By Jonathan Hills, CBRE
29 November 2012 — In the West a number of larger retailers have woken up to the challenges of sustainability and several groups have begun to build and operate green shops in the US and Europe.
Others have adopted green building methods or at least created prototype green stores. For example, many Wal-Mart stores in the US feature LED lighting, white roofs to reflect sunlight and other energy saving features specific to local climate conditions, while Carrefour reportedly spends EUR30 million per year on energy efficiency initiatives in its shops.
While Asia Pacific lags by comparison, recent years have seen some encouraging advances by a select group of developers. Many of these groups have long standing commitments to sustainability and are now integrating environmental and social issues into the construction and management of their retail property holdings and investments.
The retail sector has a well deserved reputation for wasteful use of energy, water and other resources. Lights in shopping malls and other retail formats are frequently left on non-stop, as are airconditioning and refrigeration units – particularly in hot and humid Asian climates – while the use of plastic and paper in packaging is often excessive and unnecessary. Significant quantities of energy are also used throughout the retail supply chain, such as transporting products from factories to warehouses and then to stores.
In the United Kingdom the direct greenhouse gas emissions from the retail sector are estimated to be around 2.0 per cent of the country’s total emissions, although it should be noted that some stores – particularly supermarkets – indirect influence via supply chains and influencing customer behaviour extends even further.
In Australia the retail sector accounts for around 50 per cent of energy use in the commercial property sector and between 4 per cent-5 per cent of the country’s total GHG emissions. Studies have found that in terms of energy intensity, or energy used per square metre of floorspace, the retail sector is one of the most energy intensive industries in Australia, only slightly behind food services and hospitals. The retail sector is therefore a crucial battleground in efforts to improve energy efficiency, reduce emissions and address the challenges posed by climate change.
As the retail sector continues to expand at breakneck speed in Asia Pacific – particularly in the emerging markets of China and India – it is understandable that the vast majority of retailers are looking to secure the best spaces in the best locations to grow their business. Leasing green retail space or achieving LEED certification for their shop fitouts is not a concern.
Shop managers are still primarily incentivised on sales and not on energy savings, even though they still contribute towards the bottom line, while regional consumers’ appetite and demand for energy efficient or environmentally friendly products is still in the early stages of development.
Retailers’ lack of enthusiasm for green fit-outs is a major cause for concern as how they operate and manage the shops or space they occupy has a major impact on the use of energy and other resources. However, a number of markets in the region are seeing a gradual but important shift in attitude among developers who have recognised the need for sustainability – even in the absence of any real demand from their retail tenants – and have begun constructing and managing environmentally friendly shopping centres.
One such group is Stockland, one of Australia’s leading diversified property groups. The company operates a total of 41 shopping centres across the country and has adopted a comprehensive Corporate Responsibility and Sustainability strategy.
“We recognise that as a large corporation we have a responsibility to minimise the environmental impact of our operations,” says Greg Johnson, Stockland’s National Environment manager for Commercial Property. “We had an early understanding of corporate responsibility and sustainability around eight years ago and began to engage people by examining the simple issues across the whole of our business. Through engaging with our stakeholders and learning through our actions our thinking has become a lot more sophisticated,” he continues, “and how they manage the shops or space they occupy has a major impact on the use of energy and other resources. However, a number of markets in the region are seeing a gradual but important shift in attitude among developers who have recognised the need for sustainability – even in the absence of any real demand from their retail tenants – and have begun constructing and managing environmentally friendly shopping centres. One such group is Stockland, one of Australia’s leading diversified property groups. The company operates a total of 41 shopping centres across the country and has adopted a comprehensive Corporate Responsibility and Sustainability strategy.
Singapore has a well-deserved reputation as one of the most advanced countries in Asia with regard to sustainability of the built environment. The retail sector is no exception and recent years have seen the launch of a several noteworthy projects. In September 2009, City Developments Limited, one of the biggest commercial landlords in Singapore, opened City Square Mall, which was the first private commercial development in Singapore to receive the Building and Construction Authority’s Green Mark Platinum Award – the highest rating for green buildings in Singapore.
“City Square Mall is a natural extension of CDL’s long- standing commitment towards a sustainable built environment and was conceptualised with environmental sustainability in mind, right from the outset,” says Esther An, CDL’s head of Corporate Social Responsibility.
Designed, built and managed as a prototype eco-friendly and community-friendly shopping centre, the 700,000 square feet mall is equipped with a wide range of water and energy saving and other environmental features including a 49,000 square feet urban park, an eco-playground constructed
from Forest Stewardship Council (FSC) certified wood, a green roof with solar panels and water-harvesting capabilities, a high-efficiency air-conditioning plant system and recycling bins. It also features an electronic screen displaying in real time the mall’s carbon dioxide emissions in order to raise awareness among shoppers and tenants. CDL invested approximately 5 per cent of the total construction costs of the mall into the development of its green features. The money spent will be recouped over a period of just four years as the mall achieves annual savings of 30 per cent on energy and water.
