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News Release

Moscow

Office properties account for 60% of total ‘green’ stock in Russia


​Moscow, 25 November, 2014 – The global real estate adviser JLL presents the Sustainability and Green Development in Russia report.

In mature capital markets, the question of sustainability has become of important to investors, who have recognized that both tenants and regulators are increasingly demanding greater efficiency in buildings in order to cut costs and be more competitive. Indeed, for many investment funds sustainability disclosure has become a pre-requisite of investment. According to JLL report, in less mature markets, such as Russia, sustainability has become an increasingly hot topic amongst developers, landlords and tenants in recent years.

Both the BREEAM and LEED certifications, which account for the vast majority of sustainability certifications worldwide, are designed to be flexible and can be applied to buildings at any stage of the development process. Though there are some technical differences between the two, both standards are regularly updated and improved in line with market developments as well as industry feedback.

Although originally formulated for the UK, BREEAM is now used in more than 50 countries. About 5,000 projects have been certified with BREEAM assessment ratings. Developed by the US Green Building Council, LEED provides building owners and operators with a framework for identifying and implementing sustainability practices. There are about 23,500 projects certified with the LEED rating systems around the world.

BREEAM and LEED certified projects

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Source: JLL

“Green certification is not yet a strong market trend in Russia, given its relatively short history compared to nearly 25-years of Green Development in the US and Western Europe.” – Ksenia Agapova, Head of Sustainability Services, JLL Russia & CIS, commented. – “Nevertheless, after a slow start, the popularity of environmentally friendly and energy efficient buildings is increasing almost exponentially. The number of BREEAM and LEED certified projects in Russia has grown rapidly from only two schemes seen in 2010 to 43 objects by the end of Q3 2014. In 2013 alone the number of certified buildings increased by 21. JLL Moscow Headquarters has been certified both BREEAM and LEED, and it is the only property in Russia which is  certified with both BREEAM and LEED assessment ratings.”

Around 60% of these certifications are related to the office segment, most of which belongs to Prime offices, yet the total ‘green’ office stock is still negligible compare to the whole market accounting for about 3% of total office stock in Moscow. As far as the overall structure of ‘green’ real estate stock is concerned, office segment accounted for the largest share of all certified objects worldwide. 

World LEED and BREEAM certified projects by type

World-LEED-and-BREEAM-certified-projects-by-type_25112014.png

Source: JLL


Russia LEED and BREEAM certified projects by type

Russia-LEED-and-BREEAM-certified-projects-by-type_25112014.png

Source: JLL

The well-known Class A Ducat Place III was the first office building in Russia certified using the BREEAM assessment method. ‘Green’ industrial premises represent about a quarter of total certified projects in Russia, including SKF factory in Tver, the first LEED certified project, and BREEAM certified Industrial Park South Gate in Moscow region. Triumph Park Residential Complex in Saint-Petersburg is the first and yet the only residential project in Russia assessed using the sustainable building certification scheme.

JLL attributes the recent rapid acceleration in ‘green’ certification to a combination of changing environmental regulations, growing demand from tenants, the cache that comes from brand recognition and the opportunity to benefit from cost efficiency in the future.

“In the Moscow office market, buildings with LEED and BREEAM certificates are most popular among international companies. For many multinational companies with established sustainability policies, such as Siemens, Decathlon, Shell or Deutsche Bank, meeting ecological standards could be a key factor for choosing office premises. We believe that domestic companies will pay more attention to ‘green’ buildings in the future following the gradual saturation of the market. In particular, demand for ‘green’ buildings will likely be seen from capital intensive sectors with a high share of expenditures on employees’ well-being and health, for example IT, consulting companies and banks.” - Alexander Churikov, Head of Office, Occupier & Industrial Research at JLL, said.

As far as Moscow market is concerned, the gradual saturation of the office market will give ‘green’ buildings a competitive advantage over those buildings that are not certified. Given the expected pressure on landlord’s margins, being ‘green’ will prove to be a selling point for both expensive Prime offices in the center of Moscow and for objects outside the MKAD, which are considered as more environmentally friendly alternative for offices in the city center.

Ksenia Agapova commented: “The example of developed office markets suggests that the ‘green’ certificate of the property gradually increases its recognition among tenants. At the same time, ‘green’ certificates become important not only from a marketing point of view but also from a cost efficiency point of view. According to some estimates, cost savings on utility bills can be up to 30%. However, the cost efficiency of Green Development in Russia is still hard to quantify due to the relatively small number of certified buildings.”

LEED and BREEAM certified office projects in CEE cities

LEED-and-BREEAM-certified-office-projects-in-CEE-cities_25112014.png

Source: JLL

Though the benefits of adopting ‘green’ certification are reasonably well known in the US and Europe, in Russia the concept is still in a nascent phase and continues to face challenges, especially the economic ones.

“Green Development is associated with higher initial investments linked to specific technologies, materials and procedures necessary for the construction process of a ‘green’ building. Moreover, the specific risks of construction business in Russia (volatility of the national currency, limited access to credit, the high cost of funding etc.), often force developers to choose projects with a shorter payback periods to those with expected higher cash flows in longer term.” – Alexander Churikov noted. – “For ‘green’ construction projects in Russia, the average payback period ranges from 8 to 15 years, making it questionable for many developers to implement these projects in highly risky and volatile environment. The rationality behind the capital expenditures in ‘green’ construction is also complicated by the inflationary pressure on construction costs and a recent hike in taxation given the new tax base system based on cadastral valuation.”

“More than 2m sq m have been certified in Russia up to Q3 2014. Moreover, by the end of 2015 the total amount of “green” supply will likely increase by another 1.5m sq m. We expect that ecological legislation will undergo considerable changes in coming years leading to greater social awareness and further promotion of the Green Development in Russia. As the Sochi Olympic Games demonstrated, we believe that the World Cup 2018 could be another driver for further development of green trend in Russia.” – Ksenia Agapova concluded.

​Number of LEED and BREEAM certified projects in Russia

Number-of-LEED-and-BREEAM-certified-projects-in-Russia_24112014.png

Source: JLL


Please find link to the report


​About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.

In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 , 2013 and 2014 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

For further information, visit www.jll.ru