Building for the “new normal”
As the world continues to grapple with an ever-shifting economic landscape, owing to the COVID-19 pandemic, stakeholders in the building sector across the GCC region have observed how the pandemic has triggered an evaluation and reassessment of priorities. Ashok Jha, Head FM and Retrofit Projects, Universal Voltas, points out that the unprecedented disruption caused by COVID-19 has prompted many organisations to take actions they have been putting off for some time, including launching new digital services and evolving their business models, enabling greater flexibility in their working and implementing cost optimisation measures.
However, Jha says, perhaps the most notable trend would be the move towards a greater number of retrofit projects in the region. “Because of the COVID-19 pandemic, the oil prices plummeted to one of the lowest levels and government revenues went down in the GCC region,” he says. “This has led to reduced spending across all sectors, including new construction, with the current market seeing greater push towards shallow retrofitting, deep retrofitting, energy conservation and reducing the building carbon footprint in the existing buildings to make them more sustainable.” Jha says that since the number of existing buildings in Oman, Kuwait and the UAE is very high compared to new buildings, there was also a need to address the physical deterioration of the buildings, due to functional and economic obsolescence, and to make them more sustainable. “Because of this, there is a surge in demand for the retrofitting of the existing buildings across the GCC region,” he says (see sidebar).
Andrea Di Gregorio, Executive Director, Reem, Ras Al Khaimah Municipality, also believes the region is poised to see a strong pipeline of retrofit projects. “More focus is being put in refurbishing existing buildings, to bring them up-to-speed with the latest best practices in sustainability,” he says. “We see an increase in interest from building owners in retrofit activities, and we expect this interest to further increase throughout 2021 and in the coming years.”
Energy efficiency and sustainability
Another major driver for retrofits is the move towards energy efficient and sustainable practices, which has long been heralded by experts in the sector. Jha points out that because of the detrimental impact of buildings on the environment, with occupied buildings and the construction sector accounting for 36% of the global energy consumption and nearly 40% of total direct and indirect CO2 emissions according to International Energy Agency (IEA), the UAE has begun to actively transition into smart and sustainable cities, which has turned the focus on the energy efficiency of the buildings, specifically existing ones.
In addition to its impact on overall sustainability efforts, much of the move can be attributed to growing awareness on return of investment in terms of reduced operational cost. As Jha points out, retrofitting primarily refers to the measures being taken to replace legacy energy and utility systems with new and energy-efficient technologies. “These technologies not only reduce energy consumption and decrease carbon emissions but also lower maintenance costs, improve safety, enhance productivity, boost property valuations and also prolong the useful life of the assets and the building as a whole,” he says. “In a nutshell, we can say that OPEX of the building reduces and the asset value increases. Hence, it is becoming important day by day to retrofit buildings to not only make them more sustainable for the future but also to derive economical value by reducing the operational cost and, in turn, optimise the rentals and make them more lucrative for the tenants.”
Weighing in, Di Gregorio says that sustainable buildings often result in lower life cycle cost of the building itself. “If sustainability features are carefully selected, operational savings – in terms of energy and water usage and equipment maintenance – typically exceed any incremental investments that those features require,” he says. “For this reason, in a perfect market, where developers are able to fairly monetise their investments in higher quality buildings, we would expect for tenants any rent premiums for more sustainable buildings to be exceeded by the value of operational savings.”
Jha adds that as energy prices continue to rise, the relative benefits of energy efficiency will become increasingly important, and this is leading to a huge surge in demand for equipment, such as Smart LED lights and motion sensors, air curtains and FAHUs, energy-efficient AHUs, FCUs or split units and VAV systems. This has also led to greater demand for water usage reduction through the use of low-flow fixtures, sensors, waterless urinals and low-flush WCs, and also for photovoltaic panels on rooftops to generate electricity from the solar power, among other solutions.
A renewed focus on IAQ
While the return on investment (ROI) from retrofitting for energy efficiency is becoming clear, stakeholders are hopeful that the new wave of retrofits would also accommodate enhancements of indoor air quality (IAQ), which has been typically overlooked over the past years. Di Gregorio says that he believes this would be the case. “There is increasing interest in IAQ, partly driven by COVID-19 concerns,” he says. “Some awareness and technical barriers are there; nonetheless we foresee development in this area in the future.”
Jha shares a similar opinion. He says: “Fear of pandemic is looming large in the minds of the people, and therefore, while carrying out the retrofitting of their buildings, owners are ensuring that retrofit projects also take into consideration IAQ of the buildings, where people are currently spending more than 90% of their time and also to reduce the chances of contamination through virus, bacteria, moulds and fungi.”