Another noteworthy retail development to have won green accolades in Singapore is Parkway Parade, managed by Lend Lease, which in April 2010 became one of the first existing retail/office buildings in the country to achieve BCA Green Mark Platinum status. The mall’s green features include motion sensors at staircases and office toilets to control lighting and extensive use of T5 fluorescent lighting with high frequency ballast in car parks. Charging stations are provided to encourage the use of electric motorbikes whilst food waste from food and beverage outlets is separated into organic and inorganic waste.
“An energy conservation program was first adopted at Parkway Parade in 2006,” explains Stephanie Poh, general manager for Parkway Parade, managed by Lend Lease. “The main drivers were to reduce operating expenses especially energy consumption, as part of Lend Lease’s continual efforts to enhance asset performance and value, and future proof energy costs escalation,” she said.
The company has also introduced a “green lease” program to guide and assist its tenants in achieving energy savings with a green fit-out of their leased areas.
It is noteworthy that all of these developers have adopted environmental measures despite the lack of studies showing that green shopping centres can command a rental premium. Neither is there much evidence to suggest that space in green malls is more sought after by some retailers compared to space in non-green malls. “There is a lag between when the market can promote green shopping centres and when tenants are willing to pay more to rent green space. We’re only just beginning to see this in the office sector,” observes Stockland’s Greg Johnson.
Indeed the small number of green malls in the market at present makes it difficult to identify or assess any widespread trends on rental levels as the sample size for any study would not be big enough. On the demand side, there have been no documented cases any retailers making leasing decisions based on the environmental performance of a building, although many large retailers in Asia Pacific are beginning to take these issues into account.
“Whilst many retailers in Australia have adopted strong values around sustainability they have yet to make these demands of Stockland with regard to sustainability and green fit-out of their retail space. However, we have seen in the UK market, especially among supermarket tenants that sustainability credentials have become a differentiator,” adds Johnson.
In Singapore CDL believes that City Square Mall’s numerous green features haves attracted a number of environmentally conscious retailers keen to display their green credentials.
“Whilst we cannot conclude that a green mall can command a rental premium, we hope to attract the correct partners – other green businesses – so our rental pricing is not impacted by our initial investment on green features,” explains Esther An.
Among City Square Mall’s tenants is FairPrice, which in September 2009 opened Singapore’s first eco-friendly supermarket with the aim of creating a green shopping environment and raising environmental awareness amongst shoppers.
The store is designed with the basic principles of reduce, re-use and re-cycle in mind, and features 100 per cent bio-degradable shopping bags, dedicated check outs for customers using their own bags, store fixtures and fittings re-cycled from other stores, best in class energy efficient lighting and switches, recycling stations for food waste and reverse vending machines for cans and bottles.
Constructing new green malls or implementing sustainability features into existing shopping centres bring with it a number of challenges, many of which are often unique to this property asset class. Shopping malls are home to dozens and in some cases hundreds of independently operated retailers, restaurants, entertainment and sporting amenities and other facilities.
While a landlord can improve the energy efficiency of common areas by regulating air conditioning and lighting and installing building management systems, such initiatives will mean nothing unless retailers themselves operate their stores with sustainability in mind. The bulk of a shopping centre’s energy demands come from its tenants.
Shopping centre landlords and operators often find that larger tenants can be very interested in participating in sustainability initiatives but smaller retailers are usually not, as they are either comparatively less informed about the issues or more focused on the day to day trading of their business. Even among larger retailers there can often be less knowledge and enthusiasm at local branches than at head office.
Many landlords have therefore taken the initiative and have begun to engage directly with their tenants – for example by organising workshops to raise awareness of sustainability issues – although there are often numerous challenges involved.
“One of the often missed challenges with managing climate change is management of people’s behaviours,” says Mann Young, head of Sustainability Asia, Lend Lease.
“The unique opportunity with sustainable shopping malls is that you have the opportunity to educate your tenants, as well as the wider community who visit, work, shop and play there,” he said.. The group’s 313@somerset shopping centre was the first mall in Singapore to introduce a green lease program to guide and assist its tenants in how to maintain energy savings with a green fit-out. This initiative is gradually being rolled out to other malls in the Lend Lease portfolio.
CDL has been engaging with its retail tenants at City Square Mall in a number of ways. The developer holds tours to food recycling plants for its F&B tenants as part of its eco-engagement program and also briefs its tenants on how to be environmentally friendly when completing their shop fit-outs by recommending the use of particular energy efficient lights, equipment, materials and so on.
“By providing such briefings and guides we also try to influence them to practice being green through their daily operations such as segregating dry waste into designated bins or locations,” says Esther An.
Stockland has for several years been working alongside Australian government agencies running programs promoting sustainability and resource management to retailers. One such scheme saw the developer send out a survey to 55 tenants at one of its malls, 25 of which responded and were invited to participate in workshops focused on sustainability and resources management issues within the retail environment.
Stockland also provided participants with research data related to rising consumer demand for green products. “The scheme was a great opportunity to engage with our retail tenants on sustainability and resulted in some basic initiatives being put in place,” says Greg Johnson.
“However, some of those retailers we contacted – usually smaller independent groups were not interested and some larger chains already had their own programmes in place or were participating in existing schemes which limited the opportunity.”
