10 June 2011 – Industrial property was delivered a body blow by the global financial crisis – companies put expansion plans on hold and construction of new facilities ground to a halt. Now, with activity slowly returning, new projects have the chance to factor in sustainability features that will not only future-proof buildings for carbon pricing but will also provide better, more productive workplaces.

Progress is slow with tenants focused sharply on the bottom line and many developers reluctant to invest in costly sustainable features that tenants won’t pay for. But the canny ones are anticipating the future.

The reluctance to embrace sustainable features in the industrial sector is reflected in the slow take-up of the Green Building Council of Australia’s Green Star ratings for industrial. Introduced in 2008, the Green Star Industrial V.1 has so far certified only one project. Fourteen more are in the pipeline.

Suzie Barnett, the GBCA’s executive director industry engagement, told The Fifth Estate, the GBCA faces a challenge in getting the sustainable message across to the industrial sector as a whole.

“We want more buildings to come on board in industrial and we are working hard with industry leaders to achieve this,” Barnett says.

These leaders were quick to come forward when the GBCA asked for industry support to develop the industrial rating. The tool was one of the fastest to attract sponsorship, says Barnett. The list of sponsors is impressive: Goodman. Investa, Australand, Landcorp, Vic Urban, Blue Scope Buildings, ING, Metroplex Management, St Hilliers and Stockland.

Guidelines for the tool are also the most frequently downloaded of any from the GBCA website – 1500 downloads a year.

So why the long lag in certification of projects?

“There’s usually a lag between a sector wanting a ratings tool and projects coming through. I think though in industrial it was firstly hit by the GFC and there is also a need for education about the extent of the benefits of sustainable design. We all know what the environmental benefits are but many people don’t realise the cost savings and the benefits for productivity,” says Barnett.

Productivity gains and employee safety are where the exciting potential is for industrial, says Barnett.

“Some of these facilities are operating 24 hours a day and their workers are doing very repetitive tasks under sometimes difficult conditions. The benefits for people in improving the light and the air quality alone are enormous.

“In the United States a post office in Reno Nevada that introduced sustainable features found their productivity increased by six per cent and the number of errors reduced significantly. It became the most productive post office in Western US,” say Barnett.

But what about the enormous potential for precinct-based energy and water solutions in industrial parks? The massive roof areas of industrial buildings lend themselves to both water harvesting and solar power generation.  Co-generation and tri-generation power plants are also particularly suited to co-located facilities in business and industrial parks particularly where there are high energy users such as chilled distribution centres and cold storage facilities.

The precinct mentality is not there yet in industrial, says Barnett. The investors haven’t made the leap to shared use of water and energy plants. There is also not the same level of brand identity in industrial buildings as there is in office buildings.

Building owners are able to leverage off their green image in a sustainable office tower in a way they can’t in a warehouse. This could change as the large players involved in both sectors, such as Australand, Dexus and Investa, carry their green credentials through from office into industrial.

Leading developers ahead of the pack

David Butera, head of industrial services in Victoria with Jones Lang Lasalle, says leading developers such as Australand and Dexus that are prominent in both the office and industrial sectors are starting to carry the same principles from office projects into industrial.

Major corporates in the retail sector such as K-Mart, Woolworths and Aldi are also beginning to push for state-of-the-art warehouses, which use sustainable materials, passive design features, energy efficient lighting, transluscent roofing and water harvesting, Butera says.

But it hasn’t been a fast take-up.

“Industrial is pretty simple compared to office – [the buildings] are often large sheds with roller door access. And since the GFC a lot of speculative development has disappeared. Prior to the GFC it’s fair to say that sustainability was on the agenda but it was set back by the downturn.

“It is returning, but slowly. At the corporate level finance is still playing a role. Speculative development is still quite healthy in the 5000 square metre and below size projects but the larger ones have been more shrewd,” Butera says.

Goodman’s facility for Stryker, at Venlo in the Netherlands

Goodman
But while the diversified groups have been actively promoting sustainability across their sectors, the specialist industrial developer and owner, Goodman, has been active on a global scale.

The largest owner of industrial property in Australia, through its $4.4 billion unlisted Goodman Australia Industrial Fund, is making sustainability a key priority in its expansion program worldwide.

The group has had a tough couple of years, reporting a net loss of $1.12 billion in the 2000/09 financial year and a loss of $562.6 million in the last financial year.

But chief executive officer Greg Goodman has continued to put a positive spin on the difficulties, pointing out in a recent statement that Goodman took the opportunity to reduce its exposure to debt during the downturn in the sector, completing $320 million of equity raising initiatives to strengthen its balance sheet during 2009/10. Gearing for the group was reduced to 24 per cent during the 2010 financial year compared with 47.9 per cent the previous year.

This, said Goodman, puts the company in a position to take advantage of opportunities that will arise as a result of the “subdued global market conditions and a low growth environment, limited access to capital and reduced competition.”

