A Property Asset Managers Guide to Sustainability, Wellness and Value BY PAUL NELSON
Australia is a global leader in sustainability and wellness for commercial office property but what are the key issues for a property asset manager (PAM) that add value. Many would argue that Sustainability is a given in institutional property investment these days but to ensure your “given” doesn’t drop away and impact value what are elements you need to maintain and what creates that value to start with. With Sustainability a given what is Wellness and how does that add value.
The built environment is part of the larger global environment and one of the most often-cited definitions of sustainability is the one created by the Brundtland Commission, led by the former Norwegian Prime Minister Gro Harlem Brundtland. The Commission defined sustainable development as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs." Sustainability in built assets is therefore about the long term contribution to the overall environment but also about creating value for owners and occupiers.
So how do you measure your given ongoing Sustainability in a commercial asset? Australia is lucky to have the NABERS (National Australian Built Environment Rating System) system run by the NSW Government on behalf of the Federal Government but with the input and support of thousands of Sustainability professionals which in turn is linked to the CBD / BEEC (Commercial Building Disclosure / Building Energy Efficiency Certificate) system which is a legal requirement for sales and leasing of office assets. Also the Green Building Council system which offers one off ratings on built assets for built assets but enables Green Buildings longer term by creating the capacity for ongoing Sustainability to be achieved.
NABERS (https://www.nabers.gov.au) covers 4 areas of sustainability with a 1-6 star system :-
• Waste Management
• Indoor Environment Quality (IEQ)
Energy is the most used rating system and has its roots in the AGBR (Greenhouse Gas) system and today a NABERS Energy rating measures the carbon emissions of a building and its relative efficiency. The minimum standard a PAM should expect is 4 stars which is just above average but most buildings are designed to be 4.5 stars and many reach 5 and even 6 stars. A quick and easy way to improve a rating is to buy green power but this ignores the efficiency factor achieved by better operations.
The CBD/BEEC (www.cbd.gov.au ) system drives a NABERS rating by forcing disclosure of the base building energy rating along with a Tenancy Lighting Assessment (TLA). A BEEC consists of a NABERS Energy Rating plus a TLA). Lessor and vendors of office space more than 1,000 m2 are required to have a BEEC to transact office space. Under the CBD system the area-weighted average NABERS Energy rating increased from 3.4 stars for BEECs issued in 2011/12 to 4.1 stars in 2017-18.
NABERS can also be used to measure (Drucker - if you cant measure it you cant improve it !) and therefore monitor and reduce the consumption of Water and Waste in an office building. These 3 basic Green Measurements are the core of Green Buildings across the world with Australia a global leader in measuring and reducing environmental impact. The latest new tool related to Indoor Environment Quality, more of which later.
So where is the value equation? In a paper by Cundall - The Green Premium Is It Real, a graphic is presented which shows the typical increase in rental return from Green Buildings:-
The US Appraisal Institute has published a paper Green Building and Property Value which suggest the following factors can all be improved via a Green Building:-
• Operating Expenses
And even suggests a formula to capitalise green building income:-
Note the reference to DCF appraisal which is especially sensitive to shorter let up times from Green Buildings.
MSCI IPD who monitor all investment grade property investment markets globally used NABERS data to review Australian Office Assets reached the following conclusion “ with 4 stars and above NABERS Energy Ratings becoming the new norm, especially for institutional / prime grade office stock, property owners should be aware of the potential downside-risks of holding offices with low NABERS Energy ratings in todays market. This includes, although not limited to lower occupancy levels, increased depreciation and potential early obsolescence.”
However the emerging area of Sustainability is in Indoor Environment Quality which is part of the Wellness Journey. This simple graphic from the World GBC is a good summary.
Wellness adds value not just to the Property as an attractive occupancy issue but to occupants Wellness and as employees in productivity gains. CitySwitch Green Office has published a paper “Why Choose a High Performing Building for your next Tenancy” which demonstrates that a green credentialed building can save a professional services company with 333 staff $4,759,750 pa or over $14,000 per person due to increased productivity and savings from occupying such a building. A Green Building is defined as:-
• 4.5 Star NABERS Energy rating
• 5 Star Green Star rating
• 7 w/sqm lighting power density
• Good indoor environment
• Proximity to transport and amenities
So Green can mean value for both the landlord and the tenant - a win win all round.
Paul Nelson B.Sc. (Urb Est Man), EMBA, MRICS, LREA is a property professional with over 40 years’ experience in the UK, Hong Kong and Australia and a member of the PCA Academy Property Asset Management Committee. He currently works for Knight Frank Newcastle.