FAVOURITES: 14 April 2010 – What do tenants really want?  At the Green Cities 2010 conference in Melbourne this year one of the sessions, the Tenets of Tennants, took a hard look at demand for green buildings from the point of view of the people making the decisions and providing the advice. Following is an edited transcript of the session.

Facilitator: Jennifer Cunich, executive director, Property Council of Australia, Victoria

The common claim by green building advocates is that tenants are calling for greener buildings.  But is this the case?  And are tenants willing to commit to reducing their own energy use, water consumption and waste.  This session’s panel will explore the sustainability goals that drive building occupants and retailers and ways that property owners may be able to deliver on them.

Now, in no particular order, so I’ll get you to put your hand up: Vito Chiodo is the director of Telstra Property.  Vito is widely recognised as having a stellar success record in property.  He developed Telstra’s accommodation standards and interactive style guide for Telstra’s internal environments, which are set to become an industry benchmark for companies with significant accommodation requirements and balance comfort levels with environmental sensitivity and sustainability.

Also joining us we have Geoffrey Learmonth.  Geoffrey is director of LPC Australia.  Geoffrey’s property experience includes tenant advisory and representation, commercial leasing, commercial property management and valuations.  Over the last 20 years, he’s specialised in representing and advising occupier organisations in relation to their real estate matters across the country.

Also joining us is Bruce Precious.  Bruce is sustainability manager for the GPT Group Office and industrial business park businesses.  Power Performance Buildings have been a passion of Bruce’s for over 20 years.  Having worked for government and energy efficiency companies, he now has a real job.

Aggie (Agnieszka) Aitken is ANZ’s head of workplace development, responsible for delivering innovative workplaces to support ANZ’s global strategic agenda.  She recently led the successful delivery of ANZ’s new global headquarters here in Melbourne’s Docklands, and the largest commercial office building in Australia and a world leader in sustainability.  So please join me in welcoming our panellists.  [Applause]

Okay, kicking off, Geoff, with you.  What are the key drivers that influence tenants’ and occupiers’ decisions when they’re negotiating their leases?

Geoffrey Learmonth: Well, there’s often a range of different issues that occupier organisations consider.  There’s no one rule that applies to all organisations. But by and large, if you have to try and summarise what some of the key issues are, the words that are often said to us are it’s a combination –  occupier organisations are wanting accommodation to attract, to help retain and attract staff to their premises.  And that in itself can take various forms. How can they go about retaining those staff and attracting new ones there?

It could be about a whole lot of factors about the floor plate efficiency, about the environmental aspects of the building, about the height, the location, the views, the services; it could be about expansion rights, contraction rights.  With every organisation it’s different.  By and large, what we have found with organisations, it’s really about the business more so than the building.  It’s about the risk factor about protecting their business, and then from there how they can lead that on to suit their accommodation requirements.

As a result of the GFC, [tenants primarily] want to be able to stay in business.  Fortunately things seem to be a lot better today than what they were 12 months ago.  And … sustainability….is a very important factor to many occupier organisations.  It’s certainly not the only factor that they consider, but with many organisations, it’s right up there as one of the key issues that they see in attracting and retaining staff.
Facilitator:    Vito, can I ask you to elaborate on Bruce’s comment about [tenants] protecting their business, in terms of your role with Telstra?

Vito Chiodo: Certainly from Telstra’s point of view, if you look at corporate real estate executives, what’s our primary responsibility?  That is fundamentally to lead a qualified and diverse group of people who are good at what they do and provide business with solutions that meet the business’s requirements, and is aligned with the business, and a fit-for-purpose one.

So different businesses require different elements of corporate services solutions.  And particularly when it comes into the space of environment, we are confronted with the decision every day, if you like, about what do we, as an organisation, stand for when it comes to corporate social responsibility.  So you can work with landlords and say, Look, this is what I require as an absolute minimum.  And they say, Sure, no problem at all.  This is what I allow for in my cost model; this is what you’ve asked for; this is the cost difference. Do you want to pay for it?  By all means.  Happy to own it at the end, or you pay for it over the term of the lease.

And that fundamentally supports what was said earlier around the GFC.  There has to be cost-effective solutions, and there’s got to be a balance between what we require and what are fundamentally the costs associated with delivery.

Jennifer mentioned earlier about the Telstra accommodation standards that we launched back in October of 2008. Now, I’ll be the first to put my hand up and say that we’re not going for six-star rated buildings all the time.  Because what does that mean?

Unfortunately we’ve let the bit about being green influence the difference between right and wrong, and meeting the business unit requirements.

We currently have 114,000 square metres under refurbishment at the moment, and …we’re confronted with the decision of, well, what do we put there as an absolute must from an environmental aspect?  Do we put in T5 light fittings?  But to retrofit an existing building with T5 becomes incredibly costly because the building owner says I’m only allowed this much.  Happy to go T5; here’s what you’ve got to put in.  You do a return on investment from a tenant perspective, and you absolutely sit there wondering why should you upgrade the building owner’s efficiency around green.

