New 5 or 6-star sustainable green buildings will achieve rents up to 15 per cent higher than a low-rated building, according to property valuer and consultant m3property.
But the company’s director of research and consulting, Frank Sorgiovanni, said low-rated buildings would not necessarily struggle to find new tenants, or suffer falling rents and rising operating costs.
”Economic and market factors still need to be considered. In Melbourne, where CBD vacancy is tight and new supply largely already committed, prime-grade backfill space with a lower NABERS rating should still attract tenants as not all occupiers are focused on sustainability,” he told BusinessDay.
Many tenants demanded sustainable buildings. ”Government tenants will not occupy a green building less than 4½ stars. Joining their sentiment are other … industries such as the banks, major accounting and legal firms,” he said.
Sustainability ratings of buildings come in two forms - Green Star ratings from the Green Building Council of Australia (which relate to the construction of new buildings) and NABERS (National Australian Built Environment Rating System) ratings for existing buildings.
Mr Sorgiovanni said a major setback for green buildings was the federal government’s removal in the budget of tax breaks intended to encourage retrofits to improve the energy efficiency of low environmentally rated buildings.
”The tax incentives were to have covered around half of the cost of retrofitting commercial buildings, with the onus on landlords to demonstrate significant energy savings had been achieved,” he said.
Mr Sorgiovanni said investment in sustainable buildings required a longer-term perspective. ”On the transaction side, it is difficult to apply such a premium on building values as investor motivations vary and no two buildings are the same,” he said.
”Similarly, a tenant might be willing to pay more to rent a sustainable office building, but other factors such as location and distance to public transport also weigh heavily in the decision-making process.”
However, “future-proofed” buildings benefited from rental growth translating into higher capital values unlike low environmentally rated buildings that were more likely to have periods of vacancy and, potentially, obsolescence.
The PCA/IPD Green Property Investment Index showed that ”green” buildings consistently outperformed other buildings. ”Tenant retention is higher with improved occupancy and rents,” he said. And the carbon price would force up energy costs of office buildings. ”Landlords who can reduce their operating costs will have a competitive advantage. A green building produces real energy savings and sustainability allows owners to increase rents and, therefore, building value,” he said.
