Thailand: Green efficiency

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With fresh incentives attracting multinationals to locate in Bangkok, the capital is getting ready to adopt the next generation of building standards. Smart money these days is on environmentally conscious “green building” that combines cost-efficiency, social responsibility and productivity gains.

Climate change and volatile energy prices have prompted a move towards green building as the new standard for commercial and public construction projects. Business intelligence firm Global Industry Analysts estimates that the global market for green building materials will reach $406bn by 2015.

This new trend coincides with the government's recent drive to attract international companies to set up their headquarters in Bangkok with new fiscal incentives such as a 10-year, 10% fixed income tax rate, a steep discount from the usual 30%. The arrival of new tenants is expected to boost demand for the latest in eco-conscious construction technology and materials.

Thailand is already well positioned to meet these demanding standards. The country boasts seven new buildings certified by the US Green Building Council (USGBC), three times as many in the pipeline, and growing interest from government officials, business leaders, construction firms and architects. For corporations considering BoI’s new tax incentive package, green buildings bring energy savings and social responsibility benefits. For Thailand, sustainable construction helps to fulfil His Majesty King Bhumibol Adulyadej’s vision of a “sufficiency economy”. For outside investors, the shift towards smart solutions in real estate development signals that Thailand is transforming itself from a middle-income to an advanced economy.

BUILDING GREEN: In its ideal form, a green building minimises the total environmental impact of its lifecycle, from planning to construction to performance. This means including environmental criteria in site selection and choice of construction materials, designing structures that conserve energy and water, and enhancing indoor environmental quality for occupants’ well-being. Because it is difficult to measure the gains from each one of these incremental improvements, third-party measurement systems aggregate them into a single estimate of a building’s overall sustainability. Investors, developers, builders, consumers and governments use these standards as reference points to evaluate individual buildings and measure overall progress towards national environment targets.

For instance, seven public and commercial buildings in Thailand have already received certificates for Leadership in Energy & Environmental Design (LEED) from the USGBC, the leading auditor of green buildings. Recently approved facilities include the US Agency for International Development’s Bangkok office, the head office of Kasikornbank and the 300,000-sq-metre Energy Complex, which serves as the new headquarters for the PTT Group. As of June 2011, documentation for LEED certification was being prepared for an additional 22 Thai projects.

“More and more real estate projects in Thailand are eco-buildings,” Thanapol Sirithanachai, the managing director of property investment company Univentures, told OBG. “It is no longer seen as optional, particularly for executives making decisions on office space from London or Tokyo.”

Small, greener changes at different stages in a building’s design and construction add up to substantial energy savings. The UN Environmental Programme, for instance, found that “proven and commercially available technology” – such as adaptive temperature control, high-efficiency ventilation shafts, LED lighting and special heat-reflecting glass – can reduce energy consumption in buildings by 30-50% at little additional cost. The developers of the 34-storey, mixed-use Park Ventures Ecoplex on Wireless Road in Bangkok, for example, expect that the project’s 30% annual energy savings will more than recoup its initial 10% construction cost premium. Scheduled to open in September 2011, the building will feature a triple-glazed glass façade to better insulate the building against heat, a recycling system for toilet water and toxin-free local building materials.

As energy price volatility continues, sustainable buildings like Park Ventures Ecoplex offer a sort of insurance for businesses, protecting profit margins from unexpected shifts in global energy markets. Reducing energy use in buildings – which accounts for over a fifth of Thailand’s overall energy consumption – is also important for the country’s wider economic growth. It spent $47bn on energy in 2009, including 8.5% of its GDP on oil imports alone, according to the Ministry of Energy. In addition to its direct costs, Thailand’s energy dependence also risks supply disruptions that further jeopardise economic activity. Thailand depends on natural gas imports from Myanmar, for instance, for 20% of its electricity. Securing energy supplies to keep up with Thailand’s rising demand – the Asia Pacific Energy Research Institutes projects energy consumption in the Thai building sector to grow by 80% from 2002 to 2020 – will pose an even greater challenge in the future.

In addition to saving energy, a viable green construction industry can help companies to get ahead of the curve in terms of environmental regulation. Buildings account for more than a third of Thailand’s greenhouse gas emissions, according to the state-sponsored Thailand Greenhouse Gas Management Organisation. Each green building, moreover, offers substantive climate benefits, saving generally between 4000 and 15,000 tonnes of CO2 emissions annually. Emission-reducing projects also may qualify for certified emissions reductions (CER) credits from the UN Clean Development Mechanism, which offers an additional source of project finance. Although obtaining CER credits is difficult, they currently sell on the global carbon market for €12 per tonne.

Occupants of green buildings also benefit from better indoor environmental quality (IEQ), a key metric in standards like LEED. IEQ is strongly correlated with overall health and productivity, according to several studies on the subject. Vivian Loftness, a professor at Carnegie Mellon’s School of Architecture, found in 2003 that better ventilation, temperature and lighting management led to average measured workforce productivity gains of 1.8%, 1.2% and 7.1%, respectively. A 2009 joint survey by Siemens and McGraw-Hill Construction likewise found that 61% of corporations believe that adopting sustainability will lead to higher attraction and retention rates of staff and 62% expect higher productivity.

Last, but not least, many regard green certification as a smart strategy to improve a company’s public image and brand awareness. “This is something that is needed to be a world-class business and to build credit in the world market,” said Atch Sreshthaputra, an assistant professor of architecture at Chulalongkorn University, in 2010. With the concept of corporate social responsibility gradually being replaced by sustainability, green certification is expected to take centre stage over the next three to five years.

The new trend is likely to gain a substantial following in Thailand and the rest of the Association of South-east Asian Nations. A 2008 survey by real estate services firm Jones Lang LaSalle found that 60% of corporations in the Asia Pacific would pay up to a 10% premium to occupy green buildings, an increase from 55% in 2007 and consistent with the rent premium for LEED-certified spaces in the US.

ROOM FOR GROWTH: While Thailand has a number of green buildings, its LEED projects only comprise 1.3% of the world’s total outside the US. Projects registered with the USGBC but not yet certified account for even less (0.8%). However, if Thailand continues to attract investment, rising demand for office space over the long term will offer space for greater green construction. The majority of Class A offices in Bangkok have over 90% occupancy within 12 months, according to CB Richard Ellis Thailand, and demand for new Class A space is expected to increase.

Green buildings are likely to take up a larger share of these new construction projects. Once they reach critical mass of more than 20% of total Class A office supply, they tend to grow exponentially in percentage terms. In California, for instance, 48% of Class A office space was green (either LEED or Energy Star certified) by 2010, nearly double the 26% share in 2008. California’s favourable government incentives and particularly strong demand offers a compelling roadmap for emerging economies. While in terms of the overall supply Thailand’s green building sector is still in early days, the compelling benefits of cost saving, productivity growth and the country’s focus on sustainability makes it amongst the most attractive new development trends for investors to follow.

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