Developers have found that it can often be challenging to engage with smaller retailers as they tend to be more focused on running their business and the lack the manpower to participate in such schemes. Franchises also lack authority with regard to decision making as key decisions are usually made by head offices and not at store level.
Much also depends on the individuals managing or working within a store – many may not be particularly interested in environmental issues or motivated to participate. Cost can also be a barrier to participation with many retailers lacking the capital to contribute towards the capital expenditure of installing environmental upgrades to the space they occupy. Possible solutions to these challenges could include mechanisms which incentivise retailers to participate and bear some of the costs.
In the longer term shopping centre managers could simply allocate a set amount of energy to each store which they must then use as they see fit.
Recent years have seen the gradual introduction of green building rating tools specific to retail developments. In December 2009 The National Australian Built Environment Rating System (NABERS) released its retail rating tool, which is designed to provide a standard, national, performance-based environmental rating framework for existing shopping centres.
The tool allows shopping centre owners or managers to measure a mall’s energy and water efficiency on a scale from 1 to 6. However, the scheme is only voluntary at present and applies only to the base building of shopping centres with gross lettable area retail of 15,000 square metres or greater.
Nevertheless, a mandatory disclosure scheme for shopping centres is being investigated, meaning that a valid NABERS rating would need to be disclosed as part of any sale or lease documentation or advertisement for shopping centres in Australia covered by the scheme, with penalties applied for non-compliance. NABERS also reportedly intends to develop a tool for retail interiors in order to capture the behaviour of individual retail outlets.
Social and community issues are also increasingly being viewed as an important component of best practice in sustainability in shopping centre management. Indeed a number of leading developers in the region are beginning to implement community engagement programs alongside their environmental initiatives.
“We know we have a responsibility to improve our environmental performance,” says Stockland’s Greg Johnson.
“But we also have a responsibility to create spaces and places which meet the social needs of the communities in which we operate,” he adds.
Stockland offers space in a number of its malls for communities to run social programs. In one such example, the mall organises and hosts film-making classes for local teenagers and then lets them showcase their movies at a special event at the mall’s in-house cinema.
Stockland also provides vacant or unused spaces to community groups or up and coming local artists to display their work.
“We are thinking about ways in which we can use a mall differently, and not just for retail but to make them the social hubs of their community,” says Johnson. “With the growth of online retail, the nature of shopping in Australia is changing. We believe that shopping centres should be more than just a location in which to go shopping – they should be an experience and a place where people can socialise.”
Lend Lease is also rolling out community engagement initiatives at several of its malls across the region. In Singapore, 313@somerset has partnered with PaTH (Pop and Talent Hub) to showcase artwork and handicrafts created by independent artists, craftsmen and designers, while Parkway Parade has worked closely with the South East Community Development Council to support its community outreach programs in the eastern part of Singapore by engaging with local schools to showcase and promote various sporting activities.
Elsewhere, CDL’s City Square Mall hosts eco-workshops where shoppers are encouraged to explore their creative side while doing their part to protect the environment, and also help schools, not- for-profit organisations and other community-related interest groups reach out to the public by offering free use of spaces for events and activities.
While shopping centre landlords and tenants in Asia Pacific have been late adopters of sustainability – especially in comparison to those in the office sector – the region is beginning to see some progress as leading developers recognise the need to incorporate green design principles and energy reduction plans into their retail properties, even in the absence of any tenant demand. Many companies are aware that failure to do so could eventually result in falling market share, weaker investor sentiment, higher energy and water costs and litigation and insurance risks, as well as a possible backlash from increasingly more informed and environmentally aware consumers.
“The green economy is still in its infancy and demand for green buildings is only just starting to grow,” says Esther An of CDL.
“We hope that our position as a pioneering green developer will give us a first-mover advantage when the age of socially responsible consumerism dawns.”
CDL continues to witness rising demand for green space from office occupiers, particularly from multinational corporations, and is optimistic that this growing environmental consciousness may eventually extend to retailers.
To date many developers have not been prepared to invest in green initiatives as they have been unconvinced of the financial returns. Indeed there is a lack of evidence to suggest that green shopping centres can command a rental premium. However some developers believe this situation may eventually change.
“Whilst shopping malls are still maturing compared to office buildings in terms of environmental credentials, more developers are picking up green building ratings and using them to inform their retail developments. Delivering eco-efficiency and having a focus on the needs of the local community will deliver a pay-back, and the evidence for this is building,” says Greg Johnson of Stockland.
Ultimately, however, developers’ moves towards building green shopping centres or installing energy efficiency features in existing malls mean very little unless they are accompanied by a similar commitment from tenants.
Environmental responsibility and sustainability are global trends retailers cannot ignore and such companies ought to be investing in initiatives which can both reduce their energy and water consumption and maximise their profits, as well as improving their appeal to consumers willing to pay a premium for environmentally friendly goods and services.
Jonathan Hills is Associate director, CBRE research Asia Pacific
This article was first published in Sustainability Environment Matters for Real Estate Asia Pacific by CBRE.