Kester Eddy in Budapest -
Soon after the onset of the 2008 financial crisis, it became clear from the plethora of “for rent” signs plastered in the windows of Budapest offices that Hungary had been hit hard, not least in the commercial property market. A massive overhang in the delivery pipeline meant speculative property was coming onto the market in 2009-2010 with few, if any, takers, and the 'true' vacancy rate – the one with owner-occupier stock taken out of the equation – soared to around 25% in 2011: it was the most depressed real estate sector in Central Europe – and a tenant negotiator's dream.
Yet every cloud has a silver lining, and for the Budapest office market the slump forced building managers to focus on cost cutting, which, in turn, meant a surge in work for consultants, such as Michael Smithing, head of the green building advisory, Europe and Asia, at Colliers, the real estate consultants. “When companies hand over a building it's generally got 20-30% surplus capacity running all the time,” he tells bne IntelliNews. “This is because you don't know how the tenants are going to use the building, and you don't want them to complain. So there's all this stuff going on where we can save a lot of money, typically up to 30% of energy costs, by turning things off because nobody is using them.”
From seeking general advice on building management, it is but a short step to undertaking an environmental sustainability audit, which systematically evaluates a property on everything from energy and water usage to availability of natural light and pest control methods – thereby offering owners an internationally accepted certificate on the “greenness” of their properties.
From the practical, cost-saving point of view, the certification process helps the building manager to identify what are genuine service needs, and what are not. “A lot of what we do is question: we determine how people are using the building, and we tailor [our responses] to give people the services when the people are there. What they need, not what they could potentially want three times a year,” says Smithing.
Some savings are relatively simple: installing tap-aerators – the fitting on taps that acts like a small shower head – cuts water usage at wash-hand basins from to just 2 litres per minute, compared with 9 litres per minute for the open faucet. But while the cost is small – each aerator costs a mere €4 to install – so too are the financial savings. “It's easy to save a lot of water, it's just not priced where it would make a significant impact. But it's good for the earth, and it heads in the right direction,” says Smithing.
More substantial savings are to be had in eliminating unnecessary lighting, for example by installing movement sensors in underground garages, and in the use of air-conditioning. “We had some experiences where, perhaps, people hadn't paid much attention. There was a building on Vaci ut, where the facade lights were on all night, till 5:00am. I mean outer Vaci ut [well outside the city centre] – even the Castle lights go out at midnight!” he gasps.
The same study identified a failed heat-exchanger in the air-conditioning system, and other unnecessary services provided throughout the night. “On that building we saved €250,000 over the course of a year. Sure, the cost to the landlord was €200,000, because he had to fix things, and pay me. But the payback was within a year,” says Smithing.
In truth, he admits this was an exception to the rule: most buildings in the Hungarian capital are generally well run, meaning the hard financial savings from gaining a green certificate are far less spectacular. “I'd say we can typically save 5-10% of the management fee, something between €0.20-0.40 [per square metre] per month,” he says.
Nor does certification come cheap: Smithing, who works to the US “Leed” standard (Leed is an acronym for Leadership in Energy and Environmental Design), says full certification for an existing 15,000-square-metre (sqm) building costs some €25,000-30,000 to complete.
Despite this, Colliers estimates that 765,000sqm of Budapest office space – almost a quarter of all stock – had been certified by the end of 2014. (Of this total, 40% of buildings were certified new, with 60% in-use.)
Yet such is the popularity of green certified buildings amongst tenants that the pace of audits is unlikely to diminish. “An increasing number of corporate tenants specify and require sustainable certification in their accommodation search, “Pal Baross, president of the Hungarian Green Building Council (HuGBC), tells bne IntelliNews.
Zsolt Kakosy, head of asset services at CBRE Hungary, concurs: “We believe it's increasingly essential to have a green certificate. The question is the level of the certificate. Tenants are getting more and more sophisticated and closely checking the quality of the certificate [ie. the detailed rating achieved].”
The good news is that some of the ratings achieved by Budapest buildings have been top of the class. In May 2014, Dorottya Udvar, a 28,500sqm office development from a former military warehouse, achieved a 74% rating, the highest score ever awarded for an in-use office building in Central and Eastern Europe, according to the British Breeam certification system.
Meanwhile Colliers, which in four years has certified 14 buildings in Hungary with a total area of 190,000sqm, has been leveraging its experience across the region, notably in Romania (13 buildings, 320,000sqm), Poland (6 buildings, 140,000sqm) and a first in Croatia (newly built Adris building in Zagreb, 15,600sqm).
With green certification popular, especially with international companies – or as Smithing puts it, “the kind of tenants you want in your buildings, the ones that really care about their names” – green audit work is unlikely to slow down. This is particularly true in countries like Poland, where, relatively unscathed by the downturn, owners have not been under the same pressure to cut costs, he says.
For now, in Hungary, with virtually every new building certified during construction, as the HuGBC's Baross puts it: “I believe we are entering the 'tipping point' in the market - no green, no business!”
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