Ahead of our Visit Tomorrowland event in Sydney on 19 September, one of our speakers – Frasers Property Australia’s executive general manager, retail, Peri Macdonald – gives us the low-down on the cutting-edge Living Building Challenge retail centre.
It would be hard to think of a tougher gig in development land than the Living Building Challenge.
LBC is notorious for driving architects and other consultants to the point of near madness with its demands for biophilic design, producing 105 per cent of the energy the project consumes, including urban farming and avoiding “Red List” materials.
But in retail, the sector notorious for its massive consumption – and waste – of resources, it’s even tougher.
So why did Frasers Property Australia decide to take what started as a fabulous competition for an LBC retail concept at the Brickworks shopping centre in Melbourne’s Burwood East – which much of the industry thought was a nice idea that might yield some good publicity for the winner and then fade away – and actually try to make the concept a reality?
As Frasers’ Peri Macdonald puts it, it’s not too hard to create a sustainable property if it has no people in it. But a retail property, whose very purpose is to push through as many consuming humans as possible, is a very different challenge indeed.
Macdonald, the company’s executive general manager, retail, says it’s not only a big challenge but one the company hopes to repeat.
“It’s taken a lot of attention. But it’s also giving us an opportunity to learn how to roll it out in a development pipeline.”
The beginning of the journey
The idea had its genesis a few years ago with the stated target of making every retail development a minimum 5 Star Green Star, a target that “rapidly” went to 6 Star, and now a goal to see if every retail project could achieve LBC status.
“It’s a long story,” Macdonald said. “We undertook a project in Sydney, a neighbourhood retail centre at The Ponds.
“We bought land off UrbanGrowth [NSW] and they had a strong idea. They wanted to see Green Star and we committed to 4 Star Green Star, which we thought would have been a good achievement.
“We achieved six stars and it was the first time it had been done. It set us on the path that we can do it and achieve a commercial return.”
Leading edge not bleeding edge
But it’s not just about the satisfaction. This is a commercial company with a commercial imperative. The project had to make money.
“It’s not just that it’s the right thing thing to do,” Macdonald says, “but because we can get commensurate return for dollars invested in each project.
“That’s an important point with anything we do. We don’t like to be bleeding edge; we like to be at the leading edge.
“Projects have to be justifiable from a commercial perspective.”
A job that’s getting easier
In sustainability finding a commercial return was tough in the early years, and still is for some companies – no more so than in retail.
But according to Macdonald it’s actually getting easier to do.
One driver is the cost of electricity rising on one side of the ledger and the cost of solar power falling on the other.
“We’re doing a lot of work with embedded solar arrays and getting reasonable returns with the cost of electricity rapidly rising. We pitch our provision of electricity to tenants so it will be lower than they would pay if they went to the power companies, but it’s still got a margin [for the owner], so it’s a classic win-win.”
The company is also doing a lot of work with HVAC (heating and cooling) including capturing heat to turn it into thermal energy and supplying hot and cold water to tenants so they can attach a fan coil unit and heat or cool their premises.
You can reap a commercial return from urban farming
Another interesting areas the company has been propelled into with the LBC is urban agriculture.
At Brickworks there will be a 5000-square-metre urban farm that “really plays to the changing nature of retail and the importance of having something that’s different and also something that touches on entertainment”.
But how do you make that a commercial proposition?
“Certainly we can lease that to a commercial operator who will pay rent,” Macdonald says.
That rent varies according to what is being provided in addition to the farm.
It generates a return according to what they’re producing, but also with ancillary function spaces and education.
There are 100 schools within a 15-minute drive of this urban farm and Macdonald reasons that more than a few will want to make use of its education value.
“There is a massive opportunity to use the buildings.”
And this all means more people coming through the centre, so more turnover, which will translate to more revenue.
How much are we talking?
The agreement hasn’t been finalised yet but there is a rent range that Macdonald can share. It will be between $150,000 to 200,000 a year. And that’s for the farm itself. Yep, the veggie producing proper farm side of the property.
The income from the ancillary facilities will be in addition to that, which could well include some “really good [food and beverage] offerings.”
It’s not a bad thing to dip into in that neighbourhood, whose neighbourhood still bears the marks of a “dry” area (no alcohol).
Valuing the benefits a LBC shopping centre could bring
Things gets a bit harder when trying to put a figure on the financial benefits of LBC.
Macdonald says the company has done some work on what the additional foot traffic might be and tried to run a ruler under potential additional turnover and how much of that can be captured through higher occupancy costs. It’s early days but it looks like the development margins could be around a 15-20 per cent return, he says. This compares with retail developments where an institution might expect around 8-10 per cent.
There are even more nuanced investigations, such as the provision of natural air and daylight and how this might impact shopping habits and thereby rents.
For this, Frasers Property has relied on some external research, which is not easy to come by but one study that will carry a lot of weight with anyone in retail is work by Walmart that found that centres with natural daylight and fresh air stimulated longer dwell times by 15-20 per cent.
What does it look like?
Macdonald says the Brickworks LBC development is bigger than a neighbourhood centre, but not as big as a sub-regional centre – so more like a “super neighbourhood”.
Woolworths and Dan Murphys have been secured as anchor tenants and there will also be a cinema. Sought after smaller retailers will include those that fit with the theme of the centre.
Of course, the focus will be on biophilic design, natural materials such as wood, an urban farm, with a nod to the origins of the place through brickwork features.
And because it’s Melbourne, and the weather is well … Melbourne weather, there will be airconditioning, but with the proviso that the centre will be net energy producing.
Design is still under wraps but think tree canopy. Macdonald says the final design will feel much like walking in a forest.
“It’s probably hard to describe. It will be pretty unique.”
For inspiration, the James Street Market in Brisbane is probably the closest: “That’s the only one I would hang my hat on,” he says.
It’s well know that LBC projects are probably the most challenging on the planet, not just because they need to produce 105 per cent of the energy they consume, but because of their unforgiving stance on materials and chemicals.
One of the most important part of the project will be unseen – avoidance of any materials with chemicals on a “red list” devised by LBC.
“There is a lot of time that’s gone into the materials selection and the certification [through Declare],” Macdonald says.
The thing about LBC, he says, is that it’s a bit like plugging your finger in a dyke. The moment one problem is solved another pops up.
“It’s a real challenge because it’s hard to say one area has more focus than another.”
So is this the hardest thing Macdonald has done in development?
MacDonald says while the project may be one of the hardest things he’s done in development, it is also the most exciting.
Much of the difficulty, however, has fallen on the architecture team.
“We had to push them so hard. It challenged the norms they’ve been used to. But also the mechanical engineers would probably say they’ve had the hardest job … and the same with the materials team.”
The development is still working to secure planning approval and once attained construction should take 18 months. With luck, the project should kick off in the second half of 2018.
Peri Macdonald will reveal more about the Living Building Challenge Brickworks retail centre at The Fifth Estate’s Visit Tomorrowland event on 19 September in Sydney.