Fairmont Hotel, Office 612, Bridging the Green Gap

Sheikh Zayed Road, Dubai

United Arab Emirates
The Case for Green Buildings in the UAE
Tel: +971 (4) 332 1717 Green Building Survey Results, July 2010
research@landmark-advisory.com

In conjunction with Cityscape Intelligence, Landmark Advisory launched the first Green Building Survey in April
2010. The sample targeted the Cityscape Intelligence client base identified as a diverse group of real estate industry
stakeholders with significant interest in the regional properties markets. The target group and survey design focused
on evaluating the institutional perspectives on the feasibility of green buildings in the UAE. This report reviews the
results of the initial survey, which is the first in a series of green surveys and research initiatives by Landmark
Advisory exploring the perceived and actual feasibility of green buildings in the UAE as well as the current and
potential demand drivers underpinning sustainable real estate.

Improving the sustainability of the UAE starts with making our buildings green. Each year, buildings consume large
portions of resources and produce pollutants. According to the US Green Building Council, buildings in the US
account for 72% of total electricity consumption and 39% of all energy use; moreover, buildings produce 38% of all
carbon dioxide (CO2) emissions1. Improving the sustainability of real estate is pivotal in ensuring the long term
viability of expanding metropolitan areas in the UAE.

Initiatives like the Pearl Rating System under Estidama and Masdar City in Abu Dhabi as well as the Green Building
Project in Dubai illustrate clear commitment at government levels to improve the sustainability of the local real estate
markets. In both markets, regulation is in progress setting a minimum green standard for new government
developments. While such top-down initiatives are critical first steps in moving towards a sustainable property
market, it is also essential to understand the perspectives of various industry stakeholders including awareness of
the many benefits and challenges associated with building green. Equally, it is important to evaluate stakeholders’
perception of the potential demand drivers for green real estate in the UAE.

Landmark Advisory conducted the online survey in April/May 2010 with a total sample size of 241 respondents. The
sample comprised a diverse set of real estate industry stakeholders with respondents working in the following
sectors: real estate investment, development, construction, architecture, interior design, valuation, and consultancy
as well as private investors.

1
 US Green Business Council, July 2010 http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1718 
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The objective of the first survey was to establish an understanding of stakeholder awareness of and opinions on the
basic viability of green buildings in the UAE. The vast majority of the sample reported that they do have a grasp on
the concept of green buildings with approximately 96% of respondents reporting an understanding of what a green
building is. This does not test actual understanding, but rather self assessment of knowledge, which is subjective.
While this is an elementary question, it is important to first test basic awareness as building green is still an
emerging trend in the region.

Fostering awareness through education is the critical first step in building a sustainable property market. In 2008 a
survey conducted by Turner Construction Company, executives reported that the primary obstacles to green
construction included documentation and cost of LEED certification (54%), higher construction costs (50%), length of
payback period (50%), lack of awareness of the benefit of green construction (48%), difficulty quantifying benefits
(43%), short term budget horizons (41%), more complex construction (28%), and increased operating costs (23%)2.

Perception of green buildings: commonly associated attributes

The benefits of green buildings are extensive and the responses indicated an awareness of a range of benefits. The
attributes most commonly associated with green buildings were:

• Environmentally friendly (83%)

• Lower utility bills (54%)
• Better design (36%)

Respondents rated statements based on a 5-point Likert Scale from Strongly Disagree (1 point) to Strongly Agree (5
points). Although the results were positive signs, the average rating indicates moderate sentiment with four of the
five statements consistently rated between “neutral” and “agree.” The results indicate a stronger preference for
green buildings developing among office tenants/end-users over the next 5 years compared to residential
tenants/owner-occupiers.

Respondents agreed that they would be more likely to invest in or develop a green building because it helps the
environment rather than investing in or developing green buildings for enhanced asset value. This statement

2
 “Green Building Market Barometer 2008,” Turner Construction Company, July 2010 
http://www.turnerconstruction.com/Uploads/Documents/Turrner_2008_Green_Building_Market_Barometer.pdf 

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received the highest rating of 4.2, which is between “agree” and “strongly agree.” Rather than predicting the actual
motivation underpinning behavior, this is more likely attributed to barriers that obscure the tangible benefits of green
buildings. Obstacles can stem from lack of awareness, uncertainty of outcomes, and systematic factors that limit
incentives for the developers. For example, the developer may have to bear the initial costs, but does not gain from
the operational benefits in the case of net leases and the off-plan development model, both of which are common
practice in the UAE. Moreover, green buildings are considered to command higher rents and have a higher resale
value, but there is limited data to validate these claims3.

Demand drivers underpinning green office space

The survey also tested potential demand drivers for relocating to or establishing a new office in a green building. The
respondents reported the following as the primary motivating factor in such a decision:

• Environmentally friendly (75%)

• Lowers my utility bills (70%)
• Healthier for my employees (56%)

The Case for Green Development

3
 Yudelson, Jerry, “The Green Building Revolution,” Island Press, 2008. 

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Respondents reported a perceived willingness from the development and investment communities to integrate green
buildings into their business model. When asked if developers are now willing to build green buildings, 66% of
participants responded positively. Similarly, when asked if investors are now willing to invest in green buildings, 60%
respondents indicated yes.

