"Towards estimating the cost premium of Green Star certified office buildings in South Africa

Abstract

Global warming and climate change are concepts defining many aspects of life on earth during the 20th and 21st centuries. These topics are increasingly dominating public space and they are continuously being considered and debated by business leaders and governments worldwide. The extinction of many species of life on earth is being threatened by our modern lifestyle and the resulting effects of global warming and climate change. This predicament requires global action from all the nations of the world. Unfortunately, the political and economic will to take decisive action have in the past often been lacking. Making minor adjustments to a fundamentally flawed system of growth and development; but they will not succeed in addressing our challenge. The most severe environmental challenges to the natural world originate from cities, urban areas, and the global population's urbanisation. The built environment is a significant consumer of global resources consuming 40% of global energy use and generating up to 30% of global greenhouse gas emissions. The organised built environment responded by setting up councils and producing green building tools to evaluate and measure the environmental impact of buildings. The United States Green Building Council (USGBC) was formed in 1993, while the World Green Building Council (WGBC) was founded in 1999 by nine founding countries. Currently, the WGBC has more than 80 member countries. Member countries include the Green Building Council of South Africa (GBCSA), established in 2007. The most significant barrier to the growth of green building has been the perceived significant cost premium associated with green developments. Various local and international studies (Kats, 2003; Lockwood, 2008; Kats, 2010; WGBC, 2013; Coetzee and Brent, 2015; Morgan Stanley, 2016) have confirmed this as a significant barrier to green developments. Industry stakeholders often perceive green building cost premiums of more than 10% and as much as 20%. The widely held perception that green buildings cannot be justified from a cost-benefit perspective has created a significant obstacle to green design and building advancement. At the start of this study in 2014, no reliable cost data existed on the cost premium of South African green buildings. The GBCSA, the Association of South African Quantity Surveyors (ASAQS) and the University of Pretoria (UP) joined forces to address this challenge. The resulting study described the cost of green building in South Africa by evaluating the cost of Green Star-rated office buildings that were certified by the end of December 2018. The study has established that a GBCP did exist and described the extent thereof. The average GBCP was found to be 3,96% with a spread of 1,14 % - 14,24%. The study had to understand the cost of green buildings in general and specifically the cost premium over the cost of conventional code-compliant construction. The study, therefore, used eight generic features of office buildings closely linked to green building costs. These eight building features described the profile of the study population in terms of: 1. the Green Star certification level (4, 5 or 6 Star); 2. the geographical location of buildings; 3. the construction area of buildings; 4. the tenant mix of buildings; 5. the base building cost (R/m2) of buildings; 6. the façade : construction area ratio of buildings; 7. the Green Star certification date of buildings and 8. the Green Star certification rating of buildings (Design vs As Built). The study also proposed a scientific and rational methodology to estimate the cost premiums of proposed future green buildings based on the eight building features investigated. Describing and analysing the actual cost of green building in South Africa lessened the uncertainty and decreased the associated risk for decision-makers in the built environment surrounding green building costs. Lower risk creates a more favourable environment for real estate investors and developers and helps them to plan for the risk of undertaking green building developments. The study proposed an equation to estimate the combined effect of the eight features that affected the green building cost premium (GBCP). Using the baseline GBCP as a departure point, the estimated GBCP of a building was then calculated by allowing for the combined effect of the eight building features on the cost baseline. The study tested the proposed methodology by comparing the actual GBCP of buildings against their proposed estimated GBCP. The methodology proved to be more accurate in estimating GBCP values for projects with actual GBCP values 3,0% - 10,0% and less accurate with projects with extreme GBCP values of < 3,0% and > 10,0%. The study amended the proposed methodology and introduced an adjustment factor to secure estimated GBCP values that closely simulate the size and the spread of the actual GBCP values. The study concluded with several recommendations for further research to expand the knowledge and the insight into green building costs and the business case for green building.