The Rise of Green Buildings in India’s Commercial Real Estate
Sustainable Spaces Drive Demand in Indian Commercial Sector India’s commercial real estate sector is undergoing a profound transformation, with certified green buildings rapidly gaining traction across major metropolitan cities. A driving force behind this shift is the demand from Global Capability Centres (GCCs) and IT/ITeS firms, which now account for a significant 50-60% of the net office leasing activity. These organisations are increasingly prioritising environmentally sustainable workspaces, aligning with both their corporate sustainability goals and evolving environmental compliance requirements.
This momentum, highlighted in a recent analysis by CRISIL Ratings, reflects a broader industry shift towards green buildings that promise not only operational efficiencies but also a host of long-term financial and environmental benefits. While the initial investment in green buildings typically exceeds that of traditional structures by 3-5%, tenants are more than willing to absorb the slightly higher rents due to the substantial long-term savings and enhanced workplace experience. For many, the benefits outweigh the costs, making green-certified offices increasingly attractive in India’s highly competitive leasing market.
“The demand for sustainable workspaces is undeniable. As companies focus on reducing their carbon footprints, the shift to green buildings is becoming a clear trend,” said a senior official at CRISIL Ratings. “Tenants can see reductions of up to 30-35% in energy expenses, a compelling reason for businesses to choose energy-efficient offices.”
The financial advantages of green buildings go far beyond energy savings. Developers are increasingly creating environmentally responsible office spaces to maintain high occupancy rates, with Grade A developers focusing on green buildings to meet global corporations’ Environmental, Social, and Governance (ESG) priorities. Such properties are becoming a status symbol in India’s real estate market, where multinational tenants are attracted to premium, sustainable spaces, even if it means paying slightly higher rental rates.
The push for green building adoption is not just tenant-driven. Developers are seeing significant value in building sustainable spaces, with many enjoying incentives such as enhanced Floor Area Ratio (FAR). Certain states have introduced policies offering FAR benefits and subsidies to developers who prioritise environmentally conscious projects. These incentives make it easier for developers to optimise land use, ultimately improving the feasibility of green developments.
As a result of these shifts, India’s office real estate market is witnessing a notable increase in the percentage of green-certified assets. As of September 2024, nearly 95% of assets rated by CRISIL Ratings had achieved green certification, with nearly all Real Estate Investment Trusts (REITs) in the office sector now boasting green credentials. This indicates a clear move towards sustainable construction practices, with developers who embrace green certifications benefiting from stronger business risk profiles.
“The future of real estate in India is undeniably green,” another CRISIL Ratings official remarked. “Developers with a higher proportion of green-certified buildings will be well-positioned as multinational companies continue to prioritise environmentally responsible spaces, even at slightly higher rental rates.”While the growth of green buildings in India is promising, challenges remain, particularly in financing. Green-focused investment funds, although in their nascent stages, are anticipated to accelerate sustainable development in the country. The expansion of such funds will provide developers with alternative financing options to support green projects, further fuelling the shift toward sustainability in commercial real estate.
With sustainability and environmental consciousness now at the forefront of commercial real estate decisions, India’s green building trend is set to redefine the way businesses lease and operate in the coming decades. As the demand for green spaces continues to rise, developers, investors, and tenants alike are embracing a future where eco-friendly, energy-efficient buildings become the norm.
