Guest Post by Ashutosh Jha, Partner, StudioAXIS

Sustainability improves the internal rate of return (IRR) for projects in the Middle East in several ways, including faster absorption and price premiums; reduced operating costs; lower cost of capital; and future proofing against regulation.

Faster Absorption & Price Premiums

• WELL-certified residential towers in ME Region recorded faster sales velocity. Buyers perceived them as healthier, future-proof investments.

• LEED-certified office stock in ME Region leased quicker to multinationals seeking ESG compliance, reducing vacancy assumptions in cash flows.

 Impact on IRR: Higher absorption and reduced leasing risk bring earlier and larger cash inflows, pulling IRR upward.

Reduced Operating Costs (NOI Boost)

• LEED v5 emphasizes energy efficiency and carbon monitoring. A 20% reduction in energy bills translates directly into higher NOI.

• In Dubai, where service charges are scrutinized, this makes units more attractive to buyers and tenants.

 Impact on IRR: Lower OPEX increases NOI, raising exit value (since NOI ÷ Cap Rate = Valuation).

Lower Cost of Capital

• Banks in the UAE now explore green financing lines, offering lower margins for certified projects.

• Sovereign funds (Mubadala, PIF) prefer ESG-aligned investments, widening the equity pool.

 Impact on IRR: Cheaper debt and more available equity reduce WACC, pushing NPV and IRR higher.

Future-Proofing Against Regulation

• Dubai’s 2040 Master Plan and Saudi’s Vision 2030 both embed sustainability as non-negotiable.

• Projects not aligned may face approval delays, slower sales, or higher exit cap rates.

 Impact on IRR: Sustainable alignment reduces regulatory and exit risk, stabilizing long-term returns.

 Ashutosh Jha is Partner at StudioAXIS