ESG and the Chinese office market in the Greater Bay Area

ESG (environmental, social and governance) has now become a major priority for occupiers, not only because companies are increasingly facing rigorous ESG reporting requirements, but also because it can strengthen their resilience. in the face of global social and environmental challenges. After a series of interviews with developers and commercial real estate operators, it is encouraging to see that a growing number of occupiers have given significant importance to ESG during their office leasing process. Therefore, we conducted a survey to examine in detail the ESG performance of 63 large office buildings in the Greater Bay Area (GBA), specifically Guangzhou, Shenzhen and Foshan.

Before discussing the findings, we want to emphasize that the importance of healthy and inclusive office spaces is heightened even as the ongoing pandemic transforms conventional notions of where and how people work. Employees still retain a strong affinity for the office as it provides a sense of community and belonging. Therefore, beyond traditional cost-related factors such as rent, floor efficiency and accessibility, companies today need to consider more people-related factors when making location decisions. lease. With a greater focus on employee well-being, flexible working, sustainability and employee engagement, the future of work is moving to the next chapter. Companies able to adapt to these changes are more likely to attract and retain talent.

Figure 1: The evolution of the office ecosystem

Source: JLL Research

E-Environment

Figure 2: Selected environmental questions

Source: JLL Research

  • Energy management system has become necessary for office buildings
  • The application of renewable energy is rare in office buildings
S-Social

Figure 3: Selected social media questions

Source: JLL Research

  • Most of the buildings that answered yes are reference projects, representing approximately 40% of the sample
  • About half of the completed buildings have realized the importance of social responsibility
G-Governance

Figure 4: Selected questions on governance

Source: JLL Research

  • More emphasis should be placed on the compliance operation as only half of the buildings surveyed take it seriously
  • Overseas and Hong Kong-listed developers pay more attention to sustainable development

The survey showed that the Grade A office market in the GBA has tried to practice ESG standards and respond to occupier needs. Generally speaking, developers and operators put more emphasis on the environmental aspect while neglecting the social and corporate governance aspects because they are difficult to measure and control. In other words, the complete transformation towards sustainable development requires new attempts.

To further foster ESG, a joint effort of government regulation, retrofitting of existing buildings and market incentives will help a great deal. Since the country recently set peak carbon dioxide and neutrality targets, wider application of the carbon trading system for commercial real estate is expected. Developers and operators will strengthen their governance capabilities through better management to reduce costs and risks.

Apart from that, it is crucial for them to regularly capture the changing needs of the occupants. For example, providing more user-friendly leisure spaces, which promote productivity, well-being and sustainability, is essential and can be easily achieved for completed and future projects. Additionally, as an integral part of the community, office buildings and their operators can take on more social responsibilities, such as increasing the contribution by donating to charity and hosting more events.

In conclusion, the results of the survey will guide developers and operators on how to design their office buildings and meet the needs of occupants, especially when a large influx of future supply is expected in the medium to long term. . We believe that the ESG engagements of all parts of the GBA will continue to drive strong and profitable growth over the long term.

Jose C. Birney