JLL: 96% of occupiers in Malaysia targeting 100% green certified portfolios by 2030

KUALA LUMPUR, MARCH 25, 2024 – Corporate net zero carbon (NZC) goals are driving ambitious portfolio decarbonisation plans for occupiers in Malaysia leading to a significant gap between supply and demand for sustainable buildings in the region. The mismatch between supply and demand will drive strong competition among occupiers seeking low-carbon office spaces in the years leading up to 2030.

According to global real estate consulting firm JLL (NYSE: JLL), 96% of occupiers surveyed across Malaysia are targeting 100% green certified portfolios by 2030, up from 3% currently. The sentiment is particularly strong in countries including India, Malaysia and Thailand, with over 95% of occupiers targeting 100% green certified portfolios.

The challenge, according to JLL’s analysis, shows that across Asia Pacific, for every 5 sq. ft of demand, only 2 sq. ft of low carbon space is in development from now until 2028.

“Green office space is becoming increasingly critical for businesses in Asia Pacific. In the near future, leasing space in green certified office buildings will no longer be a differentiator but a requirement for occupiers in the region,” says Kamya Miglani, Head of ESG Research, Asia Pacific, JLL. “To achieve decarbonisation goals, we are seeing more companies adopt strategies such as energy audits, sustainable fit-outs, and green leases.”

Renewable Energy for Sustainable Expansion

37% of occupiers surveyed in Malaysia said that on-site renewable energy provision will become indispensable due to decarbonisation goals by 2030. Additionally, 76% expect their energy needs to be met by renewables, compared to 17% today. The transition to renewable energy is a critical step for the real estate industry to redefine and transform buildings from passive energy consumers to active contributors through onsite renewable energy generation.

The collaboration between landlords and occupiers will be critical to fulfilling sustainable building demand. Currently, many occupiers rely on Renewable Energy Certificates (RECs) and Power Purchase Agreements (PPAs) for renewable procurement.

Fit-Out Opportunities: Addressing Scope 3 Emissions

While developers typically focus on the embodied carbon footprint of building construction, the impact of fit-outs is often overlooked. Currently, 67% of occupiers surveyed in Malaysia have cited investments required for office fit-out as one of their greatest sustainability challenges.

Building fit-outs contribute to approximately one-third of emissions, especially as the average office make changes to its interior at least 20 times in its life cycle. This lack of focus on fit-out emissions stems from the traditional separation between teams responsible for building development and interior fit-out.

“Breaking established silos is key to transitioning towards zero waste in the design phase through to procurement and strip-out, to support the reduction of emissions associated with waste and material use,” Miglani adds.

Building Performance Data and Evolving Standards

As decarbonisation goals intensify for portfolios, occupiers demand building performance and sustainability data that goes beyond certifications. As a result, occupiers are turning towards sustainability technology for automation of environmental data tracking and reporting, and utilising artificial intelligence for energy efficiency gains.

However, navigating the ever-changing and complex landscape of ESG regulations and reporting remains a challenge. As regulation plays a key role in assessing alignment with climate targets within the global and regional contexts, the key is to identify and evaluate the most relevant and important standards within the context of the organisation’s own ESG strategy.

“Across Asia Pacific, there is strong competition for sustainable assets. Occupiers need to navigate this reality through stronger collaborations with stakeholders like landlords, investors, technology partners and city administrations,” says Elke Kornalijnslijper, Head of Energy and Sustainability, JLL. “As companies move beyond making commitments to implementation, we’ll increasingly see a mindset shift from “how much will a green portfolio cost my business” to “how much will not-investing in making my portfolio green will cost my business”.

Significant Gap Between Supply and Demand in Malaysia

Compared to more mature markets, Malaysia has a lower provision of green certified spaces. Currently, only 37% of the total existing prime office space has obtained any green certification. Looking at the future supply, approximately 10.5 million square feet is expected to be added to the total stock within next five years, with 38% of that space expected to have green certification.

“Considering the ambitious aspirations of corporates to occupy green certified spaces by 2030, there is likely to be a significant gap between supply and demand. Despite the market being considered competitive and tenant-driven overall, in the “green” segment, it is clearly a landlord’s market and expected to maintain this position in the medium term,” says Yulia Nikulicheva, Head of Research & Consultancy, JLL (Malaysia).

This presents an opportunity for landlords of existing buildings, especially those located close to transportation hubs, to undertake Asset Enhancement initiatives. However, it is crucial that the building structure aligns with tenant requirements, including floor plate size, ceiling height, column grid, electricity capacity, and other important features.

“Additionally, we believe there is potential to develop new high-quality office projects that meet tenants’ requirements for space efficiency and green features, provided that those projects are located in the most popular submarkets such as Kl City and KL Fringe or close to major transportation hubs,” added Nikulicheva.