Di Gregorio says there is a lot of focus on safety and security from building owners, particularly in what concerns disinfection of common areas. “This sometimes adds to other measures, like filtration, turning into improved air quality,” he says. Jha adds that some of the measures that building owners are taking include Demand Control Ventilation through C02 sensors, fitting volume control dampers, ultraviolet lamps in AHUs, ultraviolet germicide irradiation and MERV 13/14 filters. He further adds that there has been an increase in the use of humidifiers and dehumidifiers to maintain humidity in the range of 40-60%, where the microbial and fungal growth is minimal.
Jha also says that the majority of the offices are allowing their staff to work from home and that people are spending more than 90% of their time indoors. “This further necessitates that apt measures are taken by the occupants to ensure proper lux levels, ergonomics and IAQ, as these will have a profound impact on their health and wellbeing and, in turn, impact their productivity,” he says. “Hence, there cannot be a better time than now to address the Indoor Environment Quality (IEQ) issues, if any.” Jha says these are the factors driving a lot of investment being done by the property owners in the built-environment to retrofit their buildings to ensure proper IAQ against the traditional retrofit, where emphasis was mainly towards energy efficiency.
Making a case for retrofits
Keeping in mind the tangible and intangible benefits of retrofitting, Di Gregorio believes there is more than enough evidence to drive building owners to invest in such initiatives. “If building owners are not thinking about retrofits, they definitely should!” he says. “Retrofit projects tend to have very favourable returns. We are observing that for comprehensive retrofits of commercial buildings in Ras Al Khaimah, the payback time is 3-5 years. And the contracting standards that are being adopted often provide forms of guarantees for the investor on those returns.”
Jha, agreeing, says that in spite of the change in the occupancy profile of buildings, property owners must continue to retrofit within the built-environment. “Retrofitting of existing buildings offers tremendous opportunities for improving asset performance in terms of utilities,” he says. “Retrofitting also offers a potential upside in the overall performance of the building through improved energy efficiency, increased staff productivity, reduced maintenance costs, and better thermal comfort.” Jha believes that such key drivers should serve as a motivation and incentive for building owners, who are on the fence about investing in retrofit projects.
A complete 180
In view of the shifting political landscape, how will the new administration affect the country’s commitment to climate change mitigation?
It’s going to be a complete 180 from the [Donald] Trump administration. In [Joe] Biden’s plan, he mentions “a historic investment” in upgrading four million commercial buildings to return almost a quarter of the savings from retrofits to cash-strapped state and local governments. Specifically, it says that he will “mobilize a trained and skilled American workforce to manufacture, install, service and maintain high-efficiency LED lighting, electric appliances, and advanced heating and cooling systems that run cleaner and less costly”.
Given our focus on energy savings, I think that this will be great for business as well as for building owners. Some suggest that large rebates may be involved to directly incentivise businesses and make it affordable to pursue these upgrades.
That being said, although the Trump administration was not at all focused on energy conservation, I found that individual building owners and managers were still pursuing these measures during the Trump administration. Most organisations in the US are interested in conserving energy and saving money. With government focus and incentives, it will just accelerate the demand.
In view of COVID-19, do you see a greater uptake of IAQ equipment throughout the country?
Yes, for sure. However, these things come with a cost, and with COVID destroying the economy, there is going to have to be some kind of funding or incentives given to get these types of retrofits in place. I will give you an example. Two of our clients in the US requested ultraviolet lighting proposals to be retrofitted into their air handlers and FCUs. We put together the proposals and delivered them; however, neither has been approved yet due to the difficulties these buildings are facing financially due to delinquent tenant rent payments and occupancy.
Another interesting fact is that most of these IAQ retrofits are not intended to deliver energy savings. That is another hurdle to getting these projects approved. One last point – and I don’t think this is limited to the US – customers in the UAE have also asked for ultraviolet lighting to be installed, and it is still difficult to get the approval here, for the same reasons mentioned earlier.
Has there been a heavier-than-usual concentration on the air side of things from building owners, tenants and manufacturers?
The EPA has recommended that guidance provided by the American Society of Heating, Refrigeration and Air-Conditioning Engineers (ASHRAE) for managing IAQ during the current pandemic be followed. ASHRAE’s statement is as follows: “Transmission of SARS-CoV-2 through the air is sufficiently likely that airborne exposure to the virus should be controlled. Changes to building operations, including the operation of heating, ventilating, and air-conditioning systems, can reduce airborne exposures.”
The two solutions we have seen implemented in the buildings we service in the USA are AHU filter upgrades and increasing the intake of outside air into the building. Both of these changes are very effective and relatively easy to implement as well as low cost.
How has the change in occupancy profile thrown everything into a state of chaos in terms of commercial and residential property requirements? Will this be a driving force towards more retrofit projects?
In terms of energy conservation measures, this has thrown everything into a state of chaos. One, the commercial buildings are hardly occupied, which has led to energy bills dropping dramatically. However, with less occupancy comes less rent, thus less money to invest in retrofit projects. In addition, building owners, who are still looking for energy savings, are hesitant to move forward, because they are not sure if and when tenants will be returning to the buildings, so to be honest, unless it’s a well-funded customer, this could actually slow the conservation efforts.
