14 September 2011 – If there were any green building deniers still out there in property world, Monday’s release of the latest research by the Australian Property Institute and the Property Funds Association of Australia will hammer the last nail in their coffin.
Green buildings make financial sense, especially if they are rated five star NABERS energy, not just by a fraction but by a huge 9 per cent overall and a massive 21 per cent if the asset is in Canberra, the report found.
In Sydney the premium fell to 8 per cent in the suburbs and only 4 per cent in the CBD, more a factor of the maturity of the green building market and the almost complete absence of non-rated A grade and premium buildings.
Green Star rated buildings showed a premium in value of 12 per cent and 5 per cent in rents.
The report, Building Better Returns was undertaken by Graeme Newell and John MacFarlane of the University of Western Sydney and builds on the work of Nils Kok from the University of Maastricht, with data supplied by Jones Lang LaSalle and CBRE.
- See our list of articles that reference Nils Kok
It centres on the Sydney CBD and suburban market and Canberra.
According to Professor Newell and Associate Professor MacFarlane who spoke to The Fifth Estate after their presentation at The Establishment in Sydney, the work will place Australian green building research on the global map.
“This was really special,” said Professor Newell. “It was one that the industry had a great commitment for and one that the API and the PFA had a great commitment for. And it tells a great story.”
Australia already has a growing reputation in the field and its best Australian green buildings are highly regarded, Professor Newell said.
According to Professor Newell, the most important message from the report was that “the environment case is now being supported by the financial case as well.”
The other aspect was the need to have high energy ratings and Green Star [ratings], because if you’re in that bottom category you are going to be at a discount so there’s an upside and a downside.”
The downside of non green
Among the findings was that the most dramatic impact on buildings was when buildings fail to go green.
Rents for instance. Although rents did not appreciate noticeably for high NABERS rated buildings, for lower rated buildings rents fell by 9 per cent in the Sydney CBD and 6 per cent in Canberra.
Professor MacFarlane said the bigger impacts in low rated buildings were in incentives, outgoings and changes in the yield.
“There’s not one factor that is unique across all buildings,” he said.
The same result was evident in terms of values.
The report found office buildings with less than a 3 star NABERS energy rating had a 10 per cent discount in value in the Sydney CBD and a 13 per cent discount in value in Canberra.
Professor Newell said the research attempted to isolate “pure green” effects by controlling for various factors, such as location, that could affect results.
One of the hardest elements to control for was age of a building because this was a complex factor, he said. Was the building refurbished for instance?
He said that future work would tackle the issue of a building’s age as well as the impact of green upgrades on older buildings.
“That’s the next question,” Professor Newell said. “You have a goal and then you want to work out what it would cost to achieve that goal.”
Work could also be extended to Melbourne buildings where the take up of NABERS had been slower than in Sydney but could now be expected to accelerate because of the Commercial Building disclosure program (or mandatory disclosure of energy ratings for offices of more than 2000 square metres).
Professor MacFarlane said the Sydney CBD was a more mature market than elsewhere.
“Premium and A grade buildings all have NABERS ratings, so you are seeing a picture of a maturing market, versus others that are heading in that direction.”
Professor Newell said there was certainly interest in doing more work in the area.
“We’re going to go back to the data providers,” he said.
“The co-operation we got from the industry was amazing in terms of sharing what was really confidential data. And it’s a measure of how important the [research] work is.
“Some of these studies have been done overseas, but a lot of people have been keen to see a study done in Australia, given that Australia has a prominent place in this field and a lot of our buildings are internationally recognised.”
Dr Kok, University of Maastricht, Netherlands said the findings corroborate international evidence and finally provide the evidence necessary for investors and financiers to incorporate energy efficiency and sustainability into valuation models.
“As Green Star and NABERS ratings disseminate in the commercial property sector, this study can be expanded further, to answer some of the questions that remain open,” Dr Kok said.
Better building returns steering committee chair, Roger Walker will represent the API and PFA at discussions to be held on this issue at the World Economic Forum’s “Smart Cities” discussions in New York in October.