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Green Buildings in Emerging Markets: Can Warehouses Go Green in Russia?

The first green office buildings of Russia are already in the market and increasing number of high end residential and retail developers are assessing the feasibility of green certification as part of their development plans. The increasingly visible interest in the current green office, retail and residential buildings is driven by the desire of developers to differentiate their projects with the goal of creating a premium for their investments targeting the perceived high end tenant demand. For example, many multinational firms show preference for green certified office spaces when selecting their office spaces, which constitutes a promising tenant segment for the first green office buildings in the market. Similarly, a green certification can endorse that a retail building is designed and constructed to much higher standards than those seen in the market and can add a premium to the projectís value. However, green warehouses are visibly absent in the Russian green building market with the exception of South Gate Industrial Park (Radius Group) and Dmitrov Logistics Park (Beliy Rast Logistic LLC), as well as a limited number of production facilities with warehouses, such as those of Oriflame, SKF and Lindab.

THIS ARTICLE WAS PUBLISHED ON RUSSIAN GREEN BUILDING COUNCIL (RuGBC)'s WEBSITE ON 8 MAY 2014. CLICK HERE TO ACCESS TO THE ORIGINAL ARTICLE ON RuGBC WEBSITE.

 

GREEN BUILDINGS IN EMERGING MARKETS: CAN WAREHOUSES GO GREEN IN RUSSIA?

by

Dr. Kagan Ceylan, LEED AP+, BREEAM Int., PMP, MRICS

SPC Solutions, Moscow, Russia

May 2014

The first green office buildings of Russia are already in the market and increasing number of high end residential and retail developers are assessing the feasibility of green certification as part of their development plans. The increasingly visible interest in the current green office, retail and residential buildings is driven by the desire of developers to differentiate their projects with the goal of creating a premium for their investments targeting the perceived high end tenant demand. For example, many multinational firms show preference for green certified office spaces when selecting their office spaces, which constitutes a promising tenant segment for the first green office buildings in the market. Similarly, a green certification can endorse that a retail building is designed and constructed to much higher standards than those seen in the market and can add a premium to the project’s value. However, green warehouses are visibly absent in the Russian green building market with the exception of South Gate Industrial Park (Radius Group) and Dmitrov Logistics Park (Beliy Rast Logistic LLC), as well as a limited number of production facilities with warehouses, such as those of Oriflame, SKF and Lindab.

Despite such value propositions of green certification for high end office, retail and residential projects, the warehouse segment has received little or no attention in the Russian green real estate market to date. One possible reason is the perceived lack of demand for green warehouses in the market. Potential demand for green warehouse space is unknown to the warehouse developers. However, similar to green offices and retail centers, green warehouses can also create a premium for their developers and investors because they are likely to be perceived as those built to higher standards than others in the market with higher energy and water efficiency promising savings in operational costs, while providing better indoor environments for their occupants.

A number of reasons can explain the current lack of interest in green warehouse segment of the Russian real estate market. The common perception that green buildings cost significantly higher and whether this cost increase can be justified with the possible premiums that can be charged to future tenants are likely to top the list of these reasons.  Similarly, lack of knowledge about how green certification applies to warehouses and absence of first examples in the market make green certification an obscure idea for warehouse projects and contribute to the current inactivity in green certification of warehouses. Would green warehouses cost significantly higher than their counterparts (which in turn requires unjustifiable premiums that should be charged)? What is the gap, if any, between a typical Class A warehouses in the current market and those that would be eligible for green certification?

A Case Study to Assess Feasibility of Green Certification for Warehouses in the Russian Market

In order to assess the feasibility of green warehouse development, we conducted a BREEAM assessment for a Class A warheouse complex in the Moscow region to assess the feasibility of green certification. As part of our assessment, we reviewed the specifications of this warehouse complex and compared its existing design specifications with those requirements of BREEAM (Europe Commercial 2009) green building standard, a leading international green building standard, which is also applicable to warehouses. Throughout our assessment, we considered cost and feasibility of fulfilling the requirements of BREEAM as the main criteria in that whenever compliance with BREEAM requirements appeared to be deviating from common technologies used in warehouses or exceeded the observed best practices in the Russian construction industry (e.g., use of renewable energy or use of recycled materials in considerable amounts), we assumed such credits are not feasible for our sample project. Therefore, our assessment represents a worst case scenario representing the least rigorous additional investment to achieve reen building certification.

