Michele Leembruggen at the Ideaction conference in Hobart, 2013

23 January 2014 — The 1200 Buildings Melbourne Retrofit Survey 2013 showed that increasing numbers of commercial office buildings are undertaking energy efficiency upgrades. But it also raised some anomalies. There were low levels of upgrade activity on the part of private owners and a general lack of awareness on their role in their building’s energy performance. As Alice said, “Curiouser and curiouser…”

The 1200 Buildings Melbourne Retrofit Survey 2013 revealed that the 47.3 per cent proportion of privately owned buildings in the survey group were well and truly lagging behind in terms of undertaking energy efficiency upgrades, and potentially rings alarm bells in terms of overall CBD sustainability. It also begs the question, why is this so? And what needs to happen to encourage them?

So, why do private owners lag behind on retrofits?

One of the survey’s findings was that private owners and private strata title owners lacked awareness of their building’s NABERS rating and energy performance. Michele Leembruggen, City of Melbourne senior sustainability officer – sustainable buildings, explains that part of the reason for this is private owners are less likely than corporate owners to trigger the requirement for a NABERS Energy rating at time of lease through Commercial Building Disclosure because many of the buildings they own are less than 2000 square metres of net lettable area.

“Additionally the 1200 Buildings survey showed that 70 per cent of owners plan to own their buildings for 10 years or more and so again, CBD and NABERS may not be triggered in the foreseeable future,” Leembruggen says.

In other words, many owners have no clear picture of their building’s energy use, no benchmarks to measure it against and no mandated reason to change the situation.

“Private owners often do not have the corporate structures and resources to research, facilitate and track building performance,” Leembruggen points out. “They do not proactively manage building performance and want to see cash flowing into their businesses, not out.”

Other reasons private owners have been less inclined to retrofit include systems design, with some of the smaller, older building stock lacking centralised heating, ventilation and cooling plants, which means less scope for improving efficiency and fewer triggers for a retrofit.

Unlike corporate owned buildings, they are also not answerable to shareholders who expect a demonstrable level of corporate social responsibility.

“Also they don’t tend to attract government tenants who are mandated to work in 4.5 Star NABERS Energy rated buildings, or corporate tenants who similarly demand ‘green’,” explains Leembruggen.

“Earlier research undertaken through the 1200 Buildings Program into the drivers and barriers to retrofitting by commercial buildings – both corporate and private owners – found that the propensity of private owners to spend capital was limited and that plant failure was the major trigger for retrofitting in all ownership segments.

“This attitude was affirmed in the 2013 survey. Maintenance was an acceptable justification but expenditure solely for improvement was extremely unlikely unless there was a direct benefit, that is, a new tenant or very significant efficiency gains.”

Smoothing the path to energy efficiency

According to Leembruggen, a combination of active support and grants is key to kick-starting tune-up and retrofit activities for owners of mid-tier buildings.

“Timing is also really important. So communicating with owners when a major plant is at the end of its life-cycle is more likely to precipitate an effective outcome, especially if the replacement can be seen in the context of the collective building systems,” says Leembruggen.

“Finally, it’s also about creating a level of momentum where it becomes a bigger financial risk not to retrofit.

Green Building Fund perceived as time consuming and expensive

“There is a perception by private owners that applying for grants is onerous, time consuming and expensive. For example, the Green Building Fund required a level of expertise beyond the in-house expertise of the average private owner. In addition, the fund required that owners find the other 50 per cent of the funding. For these reasons the fund was accessed mostly by the corporate segment.”

Scott Bocskay, chief executive of Sustainable Melbourne Fund, says he has observed a behaviour change as a result of programs such as 1200 Buildings.

“The dial is starting to turn towards owners seeing there is an opportunity to improve the performance of their buildings,” says Bocskay.

“It’s like an ocean liner – it’s a slow moving beast and it’s starting to turn around.”

In SMF’s work with building owners on achieving improved environmental outcomes, his experience is that Environmental Upgrade Agreements are proving a successful mechanism for financing upgrades.

The key message as he sees it is that delivering an EUA to a building is a “prudent use” of shareholders’ money, because shareholders are starting to see the value of buildings that are performing well.

Bosckay also says that proactive discussions are necessary between landlords and tenants about the performance of buildings as part of the process of reducing waste.

Behind the figures – consultant perspectives

At the pointy end of the retrofit discussion are the companies like AE Smith, who undertake HVAC retrofit and upgrade projects across Melbourne for both private owners and corporate owners such as the Victorian Racing Club.

According to Doug Binns, AE Smith service general manager of business development, one of the key motivations moving the market towards upgrades is that there is a genuine point at which the value of the property improves after energy efficiency upgrades.

“In that view, a retrofit is less about cost savings through decreasing energy costs, it is more about decreasing energy use to increase NABERS ratings to increase the property value,” says Binns.

He cites independent property data [such as from IPD] which shows that when NABERS ratings are tracked against returns, there is a genuine breach in the market amounting to a premium of up to 10 per cent on leasing returns between 4 Star NABERS rated properties and 3.5 Star NABERS and below.

Binns says this makes it a case of an owner spending around $500,000 on an upgrade to earn 10 per cent more on their property, as opposed to viewing the same spend as simply the price of reducing energy costs.

“People [in the marketplace] are looking at where a building is positioned. An upgrade used to be things like tiles, carpets and lifts, now the environmental aspects are much more brought forward,” Binns says.

Getting to a high NABERS rating is easy, keeping it there is much harder

“Getting upgraded to achieve 4-5 Star NABERS is simple. Keeping it there is much harder, as there are so many things that can change. The real battle once a building has achieved the rating is to have the energy profile established so you can monitor and see shifts in that profile – and so you can then react and remedy the problem before you have wasted enough energy to put the rating at risk,” Binns says.

