19 November 2009 –The inaugural conference on Profitable Sustainability in Property, held in Sydney last week, brought together the pointy end of the property industry – decision makers and those with financial influence from valuers to developers, engineers to bureaucrats –all keen to hear whether or not green was good for the bottom line.
And the conclusion? A resounding Yes.
The clear message for the day was that the evidence is now in – sustainable buildings do make more money.
Jointly organised by the Australian Property Institute and Australian Direct Property Investment Association, the conference was abuzz with global case studies, anecdotal evidence and mathematical formulas. Government representatives also updated delegates on state and federal policy such as green leases and mandatory disclosure of building energy efficiency.
API NSW president, Robert Hecek, set the tone for proceedings in his welcome speech, pointing out that “ sustainable design needs to be profitable” and “any regulation must be cognizant of the financial viability of projects.”
Sustainable development can be profitable anywhere
Keynote speaker, Guy Perry, president and founder of global design and development company IN-VI, showed sustainable development can always be profitable, even in the most unlikely locations.
With projects operating across the globe, IN-VI has considerable experience in transitional economies in central and eastern Europe and South America. All of its projects make financial sense, said Perry.
“We are redefining markets with more sustainable masterplans and development strategies. And these are all economically viable projects.
“There is no point discussing sustainability in an economic vacuum – they need to be profitable as well,” said Perry.
One of IN-VI’s projects in Slovakia is the largest project in Central Europe currently under planning. Situated near the old “Iron Curtain” the masterplan is built around a constellation of 21st century villages and includes residential, educational, logistics, commercial and leisure facilities. Renewable energies are a cornerstone of the development strategy, including a series of massive wind towers.
Understanding the lifestyle of the local people and considering their everyday needs is the key to success in transitional economies, said Perry. In Brazil, the company worked with neighbouring villages to enhance their quality of life, introducing wi fi and laptops to local schools. In Morocco, a new residential community embedded urban farming in the planning, in recognition of its importance to multiple generations. Bio-corridors traverse the site to preserve ecosystems and traditional grazing patterns.
A standout in the company’s projects for sheer creative thinking is in Brazil in the Caruauri Amazon, on one of the largest contiguous, untouched areas of the world’s rainforest.
Surely such a place should not even be considered for development, no matter how sustainable.
IN-VI’s solution was to sell 50 residential boats on the Amazon that come with their own parcel of land that must be protected. Boat, land and protection fund are concurrently purchased at the outset with half the money going into a land protection fund. The boats are structures built on top of old decommissioned logging and military vessels.
The concept is simple but ingenious.
“Leisure should be about stepping away from the normal day to day and protecting the environment at the same time,” said Perry.
Green buildings make more money
The second keynote speaker for the day, Dr Nils Kok, presented complex research data to his audience in a dynamic and entertaining presentation. His message? Green buildings make much more money than non-green.
A professor at the University of Berkley, California, Dr Kok undertook the first comprehensive study of whether green buildings are profitable, using comparisons of commercial buildings with and without energy ratings across the United States.
What he found in the study, Doing Well By Doing Good, was that energy efficient buildings were worth 17 to 18 per cent more than inefficient buildings. They earned 6 per cent more in effective rents.
And each extra energy star made a difference to value – for every dollar of energy saved investors were willing to pay $18 more in market value.
“We found that the average non-green building sold between 2004 and 2007 would have been worth $5.9 million more if it converted to green,” said Dr Kok.
“And when there is transparency in the market investors are willing to pay more.”
Studies conducted before and after the global financial crisis revealed that it had had no obvious impact on the value of green buildings – in fact the premium investors paid for a green building rose from 16 per cent before the GFC to 17-18 per cent after.
When Dr Kok did a similar study on the residential market in Holland, the results revealed people buying a house will also pay more for energy efficiency.
“Investors take energy efficiency into account when buying a home and the premium increases the higher the energy label,” said Dr Kok.
On average the green effect increased home values by 2.4 per cent. In Australia, this effect would become more apparent once mandatory disclosure of energy efficiency is in place.
“In Australia there is likely to be a discount for non-green buildings because it [sustainable buildings] is more the norm here than in the US,” Dr Kok said.
A plan to conduct a similar study in Australia, was received with murmurs of approval from the conference audience.
Government pushes for greener buildings
A panel of government representatives gave some insight into government policy at state and federal level.
Mark Davis, director of Commercial Building and Energy Efficiency for the Federal Department of Environment, Water, Heritage and the Arts, revealed that the final policy on mandatory disclosure of commercial building energy efficiency was imminent and likely to be in place by the third quarter 2010.
The central requirement of the policy is that commercial buildings of 2000 sqm or more must disclose their energy usage when sold or leased.
Davis said disclosure would “unlock abatement potential of buildings” and “overcome market barriers to energy efficiency opportunities such as split incentives [where the landlord pays for energy efficient initiatives and the tenant benefits from them].”
Yma ten Hoedt, Principal program officer in charge of the NABERS energy rating system for the NSW Department of Environment, Climate Change and Water, emphasised just how much could be achieved through simple measures.
Investa, for example, went from 2.5 to 4.5 NABERS energy rating in one of its buildings by spending $50,000 on a new metering system, installing a low load chiller and employing a talented facilities manager.
“A study by the Warren Centre showed you can achieve a 1.3 star improvement just through employing a good facilities manager,” said ten Hoedt.
Green leases are a key area where government is pushing the sustainability agenda nationally, Lloyd Woodford, Director of DEWHA’s Government Energy Efficiency team, told delegates.
“There is a lot of misinformation out there about green leases,” Woodford said. “There is also fear to overcome. The way to do this is to get senior management to embrace change.”
Ann Skewes, Divisional General Manager, NSW State Property Authority, said that the government had set new benchmarks of 4.5 star NABERS rating for all of its properties by 1 July 2011 and a 15 per cent reduction in water usage.
Initiatives in some of its buildings had achieved some outstanding results with regional buildings in Orange, Grafton and Broken Hill cutting power usage by replacing outdated air conditioning systems and the Department of Education building at Bligh House in Sydney reducing lighting costs by 60 per cent.
But what about the financiers?
Getting the financial sector, including valuers, up to speed on the true value of sustainable development, is a major challenge. Speakers from the banking and financial advisory sectors emphasised the need for Australian-based evidence. There was a lack of transparency, with both valuers and bankers needing to more clearly factor in sustainability in their processes.
Patrick Dale, Director of Environmental Finance Solutions with the National Australia Bank, said he didn’t believe that sustainability was impacting on value in Australia as yet. This may change with the introduction of mandatory disclosure of energy use.
He agreed that bankers’ long term view of risk aligns perfectly with sustainable concepts. It was a matter of the sector catching up.
When lending for developments, “sustainability is not THE factor but it is important,” said Dale. “It is an emerging influence – nobody wants to lend for tomorrow’s traded assets.”
“Property bankers are coming up the learning curve with sustainability,” said Dale.