Can You Afford Not to Go Green? 1

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Wednesday, May 20th, 2015
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Around Australia, much has been written about the benefits associated with more sustainable and environmentally friendly buildings – lower operating costs, better indoor air quality, more productivity and higher levels of employee morale and staff retention.

For commercial property landlords and investors, this translates to lower levels of vacancy and higher rents as top tier tenants are more enthusiastic to snap up space and are willing to pay more when compared with what would be the case for less sustainable space.

But what of commercial building owners and investors who are sceptical and wary about making additional investment to improve their building’s sustainability credentials? Can buildings just go on as they are or is there a cost to not being green?

Certainly, it should be acknowledged that green building does have a cost. In the new building sphere, for example, as at 2007, efforts to achieve Green Star 5 or 6 ratings for new office buildings added on average 10 per cent to the cost of construction, according to a World Green Building Council report in 2012 – although the cost differential would have almost certainly come down to some extent since then.

With existing buildings, upgrades to boost water or energy efficiency do have a cost, and this must obviously be considered when thinking about the type of work to be undertaken and the costs and benefits of doing such work.

That said, the link between sustainability, occupancy, rental returns is clear. Around the world, buildings with a sustainable rating outperformed those which did not by 23 per cent, 22 per cent and 30 per cent from a perspective of occupancy rates, rents and capital values respectively, according to a GBCA report in 2012. Furthermore, the extent of out-performance increased with each additional level of certification. In short, those which did not have a sustainable rating performed much worse than those which did, leading to substantially higher levels of vacancy and reduced levels of rent and capital value.

In Australia, largely courtesy of mandatory disclosure of NABERS ratings upon the sale or lease of 2,000 square metres or more of commercial office space, as well as a strong desire on the part of commercial tenants to reduce energy costs, boost efficiency and morale and maintain their corporate brand, it would appear as though there was more of a cost of not having a sustainable rating than there may be benefits of striving for higher ratings.

A 2011 report by the Australian Property Institute, for example, found that buildings with NABERS ratings of less than three stars suffered discounts in capital values of 10 per cent and 13 per cent in Sydney and Canberra respectively. Jones Lang LaSalle sustainability director for Australia Chris Nunn believes the conversation is ‘not so much an upside conversation, it’s a downside’ in that landlords whose premises did not have sustainability ratings were stuck with buildings tenants did not want to rent.

Perhaps more to the point, in the leasing market, as much as it follows that leading commercial tenants who are sensitive about their corporate image will generally demand premises with high sustainability ratings, it also follows that they will shun premises that do not have top ratings, leaving owners of such buildings to focus on the smaller to mid-tier segment of the market.

Beyond leasing, a lesser talked-about impact is that on the investor side of the equation, where a growing demand for more productive and resilient assets is increasingly seeing investors shun real-estate portfolio managers whose buildings do not achieve strong sustainability ratings.

This means capital values of premises for which NABERS and Green Star ratings are less than optimal will suffer from a duel impact of lower leasing revenue potential and a direct boycott by parts of the investment market.

Furthermore, any failure on the part of commercial building owners whose premises do not achieve high ratings to upgrade will invariably mean missing out on the benefits of the some of the various federal and state incentive and assistance programs which are in place to encourage doing so.

But perhaps the biggest driver of all this, at least in some markets, revolves around their stock being relegated to lower grade sections of the market as new stock comes onto markets in places such as Sydney and Melbourne such as Sydney’s Barangaroo project.

Bottom line, while the level of investment required for some building upgrades cannot be understated – depending on the nature of the upgrade involved – neither can the costs of having building stock with sustainability ratings which are below premium levels.

Below is a list of some of the main State and Commonwealth Government programs and forms of financial assistance which commercial building owners can access for sustainable construction upgrades.

National

Clean Energy Finance Corporation

Provides finance for organisations with investment-ready renewable energy technology, low emissions technology and energy efficiency projects.

Commercial Building Disclosure (CBD)

A national program designed to improve the energy efficiency of Australia’s large office buildings. Most sellers or lessors of office space of 2,000 square metres or more are required to obtain and disclose a current Building Energy Efficiency Certificate (BEEC) under the Building Energy Efficiency Disclosure Act 2010.

A BEEC is comprised of a NABERS Energy star rating for the building, an assessment of tenancy lighting in the area of the building that is being sold or leased and general energy efficiency guidance. BEECs are valid for 12 months and must be publicly accessible on the online Building Energy Efficiency Register. There are also certain exceptions and exemptions.

Equipment Energy Efficiency (E3) Program

The core elements of the Equipment Energy Efficiency (E3) Program include Minimum Energy Performance Standards (MEPS) and the Energy Rating Label for regulated equipment and appliances. The program is managed by the Department of Industry, with Australian state/territory governments and the New Zealand Government, and is mandatory for retailers and importers of regulated equipment and appliances.

National Australian Built Environment Rating System (NABERS)

This is a performance-based rating system for buildings that uses a star system to rate a building on the basis of its measured operational impacts on the environment. The NABERS system now extends to 6 stars and is a simple indication of how well a commercial building manages the environmental impact of the resources used, compared with similar buildings.

National Greenhouse and Energy Reporting (NGER)

This is a national mechanism for businesses to report greenhouse gas emissions, energy production, energy consumption and other information specified under NGER legislation. NGER is mandatory  for companies which meet the NGER threshold, which as a guide includes those emitting more than 25,000 tonnes of carbon dioxide equivalent, or consuming more than 25,000 megawatts of electricity or 2.5 million litres of fuel in a year.

