GREEN office buildings provide better value, with the 5 star NABERS energy rating investments delivering 9% green premium overall, according to research commissioned by the Australian Property Institute and the Property Funds Association of Australia.
The Building Better Returns report is the first major Australian study to quantify these premiums for green office buildings. The research was undertaken by the University of Western Sydney and the University of Maastricht, Netherlands in conjunction with Jones Lang LaSalle and CBRE.
The NABERS energy and Green Star environmental rating schemes were benchmarked against non-green office buildings and the green premiums in values, rents, occupancy, outgoings, incentives and yields assessed.
“Green office buildings are now a key feature of the commercial property landscape, reflecting the strong commitment that the property industry in Australia has given to sustainability. A key challenge has been assessing the added value of green office buildings in their financial performance.
“The industry and government collaboration accomplished for this report, as well as international research cooperation has been an excellent achievement and we can commend the report to industry with confidence,” Ernst & Young real estate advisory services partner and API Victorian sustainability spokesman Richard Bowman said.
The report found the added value of green office buildings, particularly for those with the higher NABERS energy rating and Green Star rating. The 5 star NABERS energy rating was seen to deliver a 9% green premium in value overall, with this being a 21% green premium in value for Canberra, compared to a 4% green premium in the Sydney CBD and an 8% green premium in Sydney suburban. The Green Star rating showed a green premium in values of 12%.
“A key finding was evidence of major discounts in value in the lower NABERS energy rated office buildings. This saw those office buildings with less than a 3 star NABERS energy rating having a 10% discount in value in the Sydney CBD and a 13% discount in value in Canberra. This clearly highlights the financial and environmental importance of the higher NABERS and Green Star ratings,” UWS associate professor John MacFarlane said.
The Green Star rating also saw a 5% green premium in rents. Discounts in rents were seen for the lower NABERS energy ratings, for example Sydney CBD saw a 9% discount in rents and Canberra saw a 6% discount in rents.
“Discounts in values and rents for the lower NABERS ratings are clearly evident across the various office markets,” he added.
Green premiums were also evident in reduced vacancy, reduced outgoings, reduced incentives and reduced yields, particularly at the higher rated NABERS energy rating and Green Star rating.
Importantly, the office market green premiums in values and rents for Green Star and the top NABERS energy rating are comparable to that seen in recent US green office building studies.
“The findings in the study corroborate international evidence on the relation between the environmental performance and the financial performance of commercial buildings. The results are a first step into providing the evidence necessary for investors and financiers to incorporate energy efficiency and sustainability into valuation models.
“As Green Star and NABERS ratings disseminate in the commercial property sector, this study can be expanded further, to answer some of the questions that remain open,” University of Maastricht Netherlands Dr Nils Kok said.
“The findings clearly highlight the added value of green office buildings in Australia. This further reinforces the necessity of having the higher NABERS rating and Green Star rating. It also reinforces the strong leadership role that many of the Australian property players have had in championing the green office building agenda at both a local and international level,” UWS professor Graeme Newell said.
The study has garnered interest from various organisations both nationally and internationally and will be discussed at the World Economic Forum’s ‘Smart Cities’ discussions in New York in October with the Better Building Returns Steering Committee Chair, Roger Walker representing the API and PFA at these discussions.
The Building Better Returns project was instigated at a workshop at the inaugural API and PFA Sustainability Conference in 2009. The Steering Committee was formalised at the beginning of 2010. Sponsors of the project are NAB and Brookfield Multiplex (Platinum Sponsors), Johnson Controls and Verdigris Capital (Gold Sponsors) and Cbus and Local Government Super (Supporting Sponsors).
The report identifies the future challenges and opportunities for the green office building agenda in Australia and provides the economic rationale for sustainable property investment and development.
“The API and PFA are proud to be associated with the Building Better Returns project and are confident of the positive and important role that this research will play in the property industry’s future,” PFA president Robert Olde said.
Australian Property Journal
