13 June 2012 – The Total Environment Centre is presenting a powerful business case in support of retrofitting low-grade office buildings based on six real life examples where an environmental upgrade boosted the value of an asset or significantly lowered operating costs.

The Sydney-based case studies include a selection of B, C and D-grade office buildings where the owners embarked on capital works and improvements to boost the NABERS ratings of their assets.

The majority of the buildings achieved an increase of 3 to 4.5 NABERS stars based on a low initial rating.

The Total Environment Centre’s business sustainability arm, Green Capital, prepared the report as part of the Lessons and Tools from Existing Office Building Leaders Project with funding from the NSW Environmental Trust.

Project leader, Matt Fisher, said the landlords were motivated to upgrade their office buildings based on commercial imperatives with most seeking to boost the value of their asset. He said others were looking to attract government or corporate tenants, increase their rental income, avoid energy price rises, meet mandatory disclosure requirements or boost their reputation as responsible corporate citizens.

The majority of the buildings achieved an increase of 3 to 4.5 NABERS stars based on a low initial rating.

The report found the building owners increased the life and return from their asset and often achieved this within realistic economic constraints.

“But it did take careful planning, help from experienced consultants and contractors, and a desire to investigate options for improving their asset,” the report said.

However, Mr Fisher said most landlords in possession of low-grade office buildings continue to ignore the benefits of an upgrade in favour of short-term gains.

He warns that neglecting the maintenance of an asset while holding out for ever-decreasing rental income or improvements in a property’s value will prove a false economy in the long-run.

In many cases, simple actions such as recalibrating a building management system (BMS) provided significant energy savings. Based on the performance of their newly upgraded buildings, some of the landlords who took part in the study expect to see a return on their investment within three years of undertaking works, according to Mr Fisher.

The project interviewed the managers of six buildings that have recently undergone an upgrade and eight technical property experts.

The Australian Unity-owned RPAH Medical Centre in Camperdown, Sydney boosted its NABERS rating from zero to four stars through a project that delivers energy savings of more than $61,000 in the first year following the upgrade.  Managed by Colliers International, the $185,000 upgrade included items such as power correction equipment, new building management system, replacement of the cooling tower, installation of high efficiency air conditioner package units, carbon monoxide sensors and variable speed fans for car park ventilation.

Based on the performance of the building it is expected the project will provide a return on investment within 1.8 to 2.4 years.

Mr Fisher said when a building’s heating, ventilation and airconditioning (HVAC) equipment is in a serviceable condition small modifications or “building tuning” can achieve significant energy and monetary savings.

Managed by Knight Frank, the owners of 6 O’Connell Street, Sydney spent less than $150,000 upgrading the plant and BMS in their office tower, raising the NABERS energy rating from 1.5 stars to 4.0 stars, according to the report.

An audit discovered that the chillers and boilers in the 1960s building were running at the same time and competing against one another. Mr Fisher said the payback from the project was almost immediate for the owners as the works have largely been part of general building maintenance and good management.

The report also stresses the importance of employing external professionals to assist landlords and managers to boost the environmental performance of a building.

Managers are important
All respondents who took part in the project saw investing in an effective building manager as one of the most important expenses, both before, and after a building upgrade takes place.

External building managers were recommended as a cost-effective alternative to in-house staff, particularly as this allows for the selection of a professional with experience managing a building of a similar age or a property with comparable plant and equipment.

Added to this, the cost of getting a consultant to audit your building – generally in the order of a few thousand dollars ­– can quickly and in some cases immediately pay for itself: “by direct energy savings or avoidance of expensive emergency maintenance,” the report said.

Avoiding stranded assets is key

The report found that a building can only be allowed to run down so much before it significantly begins to lose tenants and diminish in value, with the chance it will become harder to sell or be left “stranded”.

For those building owners who do take a longer term view of their asset, and wish to continue to rent or possibly sell at some point in the future, doing nothing in terms of upgrading or maintenance can prove counterproductive.

The private owners of 100 George Street, Parramatta, spent $6 million recladding and boosting the internal amenity of the building resulting in an estimated rent increase of 25 per cent post-completion while cutting energy consumption in half.

Large-scale environmental upgrade works are also underwriting a new business model, according to Mr Fisher.

“An emerging business model is one of securing government and corporate tenants based on the promise [of] green upgrades,” he said. “This can both increase rental return, tenant retention but most importantly building value well and above capital investment.”

The report found that upgrades focussed on improving the environmental performance and efficiency of a building provide owners with a considerable number of benefits including:

  • Significant reductions to ongoing operating costs.
  • Future-proofing a building against rising energy costs.
  • Improving marketability based on a higher NABERS rating.
  • Improving the building’s competitiveness and value by becoming eligible for government and other corporate tenants with sustainability requirements.
  • Taking advantage of sizable government grants.

Mr Fisher said many of the case studies identified in the report received grants from the Green Building Fund, which is now closed. There are other sources of funding and subsidies available including the Energy Savings Schemes and the Energy Saver program, according to the report.

Environmental Upgrade Agreements also provide more easily accessible funding for refurbishment works based on a better rate and longer loan terms.

Green Capital is holding two free seminars that will present reasons for upgrading buildings, and how to achieve successful results from a retrofit. The seminars are being held in Parramatta on June 25 and Sydney on June 27. Details

Retrofitting of Green Buildings. Sydney Case Studies Identified by the Total Environment Centre

Building address

Owner ManagerWorks undertakenProject CostImprovement in NABERS Energy Star Rating
RPAH Medical Centre, CamperdownAustralian UnityColliers InternationalPower correction equipment, new BMS, cooling tower, upgrade to air conditioner package units, and  car park ventilation.$185,0000 star to 4.0 stars
100 George Street, ParramattaPrivately ownedSolaGracia Property GroupBuilding re-cladding, bathroom and internal refurbishments$6 million1.0 star to 4.0 stars
6 O’Connell Street, SydneyN/AKnight Frank AustraliaMinor plant and BMS upgrade.$142,5761.5 stars to 4.0 stars
83 Mount Street, Nth SydneyOwners Corporation (Strata building)Owners corporationReplacement of failing air-conditioning (HVAC plant), BMS upgrade.$1.5 millionIncrease in NABERS rating (unofficial) from 2.5 – 3.0 star to 4.0 star
170 Phillip Street, SydneyLaw Society of New South WalesProvided by Savills Project ManagementNew chiller and cooling tower, VSD fans, lighting upgrade, and new BMS and metering.N/A2.5 stars to 4.5 stars
265 Castlereagh Street, SydneySingle, private ownerProvided by Savills Project Management.New air conditioner package units, reconfigured building into 48 strata units, installation of a BMS.$6 million0 stars to 4.5 star NABERS. 4 star energy rating target.

Source: Total Environment Centre, Green Capital

Scott Elliott is a Melbourne-based writer specialising in property and business. He was formerly a journalist with The AFR and more recently worked for the Financial Times Group in Hong Kong. When not writing he loves all things AFL and horse racing.