On cheap rent, and green promises
4 May 2012 – Let’s be frank: the job of turning around sentiment on green retrofits among owners in the non-premium property sector right now is on a par with changing the prospects of the Labor Party in a hurry.
It’s tough out there and any additional expenditure is a big ask.
At the Property Funds Association conference at Sanctuary Cove this week some of the unlisted trusts and private investment sector that controls much of the B, C and D grade property assets heard some good news, but not much.
Money is around, but it can’t be prised from cash accounts. This, despite the falling vacancies and huge yields in some areas, and that Australia is better insulated from the world economy than anywhere else.
As Savills national head research Tony Crabb pointed out to the delegates, this country sits on a third of the world’s resources. What happens in Europe is largely irrelevant beyond some contagion of poor sentiment and maybe, yes, maybe some finance implications.
In a panel session on Monday, Meg McDonald, chief executive of Low Carbon Australia, did her best to engender some excitement at the funding options and logic of turning old energy guzzlers into more efficient operations.
She brought along Niall McCarthy from Eureka Funds Management and Chris Slack from Harvest Property in Brisbane.
Eureka is one of several “partners” with LCAL that offer a range of low cost financing or cost effective leasing deals. Others include NAB, Macquarie Bank, All-Leasing and Flexi Growth. Engineering firms are also in the fray offering new style energy performance contracts that promise to have ironed out issues from past iterations.
Chris Slack explained how his Harvest Property in Brisbane was happy to borrow around $600,000 from LCAL and tip in $100,000 of its own money in an upgrade that has now paid off handsomely for the group. See our article
But so far the take up of any of the programs for energy efficiency retrofits has been slow.
Those with a leasing product say they can offer benefits in the first month through savings on outgoings.
The EUAs, which tap private finance and therefore offer an uncapped potential, could stimulate an economic multiplier effect once the first tranche of deals can demonstrate the benefits.
Estimates say the retrofit sector could be worth up to $2 billion.
But so far there is little appetite; just a handful of deals have been concluded in the EUA space.
The reality is that for the majority of property owners in the non-prime space and the accountants and lawyers who advise them the benefits of retrofits barely register.
This is a group that doesn’t have the benefit of sustainability managers and consultants on tap to explain the upside.
The most common response to talk of energy efficient retrofits is that the energy bills are small fry. That “maybe the building is a bit ratty, the rent cheap and the bills high, but our tenants are happy for the cheap rent.”
McDonald told The Fifth Estate after her presentation that it’s no surprise that these instruments are taking time to filter through.
EUAs and their associated retrofit products are a new asset class, she says, and the industry needs time to understand them and absorb them. NABERS took 10 years to reach critical mass. Green Star likewise.
This scenario is what the retrofit market needs to address. It needs all the help it can get.
So why the federal government would pick now to drop its promised tax breaks for green buildings program, as mooted for next week’s budget, is not so much a mystery as dismal political story.
As the Property Council’s Peter Verwer points out, the tax breaks are not grants, like pink batts; there is no call on the taxpayer until the owner has delivered the goods. And they will bring forward retrofit expenditure.
Judging by the mood at the PFA conference, there couldn’t be a better time.
To abandon the property industry now will be to walk away from a major source of economic and environmental value.
To dumb down or delay the carbon price, also flagged, would be even more damaging. Together these courses of action would compound the federal government’s palpable fear of the climate sceptics and be a capitulation to weakness.
They will remind everyone of the massive tragedy of Kevin Rudd’s failure on climate.