What we need is a very fast train

12 August 2010 – They say that in Melbourne tenants have been gazumping each other for five-star office space. Especially in the premium end of town such as Collins Street.

True or not, premium space is running out. Not the old-fashioned premium, but five star – the new premium.

The mere suggestion that government tenant requirements for new space might jump from a 4.5 minimum NABERS energy rating to five stars sent a shiver down the spine of one Melbourne agent last week.

“There just isn’t any five-star space left,” he said.

The problem is that premium non-government tenants also want five-star buildings. And that the paucity is worse than he thinks.

Have a look at what the cbd.gov.au reveals. This is the federal government’s new website for mandatory disclosure – which hits the decks on 1 November with a new name: Commercial Building Disclosure.

The website includes a list of 314 buildings with their NABERS energy certificate ratings, without green power. NABERS Energy allows a rating with and without green power, but for CBD only a non-green power rating must be used.*

So CBD ratings can be significantly lower than a normal NABERS Energy rating, and also lower than Green Star rating which measures the design intent of a building and “as built.”

Scroll down to the bottom of the CBD list which we reproduced on our website (we were kind and started with best at the top) and you will see some big names that have only two stars: 120 Collins Street, Melbourne; 333 George Street, Sydney; City of Perth Council House (compare that with Melbourne’s equivalent CH2) to name just a few.

Governor Phillip Tower in Sydney scores just three stars.

Hilariously (not), Energy Australia headquarters at 570 George Street, Sydney rates only one star.

According to the NABERS website the Commonwealth Bank of Australia tenancy ** 363 George Street, Sydney gets a big fat zero. The same goes for several government departments, such as the NSW Department of Community Services at Auburn in Sydney.

So just how much capex (capital expenditure) will be needed for these buildings to regain what might be, or should be, their rightful place? No wonder the building services consultants are starting to get excited and positioning for more growth.

And no wonder the property industry was so worried about mandatory disclosure. With the demand for higher rated buildings growing – not shrinking – and our old stock looking so tired, it is clear it’s not just the laggards that need to revisit their assets.

The work will need a highly creative approach.

What to do about what WSP Lincolne Scott’s Simon Witt calls the “greenhouses” for instance? Those energy-guzzling monoliths with the curtain wall facades that were all the rage in the past few decades?

Maybe a look back to historical methods, Witt suggests. Perhaps buildings such as the Leviathan Building in Melbourne, with thick walls that retain heat in winter and repel heat in summer, and tall narrow windows to let in plenty of light by expelling hot air from the top.

How much do the leasing agents know? And what do they think?

In some ways, the leasing agents might hold so much more power than they get credit for because owners will ask them what is “worthwhile” doing to a building before they spend a dime. What the return might be, for instance.

So how much information has gone to agents, how much educational energy and advisory notes from the government or local councils?

The big end of town educates itself but the other 80 per cent of owners are woefully – or blissfully – unaware.

According to the agents, they’ve got absolutely no reason. The CBD program won’t even touch the sides of most property owners’ concerns. Offices of 2000 square metres are large and most are much smaller.

Knight Frank
According to Michael Nunan, state director office leasing for Knight Frank in Victoria, the interest in climate change and energy issues for his clients has faded along with the federal government’s interest.

“They were all starting to take notice, then it died in the bum when the federal government stopped doing things.”

The CBD program won’t have much impact, thinks Nunan.

“Not enough tenants are demanding it [energy efficiency] What’s the driver? Well, there’s none unless the market turns that around.

“If tenants look at two buildings and one has it and one doesn’t, they will prefer the better ratings. But they need to see serious savings in a building to make that choice.”

But, as with issues of disability access or asbestos, Nunan says owners should be thinking strategically and be “putting a plan in place”.

Typically, he says, an owner will ask if the tenant will pay more if they put in better energy-saving features.

“The answer is no. But it’s probably the wrong question.” Instead, the owner should consider that the tenant will chose an alternative building.

“A lot of people are sceptics, and there are big sceptics getting a lot of coverage in the papers.”

Which doesn’t help.

In Sydney, Savills has been quietly rolling out its new business division, Savills Earth, for about three years, mainly to educate and inform its staff but also to pick up opportunities to help owners through a lower carbon transition and other sustainability issues.