However, when asked about the feasibility for developers to build and sell/lease green buildings in the UAE,
respondents indicated this would be viable in 2-3 years time (25%). Note that 20% of respondents think it is already
feasible to build and sell/lease green buildings in the UAE.

On the investment side, real estate industry stakeholders indicated an overall willingness to incur higher costs in
order to reduce operational costs each year. When given the opportunity to save 20% on operational costs each
year by building a green building, respondents indicated they are willing to incur 5-6% more in construction costs.

The Case for Green Retrofitting of Existing Buildings

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The current state of the real estate market in Abu Dhabi and Dubai suggest that limited new developments will be
launched in the short to medium term. Over 200,000 new residential units are expected to be delivered in Abu Dhabi
and Dubai over the next 5 years. Similarly office space is virtually doubling in both cities over the same period.
Consequently, the market will need to absorb a significant portion of these units before developers consider
launching new developments. For example, we estimate that Dubai residential vacancies will only fall below 5% in
2017/2018. Assuming a 3-year construction timeline, significant new development activity could resurface in 2014.
While Abu Dhabi’s residential market is currently undersupply, demand has overflowed into substitute markets like
Dubai. When both residential markets are considered together, the average vacancy falls below 5% in 2015/2016,
which indicates development could potentially restart earliest in 2012. While the undersupply in Abu Dhabi has the
potential to shorten the residential cycle in Dubai, other factors like financing limitations will remain barriers to a swift
reemerge of new project launches.

UAE Supply Trends ‐ Residential and Commercial  
5 year supply  Supply increase 
      pipeline  (2014/2009) 

Residential                            Abu Dhabi  106,000  59% 

(total units)  Dubai  102,000  29% 
Commercial                          Abu Dhabi  1,730,000  96% 
(total m²)  Dubai  3,570,000  91% 
Source: Landmark Advisory 
Note: this only includes supply estimates for Abu Dhabi City and Dubai 

All else equal, the office market will remain stagnant much longer than the residential market with absorption of the
anticipated office supply pipeline likely extending more than a decade. Consequently, retrofitting existing office
buildings with green building products and systems is central to any discussion around improving sustainability in the
real estate industry in the coming 5-10 years.

Respondents indicated reasonable financial expectations to retrofit buildings with a return on investment (ROI) of 16-
20% over 5 years. Essentially this would indicate a payback period of just over 4 years.

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Additional regulation to push green building forward in the UAE

In addition to considering the financial incentives required to change behavior, the survey also assessed the need
for regulation to improve sustainability in the UAE property market. While regulation was perceived as having a
positive impact on the feasibility of green buildings, the average rating indicates moderate sentiment regarding the
need for regulation with the scores consistently positioned between “neutral” and “agree.”

However, when asked to evaluate statements about the need for subsidies, respondents agreed that government
subsidies are required to induce landlords to retrofit their buildings as well as to induce developers to build green
buildings. Regarding more general regulation, the results indicate a minimum green standard for new buildings
should be implemented immediately while a minimum green standard for retrofitting existing buildings should be
implemented in 2-3 years.

While the survey results indicate a greater potential for green office demand to emerge over the next 5 years
compared to green residential demand, the office market faces significant challenges with the supply glut expected
to extend over a decade in Abu Dhabi and Dubai. Clearly new development in this sector is extremely unlikely in the
near future. Thus, establishing green standards in the office sector will depend almost wholly on the retrofitting of
existing buildings. Any regulatory changes considered should, therefore, focus on establishing minimum standards
and providing financial incentives specifically for the retrofitting existing office buildings or those currently under
construction. In the residential segment, regulation is required that will improve the sustainability of both new
developments and existing buildings.

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Although touted as a significant factor, it is unclear whether the environmental benefits of green buildings alone will
actually induce industry stakeholders to adopt sustainability principles into business strategies. Illustrating the
financial benefits and risk management benefits of green buildings is more likely to provide impetus for change,
especially in the current economic climate. Together with regulation and educational initiatives, providing financial
incentives and expanding awareness for the proven financial benefits of green buildings could be an effective
strategy improving sustainability of real estate in the UAE.

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DISCLAIMER
Information contained herein was obtained from sources believed to be reliable. While we are confident in its accuracy,
we offer no guarantees, warranty or representation about it. It is the reader's responsibility to independently confirm
accuracy and completeness. Any projections, opinions, assumptions or estimates used in this report represent the
market’s performance at the time of publication. This information is published exclusively for use by Landmark Advisory
and may not be reproduced without prior written consent from Landmark Advisory.

Analyst certification
The analysts responsible for this report certify that the opinions expressed herein accurately reflect their personal views
and that no part of their compensation was, is, or will be directly or indirectly related to the recommendations or views
contained in this research report or any outcomes thereof.

Additional disclosures
1. This draft report is dated as 7 July 2010.
2. All market data included in this report are dated as at close 30 June 2010, unless otherwise indicated in the report.
3. Landmark Advisory has procedures in place to identify and manage any potential conflicts of interest that arise in
connection with its Research business. Analysts and other staff involved in the preparation and dissemination of
research are managed and operated independently of Landmark Properties. Organisational barriers between the
brokerage and advisory/research businesses ensure that any confidential and/or price sensitive information is handled in
an appropriate manner.