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In conjunction with Cityscape Intelligence, Landmark Advisory launched the first Green Building Survey in April

2010. The sample targeted the Cityscape Intelligence client base identified as a diverse group of real estate industry

stakeholders with significant interest in the regional properties markets. The target group and survey design focused

on evaluating the institutional perspectives on the feasibility of green buildings in the UAE. This report reviews the

results of the initial survey, which is the first in a series of green surveys and research initiatives by Landmark

Advisory exploring the perceived and actual feasibility of green buildings in the UAE as well as the current and

potential demand drivers underpinning sustainable real estate.

Improving the sustainability of the UAE starts with making our buildings green. Each year, buildings consume large

portions of resources and produce pollutants. According to the US Green Building Council, buildings in the US

account for 72% of total electricity consumption and 39% of all energy use; moreover, buildings produce 38% of all

carbon dioxide (CO2) emissions1. Improving the sustainability of real estate is pivotal in ensuring the long term

viability of expanding metropolitan areas in the UAE.

Initiatives like the Pearl Rating System under Estidama and Masdar City in Abu Dhabi as well as the Green Building

Project in Dubai illustrate clear commitment at government levels to improve the sustainability of the local real estate

markets. In both markets, regulation is in progress setting a minimum green standard for new government

developments. While such top-down initiatives are critical first steps in moving towards a sustainable property

market, it is also essential to understand the perspectives of various industry stakeholders including awareness of

the many benefits and challenges associated with building green. Equally, it is important to evaluate stakeholders

perception of the potential demand drivers for green real estate in the UAE.

Landmark Advisory conducted the online survey in April/May 2010 with a total sample size of 241 respondents. The

sample comprised a diverse set of real estate industry stakeholders with respondents working in the following

sectors: real estate investment, development, construction, architecture, interior design, valuation, and consultancy

as well as private investors.

1USGreenBusinessCouncil,July2010http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1718

Bridging the Green GapThe Case for Green Buildings in the UAE

Green Building Survey Results, July 2010

Fairmont Hotel, Office 612,

Sheikh Zayed Road, Dubai

United Arab Emirates

Tel: +971 (4) 332 1717research landmark-advisor .com

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The objective of the first survey was to establish an understanding of stakeholder awareness of and opinions on the

basic viability of green buildings in the UAE. The vast majority of the sample reported that they do have a grasp on

the concept of green buildings with approximately 96% of respondents reporting an understanding of what a green

building is. This does not test actual understanding, but rather self assessment of knowledge, which is subjective.

While this is an elementary question, it is important to first test basic awareness as building green is still anemerging trend in the region.

Fostering awareness through education is the critical first step in building a sustainable property market. In 2008 a

survey conducted by Turner Construction Company, executives reported that the primary obstacles to green

construction included documentation and cost of LEED certification (54%), higher construction costs (50%), length of

payback period (50%), lack of awareness of the benefit of green construction (48%), difficulty quantifying benefits

(43%), short term budget horizons (41%), more complex construction (28%), and increased operating costs (23%)2.

Perception of green buildings: commonly associated attributes

The benefits of green buildings are extensive and the responses indicated an awareness of a range of benefits. The

attributes most commonly associated with green buildings were:

Environmentally friendly (83%)

Lower utility bills (54%)

Better design (36%)

Respondents rated statements based on a 5-point Likert Scale from Strongly Disagree (1 point) to Strongly Agree (5

points). Although the results were positive signs, the average rating indicates moderate sentiment with four of the

five statements consistently rated between neutral and agree. The results indicate a stronger preference for

green buildings developing among office tenants/end-users over the next 5 years compared to residential

tenants/owner-occupiers.

Respondents agreed that they would be more likely to invest in or develop a green building because it helps the

environment rather than investing in or developing green buildings for enhanced asset value. This statement

2GreenBuildingMarketBarometer2008,TurnerConstructionCompany,July2010http://www.turnerconstruction.com/Uploads/Documents/Turrner_2008_Green_Building_Market_Barometer.pdf

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received the highest rating of 4.2, which is between agree and strongly agree. Rather than predicting the actual

motivation underpinning behavior, this is more likely attributed to barriers that obscure the tangible benefits of green

buildings. Obstacles can stem from lack of awareness, uncertainty of outcomes, and systematic factors that limit

incentives for the developers. For example, the developer may have to bear the initial costs, but does not gain from

the operational benefits in the case of net leases and the off-plan development model, both of which are commonpractice in the UAE. Moreover, green buildings are considered to command higher rents and have a higher resale

value, but there is limited data to validate these claims3.

Demand drivers underpinning green office space

The survey also tested potential demand drivers for relocating to or establishing a new office in a green building. The

respondents reported the following as the primary motivating factor in such a decision:

Environmentally friendly (75%)

Lowers my utility bills (70%)

Healthier for my employees (56%)

The Case for Green Development

3Yudelson,Jerry,TheGreenBuildingRevolution,IslandPress,2008.

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Respondents reported a perceived willingness from the development and investment communities to integrate green

buildings into their business model. When asked if developers are now willing to build green buildings, 66% of

participants responded positively. Similarly, when asked if investors are now willing to invest in green buildings, 60%

respondents indicated yes.