One of the systems Binns believes can assist owners and building managers in maintaining and even enhancing the good work achieved by a retrofit is BuildingIQ. The advantages of this system are it requires no major capital expense, works in conjunction with the building’s existing BMS and ensures ongoing building tuning across HVAC and lighting, Binns says.

See our recent article on BuildingIQ, Case study: how an Australian innovation is saving CO2 in New York

“The cost is relatively minor compared to the potential depreciation in the value of a building [through losing NABERS points due to energy use fluctuations], or through a rental abatement clause where if the building drops below a certain star level the owner loses the tenant and has a vacancy for six months… those numbers look really big.

“Technology [like BuildingIQ or AE Smith’s own remote monitoring system] is becoming more affordable and there is the ability to put quite sophisticated technology into smaller and smaller facilities.

“One of the most critical pieces in the jigsaw is when equipment needs replacing because it is at the end of its life or broken, most building owners should not just look at like-for-like replacement. They should look at what the options are out there for energy efficiency, and look at the long term asset management plan and what they want to achieve with that.

“The real challenge is changing the value perception in the marketplace. It is seen [by some owners] as spending money on retrofits, whereas the conversation is actually about spending money to retain tenants and retain value.”

Bucking the trend – case studies of private owner retrofits

City of Melbourne’s Michele Leembruggen describes three case studies in successful individual-driven retrofits of commercial buildings by 1200 Buildings signatories.

“What these three building owners have in common is a vision that is bigger than a fixation on the bottom line. They have passion, drive and single-minded determination to see their buildings thrive. Where there’s passion, there’s better performing buildings,” Leembruggen says.

131 Queen Street, Melbourne: from lemon yellow to green

The owner discovered upon settlement that she’d “bought a lemon” and set about retrofitting the building to give her a “green” point of competitive advantage. The building also won a competition for the design of a green roof, which provides a lemon blossom-scented oasis on the roof and a Green Building Fund grant funded 50 per cent of the fee for a new chiller. However, if you happen to peer around the thriving herbs and summer strawberries you see not one but four HVAC units and that’s because the building has four owners (through an owners’ corporation structure) who each have their own cooling system. The owner is slowly working on the others to transform the entire building into a high performer.

406 Collins Street, Melbourne

A retired medical doctor invested in this B-grade building and because he had a young family recognised the threat of global warming to his children’s futures. He is very proactive and determined and has managed to navigate, as a novice, the complexities of benchmarking his building’s performance and finding the right technological fit. It has taken up a lot of his time, energy and intellectual prowess. It’s been a full time job and a labour of love.

490 Spencer Street, Melbourne

This 1980s, 300 sq m two-storey office building is owned by the engineering company Synergetics. This positive energy building has been retrofitted to an amazingly high standard and includes a large array of solar PV as well as energy and water efficiency features.

What incentives are available?

The Emissions Reduction Fund promises funding. See our coverage, Emissions Reduction Fund Green Paper – out now for your holiday reading

But until then there is also:

Victorian Energy Efficiency Target/Energy Saver Incentive

The state government run the Victorian Energy Efficiency Target, or the Energy Saver Incentive scheme is available for commercial lighting. The 1200 Building Program has information on how to apply for the rebate and in 2013 delivered a dedicated seminar series for owners and managers on how to upgrade lighting and to receive the ESI rebate.

See the videotaped sessions here.

Smarter Resources Smarter Business – Energy Efficient Office Buildings program

This program provides funding and support for owners of mid-tier commercial office buildings (PCA B or C grade equivalent) to carry out tune up activities. It provides practical and financial support to owners to review, tune and then monitor building performance. Find out more here.

Environmental Upgrade Agreements

EUAs are a workable solution, and allow a greater level of energy savings to be realised due to 100 per cent finance of sustainability work. However, there is a need for a change in Victorian state government policy to allow all local government authorities to offer EUAs for commercial building retrofits. To date, five EUAs have been signed in Melbourne.

“The use of EUAs helped raise awareness by the owners of the potential to achieve more comprehensive retrofits, which delivered greater efficiencies. Even though these EUAs were for base building upgrades, the mechanism has been a catalyst for the owner and tenants to come together to find common interest in the efficiency outcomes. Ultimately, a harmonious relationship between owners and tenants will deliver holistic building efficiency,” Leembruggen says.

For further reading on landlord and tenant relationships and green leasing see The Fifth Estate’s e-book series The Tenants and Landlords Guide to Happiness.

For further reading on EUAs see The Fifth Estate’s e-book on Environmental Upgrade Agreements.

2 replies on “Retrofits: how Melbourne can encourage private interests to engage with public ones”

  1. Is it not now time for owners to take ownership of their buildings, as responsible global citizens.? Statutory authorities need to implement rigorous environmental performances and outcomes, irrespective of the size (individually or collectively) of commercial holdings by a particular investor or entity.? We’re running out of time to achieve the most basic and fundamental environmental outcomes and targets.

    The governmental protocols don’t work, so it’s industry that needs to step up and deliver fundamental, cohesive and effective results.now!

  2. Is it not now time for owners to take ownership of their buildings, as responsible global citizens.? Statutory authorities need to implement rigorous environmental performances and outcomes, irrespective of the size (individually or collectively) of commercial holdings by a particular investor or entity.? We’re running out of time to achieve the most basic and fundamental environmental outcomes and targets.

    The governmental protocols don’t work, so it’s industry that needs to step up and deliver fundamental, cohesive and effective results.now!

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