Green Buildings Transform India's Commercial Real Estate Sector
India's commercial real estate market is experiencing a significant shift towards certified green buildings, driven by the growing demand from global capability centers and IT firms. This trend is not only environmentally beneficial but also offers long-t
Green BuildingsCommercial Real EstateSustainabilityEsgCrisil RatingsReal Estate NewsFeb 25, 2025
Despite higher initial costs, long-term savings and sustainability goals are prompting developers and tenants to prioritize these eco-friendly spaces.
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 GCCs and 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, as shown by a CRISIL Ratings study.
A cost-benefit analysis further highlights the appeal of green buildings.
While they typically incur a 3-5% higher upfront construction cost compared to traditional buildings, tenants are willing to pay a slight premium.
This is because rentals in India are still globally competitive, and green buildings provide enhanced employee experience and long-term cost savings.
Lower energy consumption and water usage, due to the integration of energy-efficient technologies and sustainable materials, result in significant reductions in utility expenses.
According to Gautam Shahi, Director of Crisil Ratings, tenants can save up to 30-35% in energy costs compared to 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 prioritize their environmental, social, and governance (ESG) targets, Grade A developers are responding by developing green buildings to maintain high occupancy and healthy rentals.
Pranav Shandil, Associate Director at Crisil Ratings, notes that the growing prominence of green buildings is evident from 95% of assets rated by Crisil achieving green certification as of September 30, 2024, and nearly 100% of office Real Estate Investment Trust stock being green certified.
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.
Investors focused on green projects have the potential to play a significant role in accelerating the growth of sustainable spaces.
Green-focused funds are still nascent in India, but as they 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).
Some states offer FAR-related incentives along with other subsidies for green projects, allowing for more efficient use of land and increased project viability.
In summary, the shift towards certified green buildings in India's commercial real estate sector is driven by both environmental and financial considerations.
As global companies and developers prioritize sustainability, the market is expected to see continued growth in green building projects, benefiting both the environment and the bottom line.
Frequently Asked Questions
What are certified green buildings?
Certified green buildings are structures that are designed and constructed to meet certain environmental standards, such as energy efficiency, water conservation, and the use of sustainable materials. They are typically certified by organizations like LEED, GRIHA, or IGBC.
Why are global capability centers and IT firms driving the demand for green buildings?
Global capability centers and IT firms are driving the demand for green buildings to align with their environmental compliance requirements and corporate sustainability goals. These companies prioritize sustainable workspaces to reduce their environmental impact and improve their corporate image.
What are the long-term benefits of green buildings for tenants?
The long-term benefits of green buildings for tenants include lower utility expenses, enhanced employee experience, and a healthier work environment. Green buildings typically have better air quality, natural lighting, and energy efficiency, which can lead to cost savings of up to 30-35% in energy costs.
What incentives do developers of green buildings receive?
Developers of green buildings can benefit from incentives such as increased Floor Area Ratio (FAR), which allows for more efficient use of land. Some states also offer additional subsidies and tax breaks for green projects, making them more viable and profitable.
How are green-focused funds expected to impact the real estate sector?
Green-focused funds are expected to provide developers with more diverse and affordable financing options, making it easier to bring green building projects to fruition. As these funds gain momentum, they can significantly accelerate the growth of sustainable spaces in India's commercial real estate sector.
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