Keith Gunaratne

7 February 2013 – There’s nothing like working in another market for a while to shine the spotlight on a few home truths about your own. Tenant relations for instance. Particularly in the realm of energy efficiency

According Keith Gunaratne, whose EP & T Global has been breaking into the UK market picking up clients such as British Land and the BBC, it’s certainly a lot easier to gain traction with tenants in the UK than at home.

“In the UK if we are deploying technology for the base building, we are introduced to the tenants and we start working collaboratively. Sometimes the landlord chips in.

“In Australia landlords can’t get us into the tenants so it means we have to directly approach them.”

It’s often just too hard; it takes too long to engage the tenant, to get their attention, their agreement and to get past the deep seated suspicion of doing something that would also benefit the owner.

Gunaratne says the business for companies such as his just doesn’t stack up. “The cost of sales” is just too high, he says.

The issue seems to be structural, buried deep in the adversarial nature of lease negotiations and the tradition of lawyers at 10 paces.

“It starts with the lease negotiations onwards, where you get a lawyer, and it goes from there. It creates a war scenario.

“In the UK it’s a lot better. There’s a lot more transparency.

“When you look at service fee [outgoings] – the detail, the way it’s structured and how it’s allocated – it’s very transparent. And as a result the tenant is engaged with the owner a lot more. The tenant is taking the journey with the owner.

“When there’s a problem tenants would not say, ‘you’re the landlord, fix it’, they would say, ‘OK you have a problem here, what can you do and I will share the responsibility’.

“It’s not always perfect but it’s a lot better.”

In other ways, Gunaratne is trying his best to get into the ear of the UK Government to bring some Aussie innovation to the British market.

In support for the industry for instance.

In the UK, sure there are ambitious targets for energy reduction, famously including an edict that all buildings offered for lease must by 2018 have an energy efficiency rating of no less than an E on an Energy Performance Certificate.  use certificate. And that the UK must reduce emissions in its building stock by staged targets of 34 per cent to 20120 and 80 per cent by 2050.

“Given the long term targets that may mean none of the current government are going to be held responsible for not delivering the targets.”

According to industry views, the Coalition [conservative government] agreed to support the targets, but not so much the measures to ensure they are met.

So the upshot is that by 2015 there will probably be no chance that 100 per cent of buildings offered for lease will achieve the target rating.

The industry has reasoned: so what? It can hardly make the majority of  buildings obsolete.

Gunaratne says it’s got a point. “You can punish 5 per cent but not 95 per cent.”

For his part he’s  doing his best to talk to the relevant government bodies to encourage some appropriate policies, “but it’s not an easy job”.

By contrast he says worked closely with buiding owners and industry to help market transformation. “The Australian Government helped”.

For one is the “very good rating scheme” in NABERS.

“Two, it’s put in place certain rules like energy efficiency opportunities, where certain companies who fall within the threshold need to report how they can reduce energy. And these have to be lodged with the Federal Government.”

There were also schemes like the Green Building Fund, where the government “participated with the industry to achieve certain targets”.

“Government cannot just throw the rule books at the private sector and expect them to do it. The balance between regulation and incentive is very important.”

In general the public in Britain is supportive of emissions reductions.

“The UK’s public’s perception about climate change is serious and real,” Gunaratne says.

His taxi driver’s test – checking what taxi drivers think about the job he does, – indicates a strong positive on climate.

“Today in the UK they say this is what this country needs.”

This contrasts to Australian taxi drivers who are likely to mimic the barrage of attack from political attacks on climate policies, especially from sections of media.

“The conservative media took issue with the carbon tax. Therefore it’s become extremely politicised. In the UK it was never politicised.” Until recently, that is. “But that’s purely because industry groups are putting pressure on the government that the terms are too tough.”

Manufacturing is a tough energy target

Gunaratne also has some views on manufacturing, and thinks the Australian Government won’t find its energy savings in this sector as swift as they occurred in the property sector.

He thinks the $10 billion Clean Energy Finance Corporation, targeted in a major way to energy efficiency for manufacturers will need to be tweaked.

It’s another structural issue. A similar story to the cost of sales to target energy efficiency for tenants in Australia. Yes the Federal Government has good intentions here, but he’s not sure the yield will justify the investment.

In the property industry, management is often small and agile.

“Take a large property company managing $10 billion in assetts, they tend to have very skilled and very smart managers to have to make decisions very fast.

“You can see they can come to conclusions very quickly.”

By contrast manufacturing is characterised by management that feels it needs to delegate energy efficiency decisions to technical managers whose priority is to keep operations running smoothly and who may want to prioritise energy efficiency.

“The manager thinks, if I sign a piece of paper I don’t understand, when our margins are running at 1 per cent, it can wreck the whole process.”

So they don’t make the decision.

Property also has the advantage of clear ratings systems and benchmarks. Not so easy to achieve in the hugely varied manufacturing industry.

Gunaratne says it might pay to have a team that can brainstorm how to overcome these structural barriers to changing operations.

“It’s a challenge, but it’s also a lot of opportunity.”

Business outlook

Gunaratne’s company in the UK bolsters the British Land and BBC work with another 15-16 other companies, and there is some potential German work still in the development phases.

He has 12 senior executives in the UK office, run by Brett Goodyear. In Sydney there are 50 engineers in the Chatswood head office in Sydney, and in a true testament to the global world, they handle the technical operations worldwide.

From a business perspective, Gunaratne thinks that with the GFC a lot of things shifted.

“We have come out of the GFC but the world believes we are going to be in a steady pattern with very low growth for 2-4 years and that’s what most of the market believes – not another crash but not another boom either.

“There are a lot of companies who are reasonably capitalised but they’re preserving it for a rainy day and to buy a bargain and that’s they way most of the corporates are thinking now.”

Gunaratne thinks the mood of fear is starting to lift and if the signs that the US is doing better and better continue, this will lift confidence the world over.

On climate change, he’s hopeful US President Barack Obama can push through a stronger climate agenda without Congress, relying on his executive powers.

Let’s hope that’s the case.

See our previous interview with Keith Gunaratne