The unit is headed by Paul Edmiston, a mechanical engineer with 15 years of experience including five years with Steensen Varming, and so far comprises a core group of staff, with an affiliation with NDY for additional engineering input.

In Edmiston’s view, the big institutions are “all over it. They’re advertising their NABERS rating and it’s a big deal.”

But private and smaller owners “have no idea, they don’t understand it and they don’t want to know”.

On the other hand, creeping up are the softer valuations starting to filter through the chain in response to subprime buildings with lots of capex on their hands to deal with energy issues, Edmiston says.

“With B grade buildings we’re seeing yields a bit softer than the A grade buildings, because in the cash flows we’re having to take into account the capital expenditure.”

Edmiston thinks it’s unfair to say that the leasing or sales agents don’t care.

“They’re never going to know everything. It’s about referring them to the right people … and it’s about educating our colleagues as a whole.”

“Our mantra at Savills has always been cross-fertilisation, and that’s very much the same mantra that will continue.”

About 90 per cent of the market is leased by government tenants which have minimum energy standards of about 4.5 stars for new tenancies. And a lot of older buildings.

Jones Lang LaSalle
In Perth, about 40 per cent of the office market is government occupied.

But, according to Jones Lang LaSalle’s Chris Wallbank, many of these older buildings that might be considered energy guzzlers were actually commissioned to high standards by government clients – that means good floor to ceiling height and good quality materials and building standards, allowing greater re-use flexibility.

“When I walk in the door I have a smile on my face because I know it’s going to be a challenge, but it’s a good canvas to work with,” Wallbank says.

Poorer quality buildings don’t offer such upside, and Wallbank points to increasing difficulty for the valuer to work out how to factor in the capex required.

The question of how you value the market engagement is shifting fast, Wallbank says.

But he warns on the lag time of getting a better performing building, and then the additional year to obtain an energy rating.

“Matt [Clifford, JLL’s national sustainability manager] and I get inquiry on a weekly basis from the more enlightened clients as they see the market shifting.

“Five years ago, the mention of a NABERS rating would see eyes glaze over.”

And at the top, clients such as Suncorp and ANZ have a much bigger integrated view in their strategy. Increasingly they are focused on setting a number of environmental reduction programs – and then turning to property to see how it can deliver those outcomes, Wallbank says.

It’s big picture thinking.

Million dollar beach babes no more
Did you notice the item in The Australian Financial Review on tanking demand for beachside property at Belongil Beach next to Byron Bay on the ritzy northern NSW Coast?

The article noted that the Valuer General had halved land values on the previously sought-after enclave, and that at least eight multimillion-dollar residential properties were on the market in the main Belongil strip, with sales activity slow.

KnowChange – stimulates good ideas

Passion statements first
How about a “passion statement”? Before the vision comes the passion –  or so you hope.

That’s was the view of one of the inspired sustainability people who turned up to the KnowChange network, organised by Elena Bondareva, assisted by James Redwood at the Shelbourne Hotel in Sydney on Tuesday night.

Or what about a future where the Liberals win the federal election, Tony Abbott gets dumped and Malcolm Turnbull, reinstated as leader, hops on his white horse and leads us to a carbon neutral future?

Or even a better form of government where, instead of policy on the hop responding to
Incessant polling (a kind of Twitter-government?) the serious long-term issues are handed over to a respected governing body that stands apart and can make decisions on its own.

Other delegates who presented four-minute speeches and then threw open discussion for the group envisaged a post-carbon world where technology solved environmental problems – but not in isolation to a fundamental transformation of the economy and society.

You can’t have a post-carbon world without questioning everything else we do, was the consensus. That is, social relations, governance, waste, pollution, conservation of resources in general. It’s easy to get stuck on one prong of climate meltdown. If you think about it, the blame can be placed at the foot of our collective default settings of growth, excess and a mean spirit of exploitation that got us to this parlous state in the first place.


*UPDATE – This article has been updated to clarify that NABERS Energy certificates are available with and without accounting for green power.

**The article has been clarified to reflect that the  NABERS rating is for the CBA tenancy, not the building

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