But what we do do is what we are capable of doing, and influencing building owners to demonstrate to us where they are being consciously proactive in managing a building to make it as environmentally efficient as possible.  So our fit-outs will accommodate the elements like motion sensors and natural light harvesting where it can be obviously factored into the overall financial equation…and preserving a valuable resource, which is water at the moment.

You know, we’re going the waterless urinals, we’re going the grey water management wherever we possibly can.  Retrofitting is a much bigger challenge than specifying new.  For example, in our new headquarter building in Brisbane, we commanded a requirement to have a minimum five-star rating, and Charter Hall, to their credit, achieved that star rating, working efficiently within a flexible environment between the regulatory authorities.  And that’s a question in itself: Who are the regulatory authorities to give you that accreditation?  How flexible are they?

Because when we as an organisation are spreading our wings from a global perspective, our normal operating business hours are greater than what you would consider the norm, when you look at the accreditation around the ratings.  So we’re actually penalised by extending our hours to service our customers.  We’re penalised when we try and become more efficient with the use of our space through greater density design.  And that’s a challenge for us all the time.

Facilitator: You’ve touched on a couple of things there that I think we might come back to.  If I can just… ask you as an occupier, what do you really want?  What do occupiers really want?

Aggie Aitken: I think “occupier” for me is the key word.  At ANZ, we certainly have a very mixed portfolio between owned and leased buildings, so talking about the building occupier and the business that I heard Vito talk about, is very much around where we come in as well, in seeking property solutions that are good for the business as well as being good for the environment.  And finding that balance can be challenging and I do agree with some of Vito’s observations in relation to how the rating systems are standardised to a minimum level…

But there are other ways that we look at that as well, operationally through our technology solutions and our investments in technology, through the sustainable work practices that we employ.  Some of them can be built into the design, and so they don’t require occupier thought, they just occur.  But there are others that do require conscious occupier participation, and so it’s very much about a holistic approach and an overall response to the environment and sustainable solutions that we want to achieve.

Facilitator: And how much … does the social responsibility come into it, in terms of annual reporting?
Aggie Aitken:      It’s very important to us.  ANZ’s been the number one bank globally on the Dow Jones sustainability index for three consecutive years.  In fact, our report comes out today on-line, so very timely.  You can see the results in there, but key areas that we’re focusing on [are] around electricity, around waste, around paper, and around water.  So it’s very much linked into our corporate responsibility, yes.

Facilitator: I’m going to jump a few questions, sorry, panellists.  But Bruce, I’m going to ask you that question that we’ve talked about before.  We’ve had a number of discussions and let’s just go back to the basics for a moment.  Do you think tenants and I guess for that matter, owners, really understand the difference between the rating tools?  Do they understand what NABERS is?  Do they understand Green Star?  And there are international tools as well.  Do you want just give us a bit of a back to basics lesson?

Bruce Precious

Bruce Precious: I think there’s an evolution underway in terms of understanding.  And there’s lots of new things that are confusing when they first come out. Tax systems are confusing, and we need specialists to help us find our way to steer through tax systems, for instance.  And the Green tools are relatively new tools.

NABERS and Green Star is the typically discussion. My remarks will be particular to office buildings.  We’ve had the NABERS tools available in office buildings now for 10 years.  And Green Star for a little less than 10 years, and we’re still learning how they work together.

But as Romilly [Madew, chief executive Green Building Council] made the statement in the opening remarks this morning, thankfully there is an MOU [memorandum of understanding] underway to make sure that they do work together and to continue to work together.  That was the great risk.  Now that we had two tools that were quite well-aligned, but they could start to diverge again.  So that was an important statement from Romilly that will help us to keep it simple in the future.

But quite simply, NABERS is about measuring the performance of buildings, how buildings operate, the efficiency in energy, water, waste terms of a property. Green Star is about the potential of a design to perform. So they fit hand in glove.  Green Star is all about influencing you to do the right thing during design and development; NABERS is all about ensuring that it operates effectively.  So we have two tools, they work together: NABERS has a maximum score of five points in half-star increments; Green Star six stars are available in full star increments.

There is no existing building rating tool.  There is a tool that was under pilot for some time, and I suppose that was prior to the days where there was some alignment between NABERS and Green Star.  So there is a question around how existing buildings can compete with brand new buildings that do have a Green Star rating.  And maybe it’s timely that the market takes a look at the NABERS tools, has a look at the gap between what NABERS measures in performance of buildings, and what Green Star seeks to influence in the design phase; have a look and see if there’s a gap there that needs to be closed so that we can have the potential of an existing buildings tool.

But I think there’s another path that may be taken by tenants over time too, in the operation of existing buildings, is to really consider what they want in a building.  Is it purely the Green Star rating, or are they really after a cleaner indoor environment, or better indoor environment?  Are they really looking for a lower pollution-causing building?  And getting down to the actual measures that they’re after.

So I’m interested from the tenant view, to take something that’s maybe like indoor environment quality.   Vito, in your standards that nominate indoor environment quality, how’s that – have you seen a change over time as to what tenants demand in that space?

