The green building movement sweeping Australia’s commercial office market looks set to leave some concrete casualties in its wake, as large investors look to sell their non-green assets.
The green building movement sweeping Australia’s commercial office market looks set to leave some concrete casualties in its wake, as large investors look to sell their non-green assets.
The cost of retrofitting older office buildings to Australian Building Greenhouse Rating (ABGR) and Green Building Council of Australia Green Star ratings is largely driving the move.
Also, image-conscious tenants, including federal and state governments, are refusing to lease buildings that are not up to the required standards.
ABGR and Green Star rating tools are often used together to help benchmark a building’s greenhouse emissions and assess its environmental impact through design, construction and end-use.
Addressing a green building forum in Perth last week, Ernst & Young real estate advisory services executive director, Richard Bowman, said landlords were actively selecting buildings solely on their sustainability, and buildings that had generally been regarded as premium and A-grade were now no longer considered desirable.
“I know of one major industry based superannuation fund that has sold down three buildings in the past three years, based solely upon those buildings not being able to meet minimum levels of sustainability on the ABGR index,” he said.
“They are critically analysing the costs of retrofitting those one-star or two-star buildings in order to achieve an average four-star ABGR, and if they can’t achieve that level, they are being sold.”
Mr Bowman said landlords also risked long-term capital losses if their non-green building assets underperformed in the current market.
“If you underperform the market by just 1.5 per cent over 10 years, the impact on capital value is 13.8 per cent,” he said.
On the demand side, Mr Bowman said the greatest factor affecting the commercial property sector was the federal government’s mandate for buildings to have a minimum 4.5-star ABGR out of five stars, where government tenancies exceeded 2,500 square metres.
Many states, including Western Australia, had followed suit, he said, by requiring that new office developments have a 4.5-star ABGR for the base building and the same interior fit-out standard.
“Unless a government department can continue to occupy a building that will make it to a 4.5-star Green Star, they will move out of that building…buildings which can offer these features will be at a competitive advantage in the market,” Mr Bowman said.
A recent survey by Ernst & Young showed marketability, attracting and retaining government tenants, and operational cost savings were the main reasons landlords chose to go green.
However, the word ‘choice’ is becoming something of a misnomer in the green building stakes, according to Cbus manager development Chris Kakoufas.
Cbus is spearheading the development of the $340 million One40William office and retail project above the William Street train station for the state government, which is aiming for 4.5-star ABGR and five-star Green Star ratings.
“The truth of the matter is we do it, in some instances, because we have to. In terms of 140 William Street, we did it because it was a requirement,” Mr Kakoufas told the forum.
“We’re concerned about obsolescence and if we’re holding developments and premium buildings that have a value in the order of $400 million or $500 million, it is important for us to make sure they hold on to their value.
“The danger of the non-green buildings is that they will become obsolete; tenants will move out of them and there will be a difference in rentals, which could create two markets.”
Mr Kakoufas said other than the risks, there were costs, and developers were currently bearing the cost of going green.
He estimated the construction cost of taking a building from four-star to five-star Green Star attracted a 3 per cent to 5 per cent premium, while going from five-star to six-star cost about 10 per cent more.