Results

In line with the BREEAM green building standard structure, we assessed the sample project’s compliance with the design stage BREEAM certification compliance in nine sections as shown in the table below.

 

Credit estimation for sample project under BREEAM Europe Commercial 2009

BREEAM section title

Existing compliance evidence or low cost upgrades as basis for anticipating credits

Anticipated credits

Management

Appointment of a commissioning agent, commissioning plan, best contractor practices, building user guide, project life cycle cost analysis (low cost measures or feasible to achieve)

4

Health & wellbeing

Glare control in office premises, high frequency ballasts, observance of minimum distance between air intakes and pollution sources, water treatment system (already in design or feasible to achieve)

5

Energy

Co-generators in design for reducing or eliminating energy consumption from federal network, submetering, low or zero carbon energy technologies (already in design)

10

Transportation

Transportation service to public transportation nodes, proximity to amenities, travel plan and limitations on car parking space to discourage driving (already in design or feasible to achieve)

6

Water

Water meters, irrigation system using rainwater, sustainable on-site treatment in the design (already in design)

3

Materials

Design for robustness (e.g., bumpers, corner protections where vehicular traffic exists) (already in design)

1

Waste

Dedicated waste storage collection area (presence of sufficient area within the project boundaries) (feasible to achieve)

1

Land use and ecology

Project site is of low ecological value, no ecologically sensitive features (e.g., no large trees, watercourses and wetlands) (according to project location and existing design)

2

Pollution

No refrigerants and refrigeration systems, surface water drainage system in the design (already in design)

3

TOTAL CREDITS

 

35

CORRESPONDING BREEAM % SCORE / RATING

31%/PASS

  

BREEAM Europe Commercial 2009 rating scale

BREEAM rating

% required

Outstanding

≥ 85%

Excellent

≥ 70%

Very Good

≥ 55%

Good

≥ 45%

Pass

≥ 30%

 

Conclusions

Our assessment for the possible design stage of our sample warehouse project demonstrates that the project can potentially get certified by employing the best practices and with the engineering systems that are already specified in the existing design for some of the high end warehouse projects in the market. Every project is unique and the features of our sample project may not be applicable to every other project. Also, the actual BREEAM certification process would be more comprehensive than our pre-assessment estimation of the anticipated credits. However, we believe our assessment demonstrates that warehouse developers and investors should at least investigate the feasibility of green certification as part of their investments in order to capture this potential opportunity that may be hidden in the existing project design. The effort and the incremental investment may well be worth the premium green certification can provide for their projects.

Our results also by no means mean that a warehouse project should target green certification by only complying with the minimum standards at the expense of more stringent requirements, environmentally sound practices and the very goals that BREEAM is meant to achieve in other areas. In practice, there are many strategies that would fit each individual project in addition to the one demonstrated above to achieve any BREEAM rating. However, each project can provide unique opportunities and strategies to achieve the desired rating because each project has unique design and project characteristics. Developers can improve the minimum rating of “Pass” to higher ratings (e.g., Good, Very Good, Excellent) by carefully conducting detailed analyses to identify which engineering systems can be upgraded in a more cost effective manner to achieve other/higher credits, exploiting the synergies between various credits in different sections, or implementing other creative and innovative solutions.

About the author: Kagan is the owner of private consultancy practice SPC Solutions (http://s-p-c.solutions) and obtained his M.Sc. and Doctoral degrees from Texas A&M University. He is a LEED Accredited Professional (LEED AP) on New Buildings (Building Design and Construction), Commercial Interiors (ID+C) and Existing Buildings (Operations and Maintenance). He is also a licensed BREEAM International Assessor. Kagan holds Project Management Professional (PMP) accreditation granted by Project Management Institute (PMI) of the U.S.A. and Member of Royal Institution of Chartered Surveyors (MRICS). Kagan is also a member of American Society of Civil Engineers (ASCE). He can be reached at kagan.ceylan@s-p-c.solutions by email or at +7 495 969 9

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