Residential buildings face the same issue. People are leaving the dense, populated cities, preferring the suburbs right now, leaving residential multi-family buildings unoccupied and no rents being paid. Until we get herd immunity with the vaccine, and people are comfortable returning to the cities to work and live, this will continue to be challenging.
How have these trends potentially influenced building owners?
As I stated earlier, most building owners are hesitant even if they want to move forward on new projects, given the current situation. However, some forward thinkers, with ability and the confidence that things will return to normal, are taking this time to invest in conservation efforts, so that when the buildings are occupied, they can take advantage of the maximum savings.
Have there been efforts to retrofit among specialised facilities such as healthcare?
At the moment, it is difficult to even get a meeting with a healthcare facility in the US. They are overwhelmed and have overcapacity with COVID patients and are focused on saving lives before anything else. Their priority right now is the conservation of life.
Has the pandemic finally trained the spotlight on the importance of having a balance between energy efficiency and IAQ?
I think that yes, people will be investing in IAQ, or at least investigating their options, especially healthcare facilities and the like. However, in my experience, to be honest, it’s a tough sale, unless there’s a Return on Investment (ROI) in the project. Having said that, UV lighting does have some energy-saving benefits, so maybe a combination of IAQ and energy savings should be highlighted to the building owners in the presentation of these retrofit solutions.
Retrofitting in Kuwait, Oman and the UAE
COVID-19 has had a significant adverse impact on organisations, people’s health, their livelihoods and the economy at large in the GCC region countries, says Ashok Jha, Head, FM & Retrofit Projects, Universal Voltas LLC. However, Jha is quick to point out that while the duration and severity of COVID-19’s impact on economies and sectors will undoubtedly vary, companies and governments in the GCC region have done well to set in motion a “look ahead, anticipate, innovate and adjust” roadmap, which has led the construction sector to focus on energy optimisation and retrofitting in existing buildings, which is a key to sustainable construction.
Citing figures from Global Data, a leading data and analytics company, Jha says that Oman’s construction industry contracted sharply in 2020, plummeting by nearly around -10.3%. “The industry is struggling with challenges presented by the COVID-19 outbreak, low oil prices, and the impact of sovereign credit rating downgrades,” he says. Further compounding the downside risks to the outlook for the industry, the Omani Government has had to rationalise spending.”
Jha adds that given the limited prospects for the government to boost investment in infrastructure and other investment projects, a recovery in the construction sector is expected to be very slow. “Global Data currently expects the construction industry to fall further in 2021, with output contracting by -5.8%,” he says. “The fiscal plan by the Oman Government is intended to reduce public debt, increase the state’s reserves, and diversify revenue away from the oil sector.”
Owing to these factors, Jha believes that new construction spend will be very minimal, and more impetus will be on the retrofitting, deep retrofitting, fit-outs and energy performance optimisation in the built-environment in Oman.
Kuwait has faced similar challenges, Jha says, adding that the construction market shrunk in the year 2020 at about -9.5% approximately, as per Global Data. “The construction industry is struggling with the challenges presented by the outbreak of COVID-19, low oil prices and the impact of sovereign credit rating downgrades,” he says. “Because of this, focus is more towards existing buildings in Kuwait.”
Jha adds that within the built-environment in Kuwait, residential buildings constitute around 81%, commercial buildings are 11%, whereas government buildings constitute four per cent; the remaining four per cent includes commercial, industrial, agricultural and services. “Also, Kuwait has one of the highest per capita electricity consumption and carbon footprint globally, which further necessitates the retrofitting of the buildings to make them more sustainable,” he says. “All the above factors, along with the economic strain, is forcing Kuwait to focus on energy conservation, deep retrofitting, retrofitting and fit-outs in the built-environment with a very minimal spending on new construction.”
Sharing observations on the UAE market, in particular, Jha says that the COVID-19 outbreak, coupled with low oil prices, has led the construction output in the UAE to contract by nearly 4.8% in 2020, but that a rebound is expected in 2021, as per Global Data. “New project opportunities are expected to be minimal in the coming quarters, as the government is consolidating its widening fiscal debt and COVID-19-related force majeure,” he said. “Over the medium- to longer-term, government investment will remain focused on upgrading physical infrastructure and reforming the financing and regulatory environment.”
Jha adds that the UAE has set high targets for building retrofit, which are reflected in the UAE Energy Strategy 2050 and the Dubai Integrated Energy Strategy. “The latter targets an overall 30% reduction in energy and water use by 2030,” he says. “To support this, Etihad ESCO aims to retrofit 30,000 buildings in the next 10 years and generate 1.68TWh energy savings and around 5.64 BIG of water savings by year 2030.”