NSW

Energy Saver Program

Offers subsidised energy audits for small to medium sized NSW businesses. Opportunities identified through the audits may be eligible to generate tradeable certificates under the NSW Energy Savings Scheme. Audits can also be used to generate a NABERS rating in relevant businesses. The program also provides subsidised specialist audits for different types of technology and equipment such as lighting, industrial refrigeration and HVAC to facilitate adoption of cost-effective, commercially proven energy efficient technologies.

Environmental Upgrade Agreements

These agreements allow corporate landlords to borrow money at relatively cheap rates from financial institutions and repay the money via local council rates charges, attracting a more attractive interest rate compared with conventional loans as financiers are repaid by local councils (who are considered to be low-risk borrowers) rather than higher risk developers themselves.

Sustainability Advantage

An initiative to help businesses in New South Wales identify and implement environmental improvement projects that will reduce risk, lower costs and improve productivity. The program brings together groups of businesses into clusters that share regional, industry or supply chain interests. Cluster meetings are held three to four times a year and provide an opportunity to draw on the ideas and experiences of like-minded organisations. The program’s initial management diagnostic helps participants evaluate their current environmental performance and rank areas of priority.

Queensland

Advice on Low Emission Generation

Queensland’s Department of Energy and Water Supply website offers advice and information for building owners and local government on low emission generation of renewables including photovoltaic installations, co-generation projects, wind-turbines and other technologies.

ecoBiz

Supports Queensland companies to measure current energy, water and waste use, identify opportunities, and plan and implement efficient business practices. ecoBiz is run by the Chamber of Commerce and Industry Queensland.

Watt Savers

Aims to assist small to medium enterprise and community organisations in South East Queensland to save money and greenhouse emissions. The program includes fact sheets, telephone advisory services, workshops and information on accessing finance and funding options.

Environmental Upgrade Agreements

Agreements which allow corporate landlords to borrow money at relatively cheap rates from financial institutions and repay the money via local council rates charges, attracting a more attractive interest rate compared with conventional loans as financiers are repaid by local councils (who are considered to be low-risk borrowers) rather than higher risk developers themselves.

South Australia

BSA Energy Efficiency Program

A program funded by the South Australian Government to provide energy audits for small to medium businesses. Participating companies obtain an energy audit report with advice on capturing and analysing data as well as cost benefit analysis and a strategic action plan. Successful applicants receive 75 per cent of the costs of their energy assessments, up to $10,000 (excluding GST).

Retailer Efficiency Assistance Program (REAP)

Allows owners of residential and commercial property to purchase appliances or equipment to boost energy efficiency at discount prices.

Solar Cities Business Energy Efficiency Program

This program is part of the Adelaide Solar City project and is designed to assist small-medium and large companies, as well as business tenants and organisations, to cut power consumption, increase profitability and reduce the production of greenhouse gases. It includes an energy audit and assistance to develop and implement an action plan.

Environmental Upgrade Agreements (coming soon)

Agreements which allow corporate landlords to borrow money at relatively cheap rates from financial institutions and repay the money via local council rates charges, attracting a more attractive interest rate compared with conventional loans as financiers are repaid by local councils (who are considered to be low-risk borrowers) rather than higher risk developers themselves.

Legislation to introduce EUAs is before the South Australian parliament.

Tasmania

No specific energy related programs.

Victoria

1200 Buildings Program

Through the 1200 Buildings Program, the City of Melbourne is seeking to catalyse the environmental retrofit of 1,200 non-residential buildings, which represent 70 per cent of the commercial building stock within the municipality.

The program is managed through a strategic partnership between the City of Melbourne and the Sustainable Melbourne Fund (SMF) which offers environmental upgrade agreements to eligible building own.

Grow Me The Money

A 12-month online program designed to help small to medium sized businesses become more sustainable and save money. Grow Me The Money provides businesses with the tools, resources and support to use less energy and water, create less waste and save money and is partnership between Victorian Employers’ Chamber of Commerce and Industry (VECCI) and the Victorian Government.

Victorian Energy Efficiency Target (VEET)

This ‘tradeable certificate’ scheme is aimed at increasing consumer energy efficiency, reducing emissions and promoting investment, employment and innovation in energy efficiency industries. Accredited installers offer householders and businesses around 30 prescribed energy efficiency activities designed to reduce their energy use. The installers can convert these to Victorian Energy Efficiency Certificates (VEEC). The VEECs are typically sold to large energy retailers in Victoria which are required by law to surrender a certain number each year.

Western Australia

CleanRun – Let’s drive down emissions

A Western Australian government program aimed at improving air quality in Western Australia by reducing vehicle emissions. It is focused on heavy vehicles and fleet vehicles and includes an EcoDrive program for Transport companies to help them train their drivers to use safer, smarter driving techniques that maximise fuel economy by operating the engine as efficiently as possible.

Australian Capital Territory

ACTSmart Business Energy and Water Program

Aims to assist small businesses in the ACT to reduce energy and water use while lowering operating costs and reducing greenhouse gas emissions. The program offers a subsidised energy and water assessment conducted by a qualified assessor which will result in a tailored energy and water action report for the business. Businesses can claim 50 per cent of costs of upgrades recommended in the report, up to a maximum of $5,000.

Northern Territory

ecoBiz NT

A program for small to medium businesses in the Northern Territory to assist them to address energy and water use, materials management and consumption. It is based upon a six-step process which includes an audit of resource usage and an assessment of relevant efficiency measures with the ultimate aim of reducing business costs and improving efficiency.

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  1. Tony Arhanic

    Very Good article with referral points to assist in achieving a more sustainable rating for your building and associated occupancy rates and rental returns with doing so.