However, when asked about the feasibility for developers to build and sell/lease green buildings in the UAE,

respondents indicated this would be viable in 2-3 years time (25%). Note that 20% of respondents think it is already

feasible to build and sell/lease green buildings in the UAE.

On the investment side, real estate industry stakeholders indicated an overall willingness to incur higher costs in

order to reduce operational costs each year. When given the opportunity to save 20% on operational costs each

year by building a green building, respondents indicated they are willing to incur 5-6% more in construction costs.

The Case for Green Retrofitting of Existing Buildings

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The current state of the real estate market in Abu Dhabi and Dubai suggest that limited new developments will be

launched in the short to medium term. Over 200,000 new residential units are expected to be delivered in Abu Dhabi

and Dubai over the next 5 years. Similarly office space is virtually doubling in both cities over the same period.

Consequently, the market will need to absorb a significant portion of these units before developers consider

launching new developments. For example, we estimate that Dubai residential vacancies will only fall below 5% in2017/2018. Assuming a 3-year construction timeline, significant new development activity could resurface in 2014.

While Abu Dhabis residential market is currently undersupply, demand has overflowed into substitute markets like

Dubai. When both residential markets are considered together, the average vacancy falls below 5% in 2015/2016,

which indicates development could potentially restart earliest in 2012. While the undersupply in Abu Dhabi has the

potential to shorten the residential cycle in Dubai, other factors like financing limitations will remain barriers to a swift

reemerge of new project launches.

All else equal, the office market will remain stagnant much longer than the residential market with absorption of the

anticipated office supply pipeline likely extending more than a decade. Consequently, retrofitting existing office

buildings with green building products and systems is central to any discussion around improving sustainability in the

real estate industry in the coming 5-10 years.

Respondents indicated reasonable financial expectations to retrofit buildings with a return on investment (ROI) of 16-

20% over 5 years. Essentially this would indicate a payback period of just over 4 years.

UAESupplyTrends ResidentialandCommercial

5yearsupplypipeline Supplyincrease(2014/2009)

Residential

(totalunits) AbuDhabi 106,000 59%Dubai 102,000 29%Commercial(totalm) AbuDhabi 1,730,000 96%Dubai 3,570,000 91%Source:LandmarkAdvisory

Note:thisonlyincludessupplyestimatesforAbuDhabiCityandDubai

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Additional regulation to push green building forward in the UAEIn addition to considering the financial incentives required to change behavior, the survey also assessed the need

for regulation to improve sustainability in the UAE property market. While regulation was perceived as having a

positive impact on the feasibility of green buildings, the average rating indicates moderate sentiment regarding the

need for regulation with the scores consistently positioned between neutral and agree.

However, when asked to evaluate statements about the need for subsidies, respondents agreed that government

subsidies are required to induce landlords to retrofit their buildings as well as to induce developers to build green

buildings. Regarding more general regulation, the results indicate a minimum green standard for new buildings

should be implemented immediately while a minimum green standard for retrofitting existing buildings should be

implemented in 2-3 years.

While the survey results indicate a greater potential for green office demand to emerge over the next 5 years

compared to green residential demand, the office market faces significant challenges with the supply glut expected

to extend over a decade in Abu Dhabi and Dubai. Clearly new development in this sector is extremely unlikely in the

near future. Thus, establishing green standards in the office sector will depend almost wholly on the retrofitting of

existing buildings. Any regulatory changes considered should, therefore, focus on establishing minimum standards

and providing financial incentives specifically for the retrofitting existing office buildings or those currently under

construction. In the residential segment, regulation is required that will improve the sustainability of both newdevelopments and existing buildings.

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Although touted as a significant factor, it is unclear whether the environmental benefits of green buildings alone will

actually induce industry stakeholders to adopt sustainability principles into business strategies. Illustrating the

financial benefits and risk management benefits of green buildings is more likely to provide impetus for change,

especially in the current economic climate. Together with regulation and educational initiatives, providing financial

incentives and expanding awareness for the proven financial benefits of green buildings could be an effective

strategy improving sustainability of real estate in the UAE.

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DISCLAIMER

Information contained herein was obtained from sources believed to be reliable. While we are confident in its accuracy,we offer no guarantees, warranty or representation about it. It is the reader's responsibility to independently confirmaccuracy and completeness. Any projections, opinions, assumptions or estimates used in this report represent themarkets performance at the time of publication. This information is published exclusively for use by Landmark Advisory

and may not be reproduced without prior written consent from Landmark Advisory.

Analyst certificationThe analysts responsible for this report certify that the opinions expressed herein accurately reflect their personal viewsand that no part of their compensation was, is, or will be directly or indirectly related to the recommendations or viewscontained in this research report or any outcomes thereof.

Additional disclosures1. This draft report is dated as 7 July 2010.2. All market data included in this report are dated as at close 30 June 2010, unless otherwise indicated in the report.3. Landmark Advisory has procedures in place to identify and manage any potential conflicts of interest that arise inconnection with its Research business. Analysts and other staff involved in the preparation and dissemination ofresearch are managed and operated independently of Landmark Properties. Organisational barriers between the

brokerage and advisory/research businesses ensure that any confidential and/or price sensitive information is handled inan appropriate manner.