The ESG Imperative Series

Dubai's Growing Population Drives Expansion

Dubai's real estate market has been on an upward trajectory, driven by positive sentiment and robust economic indicators. The city's population is projected to reach nearly six million by 2033, and further expand to 7.8 million by 2040, aligning with the government's 2040 strategic urban plan. To meet these population targets, Dubai will need to double its current housing stock, with a significant focus on the high-end villa segment.

Sustainability in the Commercial Market

Sustainability is not limited to residential development but extends to the commercial market. Environmental, social, and governance (ESG) considerations are taking centre stage. International businesses are keen on green-rated buildings to address climate concerns and attract top talent.

The Green Building Race

The Middle East is increasingly focusing on sustainability in urban areas, but it lags behind other regions due to older buildings and limited new development. The UAE, particularly Dubai, has a high concentration of green-rated buildings, ranking 14th globally. London leads with nearly 3,000 green buildings, followed by New York and Singapore. Dubai is the only Middle Eastern city in the top 25 globally, with 563 environmentally accredited buildings. However, a challenge is that locally certified green buildings may not attract international investors. Saudi Arabia ranks 54th, while Kuwait and Oman have 12 green-accredited buildings each, placing them at 69th and 70th positions, respectively.

Saudi Arabia's ESG Transformation

Sustainability has been a foundational element of Saudi Arabia's Vision 2030 from the outset. While Environmental, Social, and Governance (ESG) trends have gained traction globally, they remain relatively new concepts in Saudi Arabia and the wider Middle East. The Saudi government has launched various green energy generation projects to produce 3,300 megawatts (MW) of renewable energy, including the development of large-scale solar farms and wind farms.

The Kingdom's Sustainability Efforts

Saudi Arabia is taking comprehensive steps to promote ESG practices and achieve its 2060 net-zero target. The government, in collaboration with businesses and investors, is working toward building a more environmentally friendly, socially responsible, and transparent economy. The government is actively working towards mitigating climate change impacts. It has pledged to reduce its carbon emissions and has signed the 2015 Paris Agreement. Initiatives like the Saudi Green Initiative and the Middle East Green Initiative aim to combat climate change by promoting sustainable practices and investing in clean technologies.

ESG in Investment

ESG considerations are swiftly becoming a priority for investors in Saudi Arabia. Financial institutions and asset managers are incorporating ESG factors into their investment decision-making processes. The Saudi Stock Exchange (Tadawul) launched ESG disclosure guidelines in 2021, providing a framework for companies to report on their environmental, social, and governance performance.

Government Initiatives

The Saudi government has introduced several reforms to enhance corporate governance practices and transparency. Notably, the Capital Market Authority (CMA) has implemented the Corporate Governance Code, which outlines standards for boards of directors, disclosure requirements, and shareholder rights. As a result of these reforms, there has been a substantial 30% increase in foreign investment, reflecting growing investor confidence in the Kingdom's commitment to improved corporate governance and transparency.

Resilience through Digital Connectivity

Digital connectivity plays a critical role in ESG+R (Resilience) goals. Saudi Arabia has recognized the importance of improving digital infrastructure, Investments in digital infrastructure, such as fibre-optic networks and 5G technology, have substantially improved internet speeds and coverage. The Speedtest Global Index ranks the Kingdom’s mobile internet speeds as the 11th fastest in the world, while broadband speeds position the country in 41st position globally.

ESG Imperative

The “ESG Imperative”: The View from the Middle East, delves into the growing significance of Environmental, Social, and Governance (ESG) considerations on a global scale. This report provides valuable insights from 2022, into the impact of ESG in today's real estate landscape, shedding light in shaping the future of commercial assets, occupier preferences, and investor decisions. with 40% of global greenhouse gas emissions originating from buildings. ESG-rated assets are in high demand, with clear evidence of rental premiums, particularly among international blue-chip businesses.

Dubai's Green Transition

Dubai is at the forefront of the global green awakening, experiencing a significant rise in office rents. Demand for top-quality office spaces is surging, with rental growth particularly pronounced in areas with modern stock. In Dubai, average renovation/refurbishment costs for office buildings range from approximately AED 280 per square foot (psf) and can be as high as AED 580 psf. The transition reflects the growing importance of Environmental, Social, and Governance (ESG) principles. Businesses are actively seeking prime Grade A office spaces with a strong preference for green-rated buildings.

Green Building Certifications

Internationally recognized green rating systems such as LEED and BREEAM are shaping modern building standards. Globally, there are 80,000 LEED-certified buildings and 2 million buildings covered by BREEAM in 50 countries. WiredScore sets the global standard for technology in the built world, impacting over 800 million square feet across 36 countries.

Global Demand for Prime and Green Spaces

International businesses are actively pursuing prime Grade A office spaces, placing a strong emphasis on green-rated buildings. Rental premiums for ESG-rated assets range from 3.7% to 12.3% for prime Central London offices. The market is witnessing a surge in rental growth in locations with modern stock, while older buildings may need to adapt to remain competitive in a rapidly changing landscape.