Vito Chiodo: Without a doubt.  I mean, we talk about the inability [to rate] existing buildings; we talk about making sure that business stays in business during a GFC.  Do we relocate just because we want to be able to say that we’ve moved into an accredited building, and not be penalised?  And this comes back to the very point, where I’m saying that the flexibility needs to be urgently looked at in relation to accreditation.

Because with a tightening market, whether it be Melbourne or Sydney, most tenants are left with no option but to stay put, and left to the devices through effective means, like Bruce was saying, in negotiating some aspect or management framework that makes the building much more environmentally efficient than what it is today.

And as I mentioned earlier, we have currently 140,000 square metres under refurbishment at the moment.  We as an organisation are very satisfied in relation to the efforts that we are going to, to ensure that the building from pre and post is much more energy efficient, much more water efficient, and much more recyclable around its waste that it produces.  And as long as we’re improving from the baseline of wherever we’re at, irrespective of the lack of an organisation to give us that accreditation because they don’t have it, doesn’t mean that we’re stopping doing what we’re doing.

And our accommodation standards speak for themselves, as to the kind of things that we are proactively doing irrespective of this misalignment between the two groups.  And it’s driving the wrong behaviour as well.  We are tenants in a number of buildings owned by various landlords that are saying, Look, I’m sorry, we have to take X amount of car spaces out of circulation because we’ve got to put in extra bike racks because that’s going to get us more points.

And people are saying, But I don’t want extra bikes.  I have a pending need for staff to exercise their right to actually salary sacrifice a vehicle, notwithstanding our protocols around encouraging people to be greener.  But yet, once again, it doesn’t come down to a framework that drives the right behaviour to get a fit-for-purpose outcome.  And this is the dilemma that I’m hearing constantly.

Bruce Precious: You described fantastic behaviour as a result of the rating tool.

Vito Chiodo: But you have a look at most of the buildings that Telstra are in.  Yes, we’re pre-committed to 50,000 square metres in Brisbane.  It was front of mind.  Both organisations committed to a Green Star rating, because you have a baseline that is blank.  But when you’ve got a baseline of existing, it demonstrates very inflexible criteria to be able to deliver those outcomes that have some level of accreditation.

So we said, Look, given the inflexibility, let’s put accreditation aside.  Let’s do what we believe is right for an organisation that does have corporate social responsibility at the forefront, and we’ll practise what we preach by setting aside a set of guidelines that say this is what we’ll do in every instance.  So the things that we choose for our fit-outs are from a recycled baseline, are recyclable themselves.

As I say, we’re doing away with the normal hand driers and installing blade hand driers.  They’re 80 per cent more efficient in emitting carbon dioxides.  We are not planting trees, we are not buying carbon offsets to continue our behaviour.  We’re actually implementing different procedures, different elements, different products within our fit-outs to ensure that we can prove we are being conscious about it, whilst not being formally accredited.

Bruce Precious: Can I just make one point off the back of that, Jennifer?  Thanks.  Just very quickly, as I discussed, the ratings tools are relatively new, and they’re new when you compare them to the lifecycle of a new property.  So a new development takes many years to come on-line, so we’re just seeing the results of the earliest properties to get involved with the rating tools.

Sophisticated tenants will start to dissect the rating tools, and say, Well, this bit is not important to us as a business, but this bit is.  And it won’t always be a race to six stars.  Different businesses will choose that a five star rating will be fine, but it addresses all the bits that are important to my business.  So there’ll be a level of sophistication, I think, come into the market, so that the flexibility that the tools offer, they allow you to pick and choose which bits of the tool you want to apply, will be applied in a sophisticated approach.

Facilitator: Well, Geoff, I was going to ask you, how do the tenants cope with that, though?  You talk about the sophistication of the rating tools and the understanding of it.  How does a general tenant deal with this?
Geoffrey Learmonth:    I think that many corporate organisations are quite confused by these rating tools.  I mean, we’ve got four rating tools in terms of the NABERS rating, in terms of NABERS energy, NABERS water, NABERS waste, NABERS indoor environment.  And then we look at the Green Star, in terms of our criteria there, we’ve got nine tools: management, indoor environmental quality, energy, transport, water, materials, land use, ecology, emissions, innovation.  We certainly find that we often have to bring outside experts in to assist us in this.  Many of our clients say to us, We want to be in a green building; do I need to be in a four-star NABERS rated building, or a five-star?  Do I need to be in a five-star Green Star building, or possibly even a six?  Not that there’s too many of those.

One of the things that we find is that, for example, in New South Wales you may be able to get a five-star NABERS rating, but I’m told that that may be a lesser rating here in Victoria – which I’ll perhaps ask Bruce’s comment on – that if it’s a five-star rating in New South Wales, it might end up being a four and a half star NABERS rating in Victoria.

