Hong Kong office tenants and landlords are expected to catch up with the global trend of signing “green” leases amid the rising importance of sustainability in the real estate industry, despite a dearth of such deals so far in the city, according to professional services firm Deloitte. A green lease is an agreement between a landlord and a tenant to improve the environmental performance of a property, for example, by cutting energy or water use and reducing waste. “We believe the trend of green leases adoption will come to Hong Kong in the near future” with the rising importance of environmental, social and governance (ESG) factors in the real estate industry, Philip Law, Deloitte China’s real estate industry leader, told the Post . Buildings account for about 90 per cent of electricity consumption in Hong Kong , and around two-thirds of the city’s greenhouse gas emissions come from electricity generation, according to Chief Executive Carrie Lam Cheng Yuet-ngor’s 2021 policy address. Landlords must consider sustainability of assets to attract quality tenants, investors Globally, some 34 per cent of occupiers already have green lease clauses, while a further 40 per cent plan to sign them by 2025, according to JLL’s global survey of 647 senior executives in its “Decarbonizing the Built Environment” report released in June last year. While the concept of green leases is not new, its adoption will take time, said Law. In 2014, the Hong Kong Green Building Council released its “Green Tenancy Driver for Office Buildings” report, which included green leases as a way of encouraging tenant-landlord collaboration to create a sustainable working environment. That same year, the Hong Kong Science and Technology Parks Corporation released green lease clauses encouraging companies to reduce energy use, including pay-for-use air-conditioning consumption. Key challenges to the adoption of green leases in Hong Kong include a lease term which may be shorter than the payback period, as well as difficulties of not having a holistic view on the total value on both sides, said Cary Chan, executive director of the building council. “Currently we don’t see many green leases in Hong Kong,” said Sam Crispin, regional head of sustainability and ESG at consultancy Savills. He, however, said that he is currently advising a client in Hong Kong on the possibilities of adopting a green lease in a shopping centre. “This may include longer lease terms , food waste reduction clauses and perhaps an all-electric food court kitchen,” Crispin said. Green lease clauses are largely driven by landlords, although some larger tenants will be interested in pushing for these too, he added. The adoption of green leases could help both landlords and tenants establish their sustainability commitments, as well as ensuring that both parties hit their net-zero carbon targets, said Mark Cameron, JLL’s head of energy and sustainability in the Asia-Pacific. Bank of China offers cash bonus on mortgages for green housing “Green leasing is a strategy to help tenants and landlords achieve the best returns for their expenditure, and save money through the adoption of energy-efficient measures. Companies today are committing to net-zero carbon targets by 2050 or earlier, and they are looking for landlords who are able to ensure [buildings] with high energy efficiency,” Cameron said. Cameron recommended green leases covering agreements to operate efficiently, financial incentive alignments such as cost-recovery provisions, or penalties if certain environmental goals were not met, as well as transparency of resource use. In April 2021, JLL signed a legally binding green lease clause with Canary Wharf Group, its landlord in London, to procure renewable energy for the building as well as agreeing to a series of performance and energy targets. Why Asia-Pacific firms are willing to pay more rent for green buildings The government in Hong Kong could consider more policy support to encourage the adoption of green leases in the city, said Deloitte’s Law. “In the long run, the reputation of Hong Kong as an international city can be enhanced, and [it can] attract more talent and capital ” with the adoption of green leases, he said. “Currently, there are no existing policies regulating any building owners to have any green leases in place. If the government would give tax incentives or subsidies … the adoption rate may be higher,” said JLL’s Cameron.