These opportunities are starting to emerge and Goodman has been actively expanding its empire locally and across Asia and Europe through partnership arrangements. And sustainability is a key priority it says.

Greg Goodman said at the company’s March quarterly update that Goodman is targeting China for new developments and is expecting China to contribute about $300 million a year in completed developments in the medium term.

“The contribution from our international operations is also expected to grow to over 50 per cent in the near term,” Goodman said.

In one of its recent European developments Goodman developed a BREEAM-certified warehouse for medical technology company, Stryker, at Venlo in the Netherlands. The 7875 square metre distribution centre, which has been designed to meet both environmental and economic sustainability criteria, will be one of the first buildings in the Netherlands to receive the internationally recognised BREEAM certification with a “Very Good” rating.

In 2009 Goodman received the first gold pre-certificate for a logistics building from the German Sustainable Building Council (DGNB) for the planning and design of its Herten Logistics Centre, which offers 35,000 sq m of warehouse space.  According to Goodman it achieved the top rating by incorporating a range of sustainable features into the design including a solar panel installation.

Another Goodman-developed warehouse in Langenbach in Germany is currently in the DGNB certification process. In Puurs in Belgium, on the Antwerp-Brussels logistics axis, the group is aiming for BREAAM “very good” ranking for a warehouse that includes installation of photovoltaic panels on the entire roof.

In Australia Goodman has at least one project registered for Green Star certification and has delivered others with some key sustainability features.

At the MTU Detroit Diesel Australia industrial facility at Keylink Industrial Estate in South Australia Goodman installed, a 300 panel, 50kW solar photovoltaic system on the roof of the warehouse, which is expected to generate 70,000 kW hours of electricity a year and reduce the tenant’s greenhouse gas emissions by 70 tonnes each year. The installation was part of the Commonwealth funded Adelaide Solar City program and was the program’s first commercial solar installation.

Other sustainability features include a stormwater management system that ties into the surrounding North Adelaide Aquifer Storage and Recovery system and Bi level lighting and zoning control.

James Vesper, Goodman’s group head of sustainability, told The Fifth Estate that regulatory change and the need to manage carbon emissions will force change on the industrial sector, with developers increasingly providing sustainable features.

“Along with operations, there will be renewed focus on the performance of facilities within the supply chain, and the contribution they make towards an entity’s overall emissions,” Vesper says

This means technologies found in commercial buildings will become more common in industrial and logistic property. Location would become increasingly important.

“Securing the right locations for Goodman’s logistics properties is very important,” says Vesper. “A site with good access to infrastructure, ports, rail and road is more efficient and sustainable than multiple sites with poor logistical access.”

Vesper anticipates that evaluation of alternative energy generation such as co-generation, solar and wind technologies will also feature more in industrial developments, both for the sites and also as potential revenue sources in the future.

Goodman’s clients worldwide are increasingly aware of managing CO2 emissions and being able to show their performance data.

“In some European markets such as Germany, certification is a high priority and therefore a holistic and efficient design is important. In many ways, these markets are leading the design charge. In other regions, such as Australia and the UK, we have strict compliance obligations relating to ongoing management and reporting requirements,” Vesper says.

“Across all regions, the ability to assist customers define their sustainability priorities and evaluate the sustainability value proposition is becoming an important part of the process. This includes taking a lifecycle approach to evaluate design opportunities.”

And while corporate governance and branding may drive some of the demand for sustainable property, cost effectiveness would continue to be a key driver for industrial tenants.

“Collaboration between the developer, investor and tenant to demonstrate value for each stakeholder is important,” says Vesper.

Cost holding back sustainable projects

Right now cost is the dominating factor for industrial clients, say those working in the sector. According to a recent study by Woodhead Architects, it is difficult to get payback for five and six star Green Star industrial projects.

The study, done in conjunction with sustainability engineers, found that designing to four star Green Star standards costs 1 per cent more and returns 2.4 per cent over 30 years. Conversely five star GBCA costs 3 per cent more but has a zero return over 30 years due to higher maintenance costs.

Designing to six star Green Star is not practical for individual buildings, says Woodhead, and is mainly directed at business parks where projects benefit from economies of scale with transport and other infrastructure.

John Stefanatos, regional principal with Woodhead, says it’s difficult to get six star Green Star to stack up for individual buildings on a strictly financial basis.

Some of the factors that make six star difficult include awarding points for access to public transport, building re-use, use of recycled steel in construction, thermal comfort and provision of facilities like bicycle racks.

“Some of these things are very difficult for a stand-alone facility. Industrial land is situated in the outer suburbs where access to mass transit systems such as trains is uncommon. Sometimes a business park will be situated in a catchment area nearer to transport but it is unusual for individual buildings. With recycled steel it is difficult to get information from manufacturers – most don’t recycle for sectional steel,” says Stefanatos.

