The appetite for more sustainable buildings keeps growing and more lowly rated buildings are starting to look like an interesting opportunity for value uplift, according to a new report from CBRE on NABERS, which has also revealed that investment sales pitches increasingly call on ESG credentials in the marketing strategy.
According to a new CBRE report over the past five years there has been a 17 per cent increase in office buildings rated 5-star NABERS or above. But there are still one million square metres of Premium and A-grade assets rated just 4.5 stars and therefore primed for strong NABERS upgrade potential, which could increase occupancy and rent value and lower energy costs.
The report also noted that property consultancy has used ESG (environmental, social governance) criteria as a differentiator in a number of recent sales campaigns, with buyer due diligence focused on NABERS ratings, access to wellness features and tenant ESG alignment.
Nationally, Melbourne showed higher occupancy rates for highly rated assets while Perth showed higher rent premiums for the same.
This is in line with the pressure on landlords and occupiers to be more sustainable in their decision making, the report says.
Key insights from the report include:
- Measuring NABERS outcomes over the past five years has led to a 17 per cent increase in Australian office buildings rated 5-star or above
- 24 per cent of offices built pre-2000 have already been upgraded to a 5.5 or 6 star rating
- 15 per cent of footprint residing in Premium and A-grade assets has a rating of 4.5 stars – that’s one million square metres of office space that is waiting for energy efficiency upgrades
- Melbourne has a 6 per cent occupancy advantage in assets rated 5.5 and above, while in Perth there is strong evidence of rent premiums for higher NABERS rated buildings
In Australia NABERS ratings are compulsory for all office buildings of more than 1000 square metres when they are leased or sold, and this has been instrumental in transforming the Australian property industry, the report said.
The rating tool compares and benchmarks similar buildings against each other on factors such as energy performance, water and waste.
Upgrading office space to improve NABERS ratings increases occupancy and rent value and lowers energy costs for the occupant, the report said.
The company’s Pacific head of research Sameer Chopra said that 24 per cent of “vintage” offices built pre-2000 have already been upgraded to a 5.5 or 6-star rating. “In turn, these higher rated assets have the ability to command higher occupancy, higher rents and much lower energy costs.
“The next big opportunity for value creation is in the 15 per cent of footprint residing in Premium and A-grade assets with 4.5-stars. That’s one million square metres of office space waiting for energy efficiency upgrades which would enhance yields and returns.”
“Energy efficiency is becoming an increasingly significant consideration for investors,” said the company’s Pacific head of capital markets, Flint Davidson.
“Melbourne has a 6 per cent occupancy advantage in assets rated 5.5 and above, while in Perth there is strong evidence of rent premiums for higher NABERS rated buildings. The resources and mining services sector has an increased focus on ESG [environmental sustainable governance] outcomes which could further grow the differential in rents.”
“This is evident in our research showing 4 per cent to 11 per cent higher occupancy rates for NABERS 6 Star and 5.5 rated assets.” Mr Davidson said.
“Energy makes up 10 to 15 per cent of the operational cost of buildings and with rising energy costs, a 2 Star upgrade which delivers 50 per cent energy cost saving becomes compelling,” agreed Mr Chopra.