Facilitator: And Bruce, before you answer that – because that brings in the next question – with mandatory disclosure heading our way, is NABERS adequately designed for mandatory disclosure, or could it be improved?
Bruce Precious:    So I’ll disclose my role in government at one stage was to head up the team that created the forerunner to NABERS.  So it’s some personal interest there.  Look, my belief remains that it’s a very robust rating.  It’s based on the best sets of data that we have available from the market, of the performance of buildings.  We’ve created a tool, we got the energy efficiency data from properties across the country, and analysed that and normalised it so that we could take out factors like the hours of operation, a building’s a 24 hour operation, versus a 12, versus a 10, we could normalise for those factors, we could see how buildings performed from the very best to the very worst, and then that was divided up into the five stars.

So the methodology is robust.  GPT’s experience across cities, there is some question as to whether the scale is equitable when you compare the Melbourne scale with the New South Wales scale with the Queensland.  And the scales are very different because we have very different carbon intensities of our energy supplies.  So again, that’s not an attribute of the building, so it’s something that we’ve got to normalise for in the rating tool.  So the tool accommodates those issues for us.

When I look at our properties across the CBDs, in Melbourne we have three and four and five star rated properties; we’re taking one of our properties which was a two and a half star property, we’re looking to make a five start property this year.  So I don’t see that there is any impediment in the tool in terms of its difference between the capital city areas.

Geoffrey Learmonth

Geoffrey Learmonth: Is there any likelihood that a five start NABERS rating a building, for example in Sydney, would have done a lesser rating here in Melbourne, because of perhaps the use of brown coal?
Bruce Precious:    Certainly not for that reason, no.  Because the fuel source is normalised out.

Facilitator: Aggie?

Aggie Aitken: I just wanted to add, Jennifer, that we also find a further layer of complexity in relation to the rating tools when we start comparing against international standards.  ANZ is a global business and we have internal and external stakeholders across borders.  So from submitting an initial business case to then actually understanding the workplace solution and implementing the right one in line with our corporate responsibility agenda, as well as our business operations and needs, it’s very difficult to baseline throughout that process and to compare those buildings against each other and to compare them like for like, for the business units.

Vito Chiodo: Can I just make a point there?  We tend to forget a couple of things, and that is money and return on investment, and I’m sure Bruce ….  You wouldn’t be upgrading a building to five star unless you thought the return was there?  And Geoff, I’m not sure whether you’ve seen enough data to actually demonstrate that investing in these environmental elements within the building does return a lower cost base that makes your building more competitive.  Investa have been very proactive in this space; spent hundreds of thousands of dollars to get a form of accreditation.  But let me tell you as a tenant I haven’t seen the outgoings come down in relation to those greater efficiencies attained.   Now, that could be for various reasons.

But once again, from a corporate real estate perspective, we have to be very conscious that what we are prescribing must be contained within buildings [and] is producing a cost base that’s going to make the business more efficient from an overall cost perspective.  And when you bring about all the different measures, tools, et cetera, et cetera – if we can’t balance those two together, I think many organisations out there are not saying, with their hand up, I’m prepared to pay more rent by leasing a greener building.

Geoffrey Learmonth:  If I could just come in on that, from our experience, most occupier organisations, most large…organisations certainly take the view… that they aren’t prepared to pay any more for a green building.  Having said that, there’s probably a certain view that …I want to be able to go into a four star Green Star building, a five star Green Star building, and I’m not really prepared to pay anything more for that.  Coming back to the issue of attracting and retaining the best people, there’s probably a view they might be prepared to pay a little bit more for a six star building.

And on another issue you just raised, Vito, is the question of costs.  We’re constantly reminded by investor building owners that if this building is a more energy efficient building, we’ll be able to watch those savings come through.  I question whether or not the jury is still out on this whole issue of cost savings.  You know, when a tenant’s paying four or five or six or $700 a metre, or in Sydney perhaps $1000 a metre, if they might be told that they’re going to save $2 or $3 a square metre on energy costs, it kind of fades into complete insignificance.

And also, when you then measure that against some significant increase that occurred in statutory outgoings, it [the energy savings] is probably relegated to the back box again. On another issue of costs… we find on some of the outgoings audits that we look at for our clients, there’s a green power component in there.  So the common energy has gone up significantly, yet there’s no provision in the lease to recover green power.  So our clients are often in a dilemma: Do they kick up a fuss and then [be seen as] perhaps not taking on their corporate or social responsibility by being green?  Or do they just cop it on the chin and pay it?

Vito Chiodo: Geoff hit the nail on the head as to why we have NABERS ratings at all, and it’s because the cost of energy was so insignificant that it was not being managed effectively in buildings.  And it’s why we found, when we went to measure the  performance of buildings, there was such a wide range of performance.  Buildings that were using up to 10 times more [energy]  than similar buildings right next door.  So energy was out of control in buildings before the rating scheme came along.

Let’s turn the cost argument around.  In efficient buildings, or to call them loosely, non-green buildings, inefficient buildings use more energy.  They use more water, they create more waste, they must cost more to run, inherently through the cost of utilities.  So hands up, who wants to be in an inefficient, non-green, expensive building?

