Dubai: Offices with higher LEED rating command higher rental rates with premiums up to 33% in the UAE, according to the company’s latest UAE Sustainability Report 2023.
In this report, CBRE has looked at the current state of the sustainable development landscape in the UAE and the progress of planning and implementation of both global and local standards, focusing on the UAE commercial office sector.
Currently, LEED-certified developments in Abu Dhabi’s office market account for 50.3% of the total gross leasable area (GLA) of institutional-grade buildings that CBRE tracks. This amounts to a total of 445,649 square metres. As a result, the average occupancy rate of LEED-certified assets increased from 85.1% in Q3 2022 to reach 95.9% as at Q3 2023.
Over this period, the occupancy rate of non-LEED-certified developments stood at 89.5%, up from 86.3% compared to the year prior. LEED-certified assets have always registered a significant outperformance compared to non-LEED-certified assets by achieving higher rental rates, not only due to the elevated levels of demand but also given the premium quality of these assets. In Q3 2023, the premium for LEED-certified buildings compared to non-LEED-certified buildings stood at an average of 33.0%.
In Dubai, some 73.1% of the assets we have identified as LEED-Gold and above were accredited from 2020 onwards. Currently, 23.7% of the total gross leasable area of assets that CBRE monitors are LEED-certified, reaching a total of 12.2 million square feet of LEED-accredited space. The average occupancy rate of these assets, as at Q3 2023, stood at 96.2%, up from 91.1% a year earlier. Throughout the same period, the average occupancy rate of non-LEED-certified assets reached 90.6%, up from 85.2% compared to Q3 2022. Given these elevated levels of demand and the generally higher quality of such developments, these LEED-certified assets, on average, were able to command higher rental rates compared to non-LEED-certified assets. As at Q3 2023, the average premium for LEED-certified assets reached 34.3%. More so, whilst the data to support the argument is still nascent, we note a distinct relationship, where the higher the LEED rating for assets, the higher the premium they can achieve.
In key commercial hubs that are home to some of Dubai’s most prominent Prime and Grade A assets, LEED-certified buildings have almost uniformly achieved at least the same rate as non-certified buildings, with Downtown Dubai being the only exception. However, in most cases, these Prime and Grade A assets were able to secure significantly higher rental rates compared to non-LEED-certified developments within their respective clusters. As at Q3 2023, certified assets in the likes of Dubai Silicon Oasis, Trade Centre District, DIFC Northern Precinct, and TECOM Freezone registered average premiums of 128.4%, 51.4%, 23.9%, and 13.0%, respectively.
Taimur Khan, Head of Research – MENA at CBRE in Dubai, comments: “Much like in many other key occupier markets around the world, we have seen occupier demand for green-accredited office assets increase in the UAE and this has in recent times meant higher demand, that is higher occupancy levels for such assets across the UAE. Given these shifting fundamentals, we are also seeing that certified developments are able to secure significant rental premiums compared to uncertified developments and we expect that this green premium will likely increase further going forward.
Owing to the increased awareness and the fast-changing and stringent regulatory framework, particularly in the UAE, we expect that LEED-rated stock will now be a market standard for new build. More so, in an effort to avoid obsolesce, we expect that many existing asset owners will enact capital expenditure and redevelopment programs to meet the requirements of their occupiers, a trend which is in its early stages in the UAE. In short, going forward, sustainable development practices and accredited buildings will be a requirement and not a choice.”