its directly invested office buildings – offices typically have the highest emissions footprint compared with other property sectors, Ong said. In addition, Allianz is encouraging their use on JV investments.
In Japan, where Allianz owns a substantial office portfolio and its entire Asia multi-family portfolio, the company has converted the majority of electricity contracts to renewable generation for landlord-controlled spaces, and hopes that all contracts will be converted by the end of the year.
“We have incorporated green clauses in new leases and renewals where we can, to ensure we can understand tenants’ footprint and to work with them on best practices pertaining to ESG,” Ong said.
BUILDING AND RUNNING EMISSIONS
Steve Goossens, senior associate, real estate, at APG’s European team in Amsterdam said green leases were valuable in monitoring and reducing carbon footprints from building, refitting and running buildings.
“[They] are a great mechanism to ensure we, as an owner, get the asset level data we require – in areas including energy and water use, greenhouse gas emissions and waste – to monitor and steer on ESG performance,” he said. “Moreover, green leases are a prerequisite to ensure the sustainable construction/fit-out, usage and maintenance of the properties, where the operator and owner are separate entities.”
Robert-Jan Foortse, APG’s head of European real estate, said the wider use of green leases was part of a trend towards greater engagement by investors such as APG with tenants, as well as suppliers and other stakeholders.
“No matter what property sector you are talking about, the role of owner and manager has become more operational. In the old days, institutional investors would buy a building with a single tenant and a lease of ten or fifteen years and just invoice them every quarter,” he said.
There are challenges in collecting data about energy usage in Allianz's residential portfolio in Japan - where currently 30% of the portfolio by leased area is covered by green leases - the process of which could infringe on the privacy of tenants, Ong said.
One approach -- currently under trial by Allianz on a multi-family building in Japan -- is to partner with a local power provider to offer discounted renewable power to residential tenants.
“We have been able to make progress appointing a leading energy company as our partner to provide tenants with renewable energy contracts at better rates than market average,” she said, adding that the pilot was at too early a stage to reveal whether the approach was reducing the emissions footprint of the building.
A second strategy is to adopt employed artificial intelligence to model tenant usage – an approach that respects data privacy and stays within local regulations, Ong said. “Ultimately, we would like to be able to tap on this data to help us educate tenants on how to minimize the cost of their energy bill and as a result, on their individual carbon footprint.”