20 December 2010 – Australia is consistently referred to as one of the global leaders in the sustainable built environment. However, green buildings come at a price and when is the Australian acceptance of “green” going to pay off? In the first installment of this two part series, Jones Lang LaSalle’s director of sustainability Australia Joel Quintal looked at current sustainability trends in the UK. In this installment Mr Quintal will provide a newcomer’s perspective on Australia’s hot commercial property topics and how they compare to the UK, where he has spent the past six years working in the property market.

Australia – What’s going on?

Commercial Buildings Disclosure Program
On the 1 November 2010, the Australian property industry saw the introduction of one of the most significant pieces of legislation affecting the built environment. With severe fines of up to $110,000 for the first day of non-conformance and up to $11,000 for every subsequent day the Commercial Building Disclosure Program or CBD, ensures a step change in the way that the property industry views the energy efficiency of buildings.

The CBD requires the disclosure of the energy efficiency of commercial office buildings during sale, lease, and sub-lease of disclosure affected space. Disclosure affected space is a building or part of a building with at least 2000 square metres of net lettable area and used for administrative, clerical, professional, or similar information-based activities including support facilities.

The term “support facility” is defined in the legislation. In steps not dissimilar to the United Kingdom’s Energy Performance of Buildings Directive, the CBD seeks to promote transparency in the Australian property market by incorporating a Building Energy Efficiency Certificate into commercial property transactions.

The BEEC is composed of three components – a NABERS Energy Star Rating, a Tenancy Lighting Assessment and Building Energy Efficiency Guidance. However, for the year 1 November 2010 to 31October 2011, the CBD is operating in a transitional capacity and will only require a NABERS Energy Star Rating to be disclosed.

While a Building Energy Efficiency Certificate will not need to be displayed in a building, owners will need to display the NABERS Energy Star Rating of the building on all advertisements offering the property for sale or lease. In this way, occupiers and investors will be able to compare the energy performance of buildings and make informed decisions on where they choose to occupy or invest.

There are certainly opportunities in this program for occupiers, the most obvious being the ability to model their energy costs and consumption, which will be useful for budgets and corporate target setting. Landlords on the other hand may be faced with pressures to upgrade their existing assets to attract occupiers and to maintain liquidity in their portfolios but they also face the prospect of higher performing buildings achieving higher rents and higher capital values.

The true value of the CBD program comes not from the NABERS rating on its own but from the actions required to move an asset to a higher rating. This is where I see the CBD driving improvements in the existing building stock. Owners of commercial property will be able to focus on upgrading buildings to remain competitive in the property market and to future proof their portfolios. Owners can focus on the value-add from this exercise and address the low and no cost improvement options to raise the NABERS Energy Star Rating of their properties as well as on metering and monitoring platforms that can allow them to make informed decisions on improving their assets.

Renewable Energy Generation
The CBD program promotes transparency in the market but an area where we will see innovation and opportunity is renewable energy generation. In my last column I touched on the excitement in the UK around the renewable energy Feed in Tariffs (FiT). Australia has massive potential for large scale renewable energy generation to reduce our reliance on inefficient coal fired power stations. Across Australia, the states and territories are operating their FiT schemes independently and I welcome reforms that address consistency in the application of FiTs.

Following an unexpected take up of the NSW Solar Bonus Scheme since its introduction in January 2010, the NSW Government recently slashed its FiT for solar generated electricity by two thirds. This surprising move will impact not only on the individuals and organisations looking to invest in this technology but also the equipment suppliers to the market. In an era of burgeoning opportunity around so called “green jobs” we need consistency and long term commitments to support domestic initiatives and focused on achieving carbon reductions.

Despite Australia’s comparatively low energy tariffs, the cost of electricity has been steadily increasing and it is predicted to double by 2020 as a result of increased network and transmission costs, the shift of renewable energy, and the imposition of a price on carbon. It is worth revisiting projects that were assessed using a simple rate of return metric because the escalating energy costs will improve the rate of return and the attractiveness of an investment in energy efficient technologies.

There is also a lot of discussion around trigeneration plants being installed in Australian buildings, particularly those seeking five or six star Green Star ratings. The trigeneration plants are so called as they produce electricity using a gas fired generator, heat and cooling by passing the excess heat through an absorption chiller. This process is an old concept – Manhattan adopted cogeneration technology (production of electricity and heat) in the 1800s. However what has changed over the past century is the ability of these systems to achieve efficiencies of up to 90 per cent, when compared to the otherwise inefficient long distance transportation of electricity generated in far off places.