Quarry at Greystanes (pictured), owned by Dexus was operated as a quarry by Boral as Prospect Quarry until 1997. The quarry will be redeveloped with 240,000 square metres of industrial property. This will include sustainability elements such as a biodiversity open swale, which has been built and runs the perimeter of the former quarry. The recently vegetated swale captures the stormwater from the entire site and channels the water into estate detention basins, south of the old quarry and also supplies water to a neighbouring golf course. Future inclusions will include a café accessible for the new workforce and local community.

The Green Star tool has imported many of the features in the office rating tool, which does not necessarily reflect the reality of industrial buildings, says Stefanatos. Bike racks, for example, do not make much sense for facilities on the outskirts of cities along major road links, particularly when employees often do shift work.

“There is now a very strong understanding of sustainable office design but industrial is very different. The tool, particularly at five and six star, rewards some aspects that are not relevant for industrial buildings,” says Stefanatos.

Most clients are going for a maximum of four star. The common sustainability features include:

  • Improved insulation
  • High performance glass and double glazing
  • Use of louvres for air flow
  • Solar hot water
  • Rain water re-use for landscaping, toilets and washing of trucks and equipment
  • Recycling facilities
  • Recycling of topsoil and concrete
  • Low VOC (volatile organic compounds) materials

Reini Otter, general manager, Northern Region with Australand Property Group, said that Australand aims for four star in most of its industrial projects. He says industrial development is still tentative, particularly for smaller developers where there is a fair amount of uncertainty. The market is currently being driven by larger developers such Dexus, Goodman and Australand.

Otter would like to see more use of the water and energy potential from the roofs of facilities but says it is difficult because of the reluctance of authorities to allow alternative schemes.

“In our new estates we’re looking at water treatments. We had quite a good experience with Penrith Council [west of Sydney] where we were able to treat the water run-off in grass verges using natural filtration. We worked with them to come up with a good solution,” says Otter.

At an Erskine Park development in western Sydney Australand looked at installing solar panels for energy generation but opted instead for a co-generation plant and split the costs with the tenant.

“It wasn’t economical to use solar. We can’t use all the heat from the co-gen so we allow it to dissipate. It is still quite a good result,” says Otter.

“Solar will become more viable. At the moment the main issue is the weight and the capital cost. Suction because of the large roof space and wind factors are also a problem.”

Paul O’Brien, general manager, Investa Land Victoria, says clients are definitely cost driven and while this may dictate how far developers can go with sustainable features, Investa is pushing the envelope as far as it can.

“You have to be careful not to impose costs on industrial clients but we are looking at all the areas where we can do more,” says O’Brien.

Investa is actively involved in water-sensitive urban design in its industrial projects, particularly where they are located close to residential areas or wetlands.

O’Brien believes there is enormous potential for more re-use of the water running off the roofs of industrial developments but regulatory changes would be needed before it can be put back into the water system.

“Zinc and other materials come off industrial roofs so we treat this near the entry point to the retarding basin.”

Another area where developers could do more was to use more recyclable materials. This includes metal rather than pre-cast structures. The fire rating varies for pre-cast and metal with more set-back from perimeters required for metal so more land may be required if metal is used.

“We are looking at whether it is more economically viable to buy more land and use more renewable materials. You could build the same size builiding but it is cheaper with metal.” Says O’Brien.

Victor Georos, GPT’s head of industrial and business parks, says a key factor in making an industrial project sustainable is locating it near major transport infrastructure and other industrial operators. This ensures supply chain efficiency and economies of scale.

“The hub and spoke principal is very important,” says Georos. “ At Somerton we secured a national distribution centre for Coles about three years ago. Master Foods is across the road as well as Kraft Foods and Woolworths. Coles provides the hub for the others.”

Features that clients expect include energy efficient lighting with zoning and sensors, transluscent roofing and water tanks for water re-use.

“Tenants are driven mainly by cost but for us it is about future proofing our buildings so we have the most energy efficient lights, water detention tanks and more recyclable materials as a minimum.

“Clients may say they want to be highly sustainable but cost wise it’s hard to get co-gen or tri-gen off the ground.”

Solar will be the next big thing, says Georos. “It is getting cheaper and more efficient and it will not be long before the whole roof is used for solar panels. To ensure we’re ready for that we are strengthening roofs so that they can carry solar panels in the future. We’re also making sure the buildings are oriented correctly to capture the optimum amount of sun.”

But it is the pricing of carbon that will really transform the way industrial buildings are used and constructed.

“Carbon pricing will affect the cost of buildings and it will be a big influence in planning and design. Developers are taking the lead in sustainability and once we understand the consequences of carbon pricing we will be able to plan better and to introduce sustainable options that are part of the base building. If a carbon tax is brought in the whole solar equation, for example, could change overnight,” says Georos.

lblundell@thefifthestate.com.au