As office vacancy rates hit their highest level in decades, a leader in the Western Australian property sector has called upon whomever wins government in the upcoming election in that state to embrace a form of finance which provides for a less expensive way to upgrade older buildings in ways which improve sustainability and energy efficiency.

In a recent statement, Property Council WA Executive Director Lino Iacomella has called for whoever wins power to pursue amendments to the Local Government Act to allow for councils to enter building upgrade agreements – a type of finance mechanism which enables commercial property owners to access loans to finance upgrades which improve the environmental performance of buildings at cheaper rates than would be the case with normal commercial loans through the loans being tied to a property rather than a property owner and repayments being collected via a council levy.

Iacomella said such agreements wold not only help to improve the environmental performance of buildings and reduce operating costs whilst improving the working environment for corporate tenants but would also help to spur a revival in CBD building activity at a time when Perth office vacancy rates (21.8 percent) were sitting at twenty year highs and the state economy was struggling.

“The introduction of building upgrade finance schemes, in the form of accessible loans, would act as an incentive for the improvement or re-adaption of aging buildings and address the emerging problem of rapidly deteriorating older commercial buildings in the CBD,” Iacomella said.

“Importantly, this scheme will also lead to a more sustainable built environment.”

Also known as environmental upgrade agreements, building upgrade agreements are a type of finance which involve commercial property owners, local councils and financial institutions.

Under these agreements, commercial landlords borrow from financial institutions to pay for upgrades to improve the energy or water efficiency of their buildings.

The loans are repaid by local government, which in turn collects repayments (which are tied to the building rather than through its owner) through council rates.

With repayments being secured through rates (and thus representing lower levels of risk from the financiers perspective), these type of mechanisms allow for commercial property owners to access finance at a rate which is less expensive than would be the case under a normal commercial loan.

In addition, legislation in place throughout others states enables commercial landlords to enter into arrangements with their tenants for the tenant to contribute toward the loan repayment out of cost savings derived from the efficiency improvements – something which is typically not ordinarily allowable under regular commercial leasing legislation.

This overcomes a situation which would otherwise be the case whereby landlords typically financed the upgrade but it was commercial tenants who indeed derived the primary benefits associated with the cost savings.

Legislation to enable such agreements is currently in place in Victoria, New South Wales, Queensland and South Australia.

Iacomella said whoever wins government should move to introduce this form of finance in Western Australia.

“The property industry is calling on the winner of next year’s state election to commit to changing the Local Government Act to allow councils to enter into building upgrade agreements,” he said.