Let’s choose the efficient, green, cheaper to run building.  In terms of being able to identify the exact dollar savings as outgoings as a tenant, we’ve gone through a period of rating buildings.  And certainly the larger property owners have been working on improving ratings, and reducing energy consumption, at the same time as we’re seeing energy prices and water prices escalate quite rapidly.  So if we make a – to keep it simple – 50 per cent reduction in the energy consumption, but the price of energy has gone up by 50 per cent, we’ve kept the overall costs neutral.  It’s the same.

But what we’ve avoided is that energy bill doubling.  And if we hadn’t had the efficiency measures in place, that’s what we’d be complaining about today.

Geoffrey Learmonth: But on the other hand, we have experience where organisations are in a building, they love the building, they like the location, they go back to this whole issue of attracting and retaining staff, and wanting to take the social responsibility appropriately, but they like the building.  The building may not have a green star rating, so they’re in a dilemma.  Do they stay, do they go? If they like the building, they might be prepared to stay …albeit they may try and get a NABERS rating introduced.

What we also find is that where a client of ours goes into a green building, we find that there is, to some extent in many organisations, a push-back when it comes to actually doing greed fit-outs.  The building owner says, Look, you’re coming into a green building; it’s an appropriately rated green building, we really want you to do an appropriately rated green fit-out, use a green lease, and we’ve found there’s been quite a big push-back on that.

So I wouldn’t mind actually hearing the views of the other panellists.

Generally, many organisations will use environmentally friendly paints, carpets, sealants, and so on, but many want to stop at about that point.  Do any of the other panellists have a view on that?

Vito Chiodo: Just recently, we did have a landlord who said, if you want a lease, here’s the marketing brochure and all the wonderful stuff, but by the way, you have to limit your fit-out design to ensure that the Green Star rated nature of the building was upheld.  And I look at it, and I go, How on earth is that aligned to meeting customers’ needs, by saying, You can buy my product, but if you don’t like it … you’re going to have to buy it.

And it’s just one of those things that, once again, doesn’t support the element of alignment.  How can you say to someone, Come into my building, but I’m going to be completely inflexible, because I don’t want you to diminish my Green Star rating.  But at the same time, I’m hearing, I can’t prove that that is a more efficient building than the next option.

The other thing too about making buildings greener, there is absolutely no doubt that if we commit to an existing building, the building owner must demonstrate to us a protocol or a plan that will make the building more efficient than where it is today.  Without it we won’t go into a negotiation. And if it’s something that still needs to be further established, we commit contractually to work together to make sure that we get a fit-for-purpose specification and a fit-for-purpose outcome that’s clearly defined and measurable.

Now it may not be definable and measurable under the accreditation guidelines…but to be able to categorically say under critique that the building is much more efficient today than where it was at the beginning of the lease.
Facilitator:    Can I ask you, then – and this is a question that isn’t in your list – we’ve talked about building the sustainable building, we’ve talked about tenants negotiating leases for these sustainable buildings.  How do you ensure that the tenant operates the building, uses that space in a sustainable manner?  Can I throw that to you, Aggie, in terms of what have you put in place to ensure that the building at Docklands is actually going to continue to be used?

Aggie Aitken: It’s a good question. I think, that when you work on a project of that scale, and when you work on any property project, we work under design principles.  And taking that into the next level of operations, we’ve gone into operation principles as well.  And our businesses that have come into 833 Collins Street in Melbourne’s Docklands, have committed to working on those.  So I think I talked about a lot of the initiatives in the building …and they just work.  They operate and deliver a more sustainable solution and a lesser environmental footprint impact than other commercial buildings.

But there are ones that require conscious occupant participation.  There’s a lot of communication involved in that. As part of the relocation into the Melbourne Docklands, we decreased our printer fleet. We’ve implemented swipe to print solutions. We’ve already noticed that we’ve cut down on paper usage by 20 per cent just on uncollected printing.

So there’s operational methods that have been brought into it.  Going forward..the challenge is in setting up… with property partners in order to help us run those operations.  And I’m personally very pleased that both Jones Lang LaSalle and Lend Lease are staying on board to help us in these first 12 months, particularly when it is critical and crucial in getting the systems operational and monitoring and tracking them and understanding how the building works, to be involved.

And I think that’s a great testimony to those two organisations that they haven’t just delivered and built the largest commercial building in Australia that happens to be the greenest as well, that they haven’t just walked away from it.

Vito Chiodo: From our point of view,  just adding to that, it’s that sharing of knowledge which I think has an enormous ability to improve on. So at Telstra, we’ve been using multifunctional devices now for four and a half years with Cannon.  And what we have is the accommodation standards that provide the guideline to ensure that we’re driving the right behaviour.  Because as you can imagine, it’s pretty hard to supervise a million square metres of office space around the country, to make sure that everybody’s doing the right thing.

