6 October 2010 – A workshop hosted by Paul Edmiston and Lachlan MacDonald of Savills Incoll Australia at the 2010 Sustainable Buildings Conference  highlighted the effect that the drive toward sustainability has had on the property market.

The workshop focused on the refurbishment of 170 Phillip St, Sydney, as a case study highlighting the decisions made by the owners, The Law Society. The case study detailed the reasons why the owners performed the upgrade, the key sustainability initiatives adopted into the refurbishment as well as their perspective on the Green Star rating. The case study can be seen further below.

The workshop also discussed the effect that the move towards sustainability is having in the areas of leasing, valuation and sales, project management and facilities management. Following are some highlights from those insights.

Leasing:

  • An overwhelming majority of Premium and A grade tenants have a green agenda while only a  small minority of B and C grade tenants have a green agenda.
  • With respect to to the NABERS and Green Star ratings, tenants do not appear to have a clear preference for either, however governments have set NABERS Energy standards for their own office space leasing.
  • At present there is no evidence that tenants are prepared to pay more for green buildings, although if there are two similar spaces on offer (that is,  amenity and location) tenants will chose the greener building.

Valuation and sales:

  • Investors, owners, managers and developers in Australia overwhelmingly confirm that “Green Value” is starting to have an impact on property valuations through lower building operating costs, ease of sale and rent, tenant retention and improved overall occupancy rates. There is a strong industry consensus that Green Star buildings will outperform conventional buildings in coming years.
  • Currently, rather than achieving a higher valuation, buildings that are not green are likely to face an accelerated value depreciation.
  • It is highly likely that a two-tiered market will emerge, with Green Star tiered buildings attracting premiums and/or existing assets being discounted. The general consensus is that in the short to medium term (say five  years) the green credentials of a building will have a direct impact on its value. This may be accelerated by the introduction of mandatory disclosure [on  November 2010].

Project Management:

  • Almost all briefs that Savills Incoll receives have a defined sustainability requirement whether NABERS, Green Star or both. Savills Incoll suggest that a new premium office building built today would not be anything other than the highest rating.

Facility Management:

The challenges for facility managers to manage green buildings include:

1. Increased reporting (energy, water and waste) to both owners and tenants.

2. Increased metering – need to measure what you are trying to control and report.

3. For a green building the philosophy of “if it’s not broken don’t fix it” does not apply.

4. Reliance on specialist consultants covering items such as:
a) Annual NABERS rating
b) Fine tuning and retuning of buildings
c) Building optimisation including controls

5. Stronger need for engagement during upgrade projects and the relationship between consultants, builders and facility managers.

Case Study 1 – 170 Phillip St, Sydney

About the building

  • Owned by the Law Society of NSW
  • Opened in 1970
  • Fourteen occupied levels
  • 4600 square metres
  • Largely occupied by the Law Society, however with some tenants, including ground floor cafe.

Purpose of Upgrading?

  • Standards have progressed significantly since the 1970s and 80s
  • Services technology has progressed significantly since the 1970s and 80s
  • Incremental changes can result in inefficient space allocation
  • To provide an improved working environment
  • Reduce running costs
  • Maintain asset value
  • Increase ability to retain / attract tenants, and maintain / increase rental rates

Law Society “Stay or Go” Feasibility Considerations

  • Softening of asset values in the grip of the GFC
  • Relatively poor asset valuations of an un-refurbished building
  • Difficulty in obtaining suitable alternative accommodation as well sited within the legal precinct as 170 Phillip Street
  • Maintaining the Law Society’s presence at a known location for members

Refurbishment Decision

The owner decided to refurbish the building with the majority of occupants and tenants remaining within the building in order to:

  • Maintain business continuity
  • Maintain income stream from tenanted floors
  • Maintains presence/identity in a desired location

What are the key sustainability initiatives?

  • New T5 lighting throughout all tenancy areas
  • New digitally controlled mechanical services
  • New high efficiency Powerpax chillers and VSD pumps
  • Additional metering
  • Low volume water fixtures in bathrooms and showers
  • Cyclist amenities
  • Materials selection (GECA certified workstations, low VOC carpets and paints)
  • Building tuning & commissioning
  • Refurbishing – rather than demolishing

Green Star?

  • It was considered by the Law Society, but not included as a project brief requirement
  • As owner-occupier, it was not deemed necessary to obtain a formal occupier Green Star rating
  • Better to spend the money documenting initiatives on providing more sustainable initiatives
  • Targeting a 4½ Star NABERS Energy rating made sense from a long term owners perspective

Refurbishment Challenges

  • Physical constraints presented by the existing building
  • BCA compliance / NSWFB compliance
  • Locating and installing new services
  • Minimising disruption
  • Maintaining tenant rights to “quiet enjoyment”
  • Maintaining services to building occupants
  • Determining appropriate staging methodology

Approvals Strategy

A detailed authority approvals strategy, comprising multiple authority approvals, was implemented to:

  • Minimise exposure to City of Sydney approval turnover periods (eg. by seeking “complying development certificates” through a principal certifying authority wherever possible)
  • Separate high risk contentious / long approval period elements (eg. external changes, essential service upgrades, food outlet approvals) from low risk elements (eg. office floor refurbishment)
  • Minimise the risk of triggering compulsory BCA upgrades

Refurbishment “Dos” and “Don’ts’”

Finally, the workshop delivered a list of “Do’s and Don’ts” for refurbishing a building, which include:

  • Don’t assume a hard dollar tender process is the most appropriate means of procuring a contractor
  • Don’t assume that an existing hazardous materials report has identified all hazardous materials in the building (for all buildings completed prior to the early 1980s)
  • Don’t underestimate authority approvals periods – particularly if seeking “alternative solutions” or BCA exemptions from the NSW Fire Brigade
  • Don’t assume works can be done during normal hours in an occupied building (or out of hours if near a residential building)
  • Do engage consultants and contractors with experience in refurbishment work
  • Do conduct a thorough investigation of the existing plant and equipment at the beginning of the project, and gain client agreement as to what elements are to be upgraded and what are to remain
  • Do devise and implement an approvals strategy if authority approval risk exists
  • Do implement a stakeholder management plan – particularly if occupants are to remain in the building during the works – and communicate regularly
  • Do consider ESD initiatives even if not pursuing a formal Green Star rating – many elements make sense simply from a running cost perspective (such as T5 lighting, zoning, water efficient fittings)
  • Do future proof (such as submetering to enable future emissions reporting)