The City of Sydney is investigating the potential for trigeneration plants to relieve pressure on the grid and support carbon reductions of 70 per cent of 2006 levels by 2030. The program will require a partnership with the building owners in the city that are willing to share the heating and cooling load. In this way the City of Sydney could create a system akin to a district heat network piping heat and cooling around the city. However, Sydney’s warm climate may affect the efficiency of these systems.

Grant Schemes, tax breaks, and funding mechanisms
Investment in renewable technologies and energy efficiency improvements comes at a cost that can be difficult to get past the discerning chief financial officer. One stark difference between Australia and the UK is the amount of government funding available to support improvements in the built environment. The UK Government has not developed the multiple avenues for funding that Australia has at both federal and state level. The most significant of these is the Green Building Fund that will provide $90 million in grants over five years to reduce the impact of Australia’s built environment on green house gas emissions.

The Government announced in early November 2010 that it will release $30 million of funding for round seven of the Green Building Fund and applications will be accepted from sectors outside of commercial offices such as shopping centres and hotels. As reported by The Fifth Estate, the latest funding is likely to be taken up fast, so applications should be submitted well before the 7 January 2010 deadline. Other incentives available to the private sector include tax breaks for green buildings, the Low Carbon Communities Program, Environmental Upgrade Agreements, and the Carbon Farming Initiative (more details on these programs are available from AusIndustry and The Fifth Estate).

A Price on Carbon
As the property industry in Australia shakes off the effects of the global financial crisis and moves forward it is important that Government continues to work with industry and assigns funding to this sector so that more emissions reductions can be achieved.

The establishment of a carbon market in Australia is a hotly debated topic in many sectors of Australian business and one I would like to touch on briefly as it is unclear what the full implications of establishing a carbon price will be. At the very top of the query list are the questions, who willpay for this new cost? and how exactly will this benefit the environment and industry? With so much debate going on we can no longer see the wood for the trees on such a complex issue.

Carbon has become the representative index for energy, environmental performance, greenhouse gas emissions, corporate performance, building performance, automobile performance, and actually pretty much everything! However, it should not become an additional financial burden on industries that have demonstrated an ongoing commitment to achieving energy reductions nor should it replace reporting on good old-fashioned energy efficiency.

I am an advocate of keeping initiatives simple and focused which is why I believe that a price on carbon is not the silver bullet the Government is looking for. More reassuringly, the federal government has formed representative groups to discuss the issue of carbon pricing. The non-government organisation roundtable announced by Federal Climate change Minister Greg Combet will focus on the importance of establishing a carbon price to support a sustainable economy, jobs growth, and safeguarding our environment. It is through ongoing consultation with industry groups and reviewing the lessons learnt from carbon programs in other countries that Australia will succeed in this area.

In the built environment, buildings with lower carbon emissions from efficient energy management and investment in renewable energy technologies should benefit from a price on carbon. As it becomes a requirement for organisations to introduce carbon costs onto their corporate balance sheets we will see this impact the way we value energy efficient buildings and the importance of low-carbon retrofit programs.

Where to next for Australia
Australians typically adopt a “can-do”attitude and it is noticeable that sustainability is firmly embedded in the property industry. In the surveying [valuation] profession there is a clear understanding of building rating systems and what these ratings mean for the built environment. Businesses recognise that a well performing building results in lower outgoings, reduced void periods, and content tenants. Whilst the focus has been predominantly on commercial offices, other sectors including retail, hotels, industrial, and education must keep on top of these initiatives as the scope of energy efficiency programs will no doubt widen to include these sectors.

There is a lot going on in this space and this article has highlighted some of the current topics in the Australian property industry. Australia maintains a leadership position in sustainable building practices through the development of initiatives such as NABERS and accessible funding programs that seek to improve our building stock. This momentum needs to be maintained by ensuring that there is continuity from building design to operation so that buildings perform in the way in which they were intended. It is clear that there are examples of best practice in both the UK and Australia which is why the buildings deservedly appear greener on the other side.

Joel Quintal is Jones Lang LaSalle director of sustainability, Australia

Joel.Quintal@ap.jll.com