Strong Link between Sustainability and Building Occupancy 1

Tuesday, April 14th, 2015
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Evidence of the link between sustainability and building occupancy throughout Australia is strong and hard to deny, leaders within the field of sustainable design and construction say.

According to Jones Lang LaSalle sustainability director for Australia Chris Nunn, the relationship between sustainability and higher returns on investment within commercial property was clearly established through a comprehensive Australian Property Institute report published in 2011 and had been persistently demonstrated through subsequent studies.

He said such a correlation applies as much to the downside as to the upside, with the 2011 survey showing not only a premium in capital value associated with office buildings with a five star NABERS Energy Rating as well as discounts of 10 per cent and 13 per cent in Sydney and Canberra respectively for buildings with NABERS ratings of less than three stars.

“There is a real correlation between [property demand and] a NABERS rating which is driven by mandatory requirements,” Nunn said. “There is also evidence of support around Green Star as well for premium commercial.”

“It’s not so much of an upside conversation, it’s a downside. If you don’t do it, you get left behind, you are stuck with a building no one wants to rent because it doesn’t satisfy those mandatory prerequisites that corporate tenants are expecting in terms of NABERS performance and Green Star Performance.”

Nunn said tenant support for sustainably certified buildings is being driven by a combination of the mandatory disclosure of NABERS ratings upon sale or lease of 2,000 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.

Beyond this, a further push is coming from investors, who are demanding assets that are both resilient and productive and are using tools such as the Global Real Estate Sustainability Benchmark to gauge the performance of portfolio managers’ real-estate stock in this regard. Nunn said this phenomenon extends beyond office assets and into other forms of commercial property such as retail and warehouses and is creating an incentive for corporate landlords and real-estate portfolio managers to raise the environmental credentials of buildings within their stock.

“It’s about access to funds,” Dunn explained. “For property owners, the question is, ‘will the investor that is going to give me the money to invest in future property developments have confidence in me as a property owner or portfolio manager that I am going to build and operate sustainable buildings which are more resilient assets and more productive assets from a financial return perspective in the long term?'”

Nunn’s sentiments have been echoed by Green Building Council of Australia chief executive officer Romilly Madew, who pointed out that a CBRE analysis as far back as 2009 found green buildings had an average vacancy rate which was 3.5 per cent lower than the wider market and rental rates which were 13 per cent higher than the wider rental market. More recently, a World Green Building Council report found buildings with a sustainable rating outperformed those which did not from a perspective of occupancy rates, rents and capital values by 23 per cent, 22 per cent and up to 30 per cent respectively, with the extent of out-performance increasing with each additional level of certification.

“There is lots of evidence,” Madew said.

Asked about critical success factors in maximising returns from sustainability investments, Nunn said that while many efforts thus far have focused primarily around projects with a shorter payback period such as lighting upgrades, it is important to adopt a longer term approach. This may include more substantial investments covering aspects such as HVAC systems, control systems and metering strategies as well as work on building fabric or facades and upgrades to shading or glazing.

He said new buildings such as Sydney’s Barangaroo present owners of older stock with a dilemma about whether to upgrade and compete with newer stock or spend less and focus on competing in lower grade section of the market.

“Certainly we have seen an initial focus on quick wins, lighting improvements and the like which has seen a lot of lighting upgrades which has a short payback,” Nunn said. “But the narrow focus on payback as a driver of what upgrades to invest in buildings is not necessarily the best long term strategy.

“I think what we are seeing now is an increasing focus on whole of life analysis as well as long-term opportunities for the effective running of the building that will also reposition the asset as a sustainable building.”

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  1. Tobin in Sydney

    Makes sense – the basic mindset of the market is changing.