The other thing that the multifunctional devices give us is what we call the “shame file” report. Now, our one-up managers receive the Amex statements that tells us how much we’ve been spending.  It also produces a report that tells you who is the biggest printer in your team.  So it encouraged people to manage the behaviours of their staff, bringing them in and asking them, are there other ways of managing their exorbitant print behaviour?

As an example, in Brisbane also, we decided that we were going to move to zero bins at desks, and centralise all the bins from a recycle perspective.  So there were more waste bins, more recycle bins in strategic locations spread across 2000, two and a half thousand square metre footprints.

Now we’ve just finished doing a six month post-implementation review, and we’ve found that people have actually gone out and bought their own bins, continue to throw decomposable waste there, and then complain about the fruit bugs that are flying around their desk.

It’s a challenge, but I don’t think we’ve quite got it right yet as to how we ensure that we preserve our environment so that the behaviour toes the line.

Facilitator: So, the shame file, do you put that up in the staffroom, or is that in your …?
Vito Chiodo:    No, my staff blame me, because I send all my printing to my secretary, so she gets the blame for everything, you see.

Facilitator: So they get a little green star if they’ve cut down on their paper use?  Bruce, do you think that owners are starting to demand that their tenants use the resources more efficiently?

Bruce Precious: Look, I think what’s coming out of this discussion is that there is a greater discussion happening between tenants and owners about how a building is going to be used.  And Geoff made the point before about people wanting to stay in a building, but wanting to see its green attributes improved.  And we’ve had a number of examples where we’ve been able to have that discussion with tenants, talk to them about their aspirations for green, to talk to them about the most important components, so that we can put in place a plan to improve existing building stock to meet those aspirations.

The important thing, I think, to remember is that the average age of office buildings in Sydney and Melbourne is somewhere between 10 and 20 years old.  And the very thing you need to do on a building that’s 10 or 20 years old is start to replace some of the major systems in the building, particularly mechanical plant and building management systems, for instance.

And if we’re going to spend that money anyway, if we spend it wisely, and put in place good designs and good new equipment, we will get a great environmental dividend out of that money that we’re spending just to keep existing buildings open.  Now, that money will also improve their environmental characteristics, and their operational and performance characteristics for the tenant to enjoy.

So if you’ve got that great sweet spot where you’re in discussion with an encumbered tenant, and you’re just reaching a point where you’re going to need to spend money on the building anyway, you can have a great discussion about what can really be achieved in terms of improving performance.

Geoffrey Learmonth: Bruce, do you think …if building owners don’t invest in green technology for their buildings, those buildings will get to a stage where they just can’t compete in the marketplace with other buildings?

Bruce Precious: They’ll compete in the marketplace with other buildings, but they’ll be competing with other grades of buildings.  Buildings will slide down the Property Council’s [building grade] scale and they’ll be competing, but just at a lower part of the market, if they don’t keep up.

Geoffrey Learmonth: Because if you go back to the concept of Premium, Grade A, Grade B, Grade C, some of those C grade buildings in various cities around Australia got to a stage where their economic life as an office building ended, and their highest and best use became residential.  Now, the same might apply with green technology, that if buildings aren’t green, they could get to a stage where they could also face a similar situation as the C grade buildings that ended their economic life.  Do you agree with that?

Bruce Precious: Possibly.  Would that be a bad thing?  Maybe not, if we’re talking about intensification of cities, as we were talking – I was talking with the Lord Mayor this morning.  Maybe that’s not a bad outcome.
Facilitator:    But are those buildings, if they’re not acceptable for commercial accommodation, are they going to be acceptable for residential?

Bruce Precious: Well, they’re going to have to be refitted as very different buildings, anyway.  So one way or the other they’re going to be refit as a different building.  They’re either going to be brought up to a new standard as an office building, or they’re going to be a different type of building.  I don’t see a negative either way, really.

Facilitator: Do you have a view? The existing building stock is the biggest challenge for the sector and for governments.  Do you have a view on what could be done in terms of  – and I’ll open this up to the panel – are there incentives that could be put in place to get the lower grade stock up to a sustainable level?

Bruce Precious: Well, my personal view is that the Green Building Fund is an excellent example of government being able to leverage a significant spend on buildings.  And certainly from my experience, it helped to accelerate spend, so if we were looking to replace chillers maybe a year or two away, we could bring that project into the immediate budget, with the influence of some government incentive money there.  So I think the Green Building Fund has been rolled out quickly, effectively.  It’s been through a number of rounds.  People have had an opportunity to apply a number of times, if they couldn’t get their applications right the first time.  So I’d cite that as a great example of a good government program.

Vito Chiodo: But in addition to that, though, I do think that space beyond the funding aspect could do with some tax reform, insofar as revisiting the whole depreciation regime…So…if you’ve got this accelerated depreciation for environmental investments, then I think you’ll find that the building owners will certainly be incentivised to bring forward the planning to achieve the reduced emissions based on old plant, and tenants, at the same time, could be happy because we could enjoy lesser rent and enjoy the greener building.

Bruce Precious: And you’ve created green jobs in that whole process as well.

