By Tina Perinotto
4 December 2011 – Berkeley and Maastricht universities’ academic Nils Kok arrived in Australia last week to confirm what every sane investor knew all along, that sustainable and energy efficient buildings are better buildings and worth more than their run of the mill energy guzzling peers.
The academic from Berkeley and Maastricht universities is the man who has embarked on the huge mission of collating data from around 20,000 buildings in the US on the issue of green investment value.
He is also close to finalising a similar job for Australia in collaboration with the University of Western Sydney, Jones Lang LaSalle and CB Richard Ellis, for an anticipated September launch.
Kok spoke at Australian Property Institute/Property Funds Association events in Sydney and in Melbourne hosted by NAB, and also in Sydney at a session by the Green Building Council hosted by Stockland.
His key message was that in today’s market it wasn’t so much the premium that green rated buildings achieved as the discount that applied to non rated buildings, which his studies to date have shown is, -3 per cent in rents, -7 per cent in effective rents and -13 per cent in transaction value.
An interesting point is that at very high levels of sustainability the rental premiums disappear, Kok said.
This might have something to do with the extra cost of the technology; features likely to earn innovation credits under the US Leadership in Energy and Environmental Design sustainability rating system, such as green roofs, for instance, may provide other benefits, but not extra income.
“As values go higher the rental premium even flattens off when you go from Leadership in Energy and Environmental Design, Gold to LEED Platinum…if you put tri-generation into your building it’s not necessarily value enhancing,” he said.
Typical of the curious researcher and interestingly, given the scope of change under way in the Australian property market, Kok is already moving on.
The really bright new idea, he said, is what’s happening at the B and C grade level of buildings. It’s here that the real number crunching will kick in, to work out what happens when you take a building from a 2 star NABERS Energy rating or less to 4 stars or higher.
Out in the marketplace the savvy investors, led by even savvier consultants, are priming for a boom in this kind of work, market sources say.
The drivers are mandatory disclosure, the carbon price and the new performance indicators showing that a green building revolution makes sense.
Investors such as GE Capital, Kok pointed out, might have some highly rated buildings but the average rating for its portfolio might be 2 or 3 stars.
“It does not have a premium rated average and that’s where we should focus the debate,” Kok said.
A big part of the market doesn’t even know what NABERS is, Kok said.
On the carbon tax, Kok said: “I think the impact will be small but again, it’s the difference between efficient and non-efficient property.”
Kok pointed to work led by Colonial First State’s Rowan Griffin showing that the carbon price would be a driver, albeit minor.
At an estimate $25 a tonne (the work was done before the carbon price was announced) it would add $2 a square metre to the rental cost of a five star Green Star building and $4 a sq m to a four star Green Star office.
Not a big deal in the end, and likely to be passed on to the tenant, leases or lease adjustments permitting.
Joining Kok in vigorous discussion at three key events were, in Melbourne, panel members NAB’s Sean Lucy, head of origination environmental finance solutions, Sustainability Victoria’s Stfan Preuss and IPD’s Australia &New Zealand managing director Anthony De Francesco.
In Sydney panel members at the API/PFA event included Walker EcoStrategies’ Roger Walker, Brookfield Multiplex’s Lauren Haas, IPD’s Dr De Francesco and NSW’s Department of Environment & Heritage’s Matthew Clark.
At the GBCA session panel members included Nathan Fabian,
Investor Group on Climate Change, Elaine Prior, Citi Investment Research, Rowan Griffin, Colonial First State Global Asset Management, Adam Murchie, vice president Property Funds Association. Moderator was Stockland’s Siobhan Toohill.
Commenting from one of the Sydney panel sessions Colonial First State’s Rowan Griffin said he agreed there was no longer a premium for green property. “We have already gone to the stage where it’s the norm to be green and energy efficient, so people expect that out of premium buildings. So it’s more a discount of those that are not energy efficient and not green.
Brookfield Multiplex’s Lauren Hass revealed a preview of productivity research about to be released soon on One Shelley Street the latest new office building for Macquarie Bank.
Overall, said Haas, energy efficiency is about 4 per cent of total costs and people represent about 80 per cent.
Better indoor air quality can return much more to the occupant than the savings on energy she said.
“If productivity rises 15 per cent, and 3000 people are telling us that, that’s pretty important,” she said.
And what about staff attraction? The market has a hard time valuing that kind of metric Haas pointed out.
Stockland’s Siobhan Toohill said a big message for her from the session was the “enormous amount of data” being put together by analysts very interested in the performance of the property sector. Another was that “Australia is at the forefront of the pack.”
In other parts of the world said Toohill the move to greener buildings was more fragmented. There was much more collaboration in Australia, she said. The real estate investment trusts work together and through the GBCA and the Proeprty Council of Australia.
“This enables us to have those conversations and lift performance as a group,” Toohill said. “While there is some level of friendly competition there is also a recognition of us being really collaborative.”