About 52% of Grade A offices in Vietnam have green certification

Savills Vietnam recently released the publication "ESG in Vietnam Spotlight 2023", a comprehensive study on the development of ESG (environmental, social and governance) in commercial real estate across the Asia- Pacific region, focusing on practical examples from Hong Kong, South Korea and Japan, along with in-depth analysis of Vietnam's evolving ESG landscape.

According to the United Nations Environment Programme, as of 2020, construction activities accounted for approximately 31% of global final energy consumption and 28% of CO2 emissions. Recognizing the pivotal role real estate plays in combating climate change, real estate businesses in Asia Pacific are beginning to take ESG more seriously.

The study found that major regional markets such as Australia, Hong Kong, Japan, New Zealand and Singapore are leading the way in ESG innovation, followed by China and Vietnam, which have made impressive progress in recent times. Challenges such as calculation methods, capital costs, policy support and access to sustainable building materials are hindering the widespread development of this trend.

Compartment 52, office building A in Vietnam, green certificate, picture 1 — Vietnam is making impressive progress regarding ESG innovation.

Asia-Pacific needs to prioritize sustainability in real estate development as the region accounts for 20 of the world 's 36 megacities, according to experts. The urban population is expected to increase by 52% by 2050, which will cause a sharp increase in real estate demand.

Greater supply and demand also pose challenges and opportunities for sustainability efforts in the region. Work must be done to ensure urban infrastructure expands while reducing carbon emissions.

This report by Savills Vietnam also shows that Vietnam is making progress in green building certification, with 20 office buildings currently having LEED or Green Mark certification. Notably, 17 of these projects are located in Ho Chi Minh City, accounting for about 25% of the current office supply. This rate is expected to increase to 31% by 2026. There are 4 projects that will provide up to 164,000 m2 of NLA green office space to be handed over between 2024 and 2026.

PwC’s “Vietnam ESG Readiness Report 2022” highlights that 80% of surveyed companies plan to commit to ESG in the next 2-4 years. FDI companies and private/family businesses are taking the lead in ESG implementation, demonstrating the growing sense of responsibility among Vietnamese businesses.

52nd floor, office building A in Vietnam, green certificate, picture 2 — 52% of Grade A offices in Vietnam have green certification.

“It’s too late to stay the course. Aside from growing public concern and government regulation, there are many legitimate financial incentives for investors to improve the sustainability of their portfolios, including risk management, transparency, cost savings and increased returns,” said Troy Griffiths, Deputy CEO of Savills.

Measuring ESG compliance remains challenging, with a variety of guidelines, certifications and standards. However, a number of sustainability-related initiatives are providing guidance and incentives for real estate investors to adopt specific energy reduction action plans.

As of Q3/2023, Singapore stands out with 95% of its Grade A office supply achieving green certification, followed by 64% in Kuala Lumpur and 47% in Hong Kong. Vietnam is gradually improving with 52% of its floor area achieving green certification.

At the same time, the financial evidence for ESG adoption is becoming increasingly clear, with green-certified buildings commanding a 10% premium over conventional buildings.

As corporate ESG compliance becomes increasingly monitored and enforced, and is increasingly sought after by tenants and investors, this is likely to put buildings that do not meet these standards at risk of increasing vacancy rates.

In a recent survey by Urban Land Insitute and PwC, 37% of respondents said ESG factors are now a mandatory consideration in real estate investment decisions, up from 22% in 2021.

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