Aggie Aitken: Absolutely, absolutely.

Facilitator: We’ll throw open to the floor for questions.  We have a microphone, and if you’d like to raise your hand and could you just state your name and the organisation you’re with?
Question:    I’m Elizabeth [unclear], from Building Management and Works in WA.  I was just wondering how the panel generally feel that the mandatory disclosure policy is likely to affect the commercial building industry, both in terms of owners’ willingness to upgrade existing buildings, and tenants’ willingness perhaps to pay a green premium, when they can see exactly how bad the other buildings are?

Geoffrey Learmonth: Perhaps I could answer it from the tenants’ side of it.  I’m not sure tenants are really willing to pay a green premium. Certainly from our experience tenants and occupiers expect a certain level of green and want that included within the [agreement] without paying a premium for it, perhaps unless it goes much higher up the food chain, towards a six star building.

I think what it will do with mandatory disclosure coming in in the second half of this year, it’s going to make tenants more informed.  And tenants have a decision-making matrix they go through, some more rigid than others.  And as I mentioned I think the very opening comment was a whole range of issues, ranging from attracting and retaining staff, use services, floor plate efficiency.  One of those decision-making matrixes will probably end up being the issue of just how energy efficient this building is, and is it a reason for them to relocate to that building, or for that matter, stay in that space?

Bruce Precious: I think, my two cents’ worth is that I think that Elizabeth  has picked up on an important point.  Those buildings that don’t have the green attributes, those buildings that don’t have good star ratings, good environmental characteristics, will fall down the scale. Nobody’s going to admit to paying more for green, nobody needs to pay more for green, but certainly if you’re a property owner and you’ve got a building that doesn’t have any green attributes, you’re going to struggle to get good rents for it.  So it’s a defensive mechanism in many ways.

Question: Chris Wheeler from Mallesons Stephen Jaques.  We spent a lot of time, and this conference is all about, designing green buildings.  And there’s a lot of focus on developing the great Prius vehicle. But when it comes to driving habits, you can soon just drive by flooring it all the time, and not get that economic outcome, or environmentally sensitive outcome.  And we’ve heard a little bit about the tenants talk about how they themselves look to change their own behaviour.  So it’s about behaviour.

How then, or the comment to the tenant reps is, What discourse is there between the owner and the tenants about commissioning and fine tuning the building, both in terms of improving its performance, but also providing tips on the performance of the tenant?

Geoffrey Learmonth: I’ll have a go at that.  Chris, I can’t see where you are.  Interesting you bring in the analogy about the Prius.  I suppose it’s similar to the customer going along to the Toyota dealer and saying, Look, I want to buy this Prius, and the Toyota dealer says, Well, I’m only going to sell you this Prius if you promise to actually recycle your banana skins, or your orange peel.  So of course he’s being socially responsible in the fact that he’s going to buy a Prius in the first place.

And I suppose a tenant could take the view that by going to a building that’s already green, they’ve already fulfilled part of their obligation.  They’ve fulfilled part of their obligation by being in a green building, their social responsibility, and also the obligation and responsibility they’ve handed back to their staff, providing a workplace to attract and retain staff.

But the flip side of it is that most tenants will work in a collaborative way with the building owner to ensure that their ratings are kept, and also to ensure that we are in a more sustainable healthy environment.

I actually came across something recently where a tenant in a building in Brisbane had acted in a collaborative way with the building owner.  It was just interesting seeing what had come out of that.  And this little publication talked about where the landlord and the tenant had come together, that six tonnes of cardboard and paper had been recycled in the 12 month period.  They had saved 15.6 tonnes of greenhouse gases; 25 cubic metres of landfill space had been saved; they’d saved 81 trees; 16 barrels of oil; 25,000 kilowatt hours of electricity were saved; and 200,000 litres of water.

So I suppose where I see it coming from, for my two cents’ worth, it really is very much a collaborative approach with the landlord, albeit that the tenant perhaps may take the view that they’ve already fulfilled part of that obligation by coming into a green building.

Bruce Precious: One point on that, though.. it’s a smart question to ask [is]  there’s a lot of these good stories, there’s a lot of these cases out there.  But where would you go, as a centre of knowledge, to try and leverage from some of the success stories of others?  I often talk to people about the waste reuse that we have working with Bogus, and that’s their second plug.  So I know there’s some of them here, so they better give ANZ and Telstra the credit for it.  But we’re minimising land waste through efficient and proper behavioural needs, but where do you go to get that information?

There’s these great stories that come out, but who can we share that with, given access to the kind of things that we can all leverage from?  Because after all, we are doing it for the environment, but we seem to put our arms around it and only talk about them when we come to these kind of conferences.  So which body can bring it all together and say, Look, I’ll create that centre of knowledge; you put your information in, which I’m sure we’d be happy to give up; and then that is available to all the members and people alike.

Facilitator: I believe there is a website called yourbuilding.com, perhaps we should look at that.  [And The Fifth Estate – Ed]

Bruce Precious: Can I just respond to Chris’s question as well, just a comment on, you buy the Prius and you drive it with your foot flat to the floor the whole time.  Well, that’s the point of NABERS.  NABERS measures performance.  And I point I should have made earlier is that a Green Star rating is in perpetuity.  Once you’ve achieved your Green Star design or your “As Built” rating, that rating stays forever.  NABERS is an annual rating, and it measures the performance. You’ve got to front up with your energy bills, your hours of operation, and a third party assessor goes through and creates your rating.

So that’s the system that avoids just leaving well-designed buildings running 24/7 if they don’t need to. The kinds of discussions we’re having with tenants at minimum on a quarterly basis now – we have building management committee meetings across all of our properties – where we sit down with the tenants from the property, talk about how the building is performing, we disclose all the performance statistics and the relevant ratings, and we have a dialogue with the tenants about what they’re doing in their own space.  We introduce them to programs like City Switch, which is designed to engage with tenants to help them improve their own energy efficiency.  So there is  – again because of these rating tools –  we’re starting, we have these discussions.

Another good example of what that can lead to is in one of our properties where a bank was occupying, they’d got to a point where they bought one of their business units in that needed to run 24/7.  The rest of the tenancy didn’t need to run that long.  That meant that we needed to run a whole rise of that building, the plant and the equipment for that rise of the building, to satisfy three or four desks 24/7.

Once we understood that operational need and we could show them how it was going to impact on the building performance and the cost penalty it was going to really impose, there was a really simple solution to put in a packaged unit that served those three or four desks.  Much cheaper for them to manage, much better for the environmental performance of the building, a better outcome for everybody.

If we didn’t have the rating tool, we wouldn’t have identified that operational characteristic probably.

Facilitator: We have time for one more question.

Question: Peter Cass, from Rider Levett Bucknall.  I’ve got some observations for Bruce.  With the NABERS rating tool, it is a measure of carbon not kilowatt hours used.  And we’ve done some recent analysis on this, which Jennifer will be aware of, where buildings in Melbourne have to have a substantially lower kilowatt hour use to achieve the same rating as those buildings, say, in Sydney or Brisbane. There is some normalisation but in fundamental terms, a building owner can manage the number of kilowatt hours they use, not their carbon output, and that’s related back to infrastructure. So there’s a penalty for buildings in Victoria which is in fact an economic penalty.  Because if they’re going to compete for tenants, the cost that a building owner would have to spend to achieve the same rating would be much higher.

My other observation – and I’m willing to – obviously you can respond – but my other observation as well …  If you could respond to that one, and then I’ll give you the other one.
Bruce Precious:    Look, Peter, I obviously haven’t seen your data.  The carbon coefficients that have been used in NABES [unclear] have been fixed for the last 10 years.  So the relativity between energy consumption and carbon has remained static the whole time.

Melbourne of course has a far friendlier climate, so there is a climate normalisation in the NABERS tool as well, not only a carbon normalisation.  Look, I think it would be great if you have data that demonstrates an inequity between the way different cities are treated, that should be made available to DECC so that they can take a look at that information.

I think the important thing, if there were any problem there, is to remember that most buildings would be measured on their relativity within the CBD, so most businesses are not going to choose whether they go to Sydney or Melbourne based on the star rating of the property.  So all Melbourne properties would be treated equally that way.

Having said all of that, we’re still looking to make five star buildings in Melbourne, so I haven’t experienced the scale being a direct impediment to that.  There is some real confusion in the Green Star V3 design tool, where they sought to exclude NABERS from the characteristic there.  And that measure seems to make five star buildings look impossible in Melbourne, but as far as I understand under Green Star Version 3, you have the options to use either a NABERS protocol or a Green Star protocol.  Green Star disadvantages Melbourne, so you use the NABERS protocol in Melbourne, which gives you an advantage.

Question: Yes, thank you.  I’ve just remembered what else I was going to say.  You mentioned before the building that may be 10 to 20 years old is probably due for plant replacement.  We are acutely aware of the implications of replacing plant in buildings and the embodied energy involved, the effects of the workers who have to do that work – they have to travel in and out – disposing of equipment that might perhaps have some life left in it.  And I just wonder whether, there seems to be a thought that chuck everything out and replace it, to save some kilowatt hours and energy use.  But really, I think as a society, we need to think about being able to recycle plant and try and do more with what we’ve got, rather than just throwing a lot of things away.  Light fittings or whatever.

Bruce Precious: I couldn’t agree with you more.  We have rehire-recycling targets that even to the level of demolition, if we’re going to demolish an existing building, the recycling rates of achieving that are quite extraordinary.  So I agree with you that we should be looking at a build-to-last attitude.  It hasn’t been the case in the past.  And there probably should be a Green Star category around build-to-last.  But it’s something that we need to address without doubt.

Facilitator: Okay, I’m sorry we have to call it quits there, but there’ll be a voice-over very shortly and we need to move on to our next sessions.  Can you please join me in thanking our panellists, Bruce, Vito, Aggie and Geoffrey.  [Applause]

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