While institutions are keen
to own sustainable buildings, what is not widely appreciated is that the Green
Star credentials, awarded for the building structure, is only the first stage.
A building then needs to be managed and maintained with sustainability top of
mind, writes RALPH GAGLIANO, executive director of St Hilliers Group. In days gone by, the focus of many discussions
about property investment was location and yield and it would have seemed
outlandish to talk about the environmental footprint of a building and whether
it was energy efficient.

The prevailing ideology was guided by historic,
comparable sales data and if a property was well located and had a good return
from a sound tenant then it was, by definition, a good long term investment. Today,
however, institutional property investment decisions are increasingly influenced
by environmental, social and governance factors and the long term
sustainability of buildings. In a sense, the investment decision making focus
has widened and moved from historic data to a view about the type of building
that will be more in demand in the future.

While historic sales data, yield and
location are still relevant, the Green Star rating and environmental efficiency
of a building is becoming increasingly important. What also needs to be
appreciated is that a building achieves a Green Star rating for its structure
and to benefit end-users should be utilised in accordance with its Green Star
design. Therefore priority must be given to the management and maintenance of
the building ensuring its on-going sustainability.

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) Energy ratings for existing
buildings. The Green Star system assesses, in the Council’s words, “the
environmental impact that is a direct consequence of a project’s site
selection, design, construction and maintenance”.

In terms of creating these
buildings, the process can be fairly straightforward, although in some
instances it can mean taking a more costly option to achieve longer term
sustainability. Two key factors that are the determinants of Green Star ratings
are the efficiency of power and water, with consequent implications for air conditioning,
lifts and lighting. Renewable energy is able to be utilised for some building
power but the greater emphasis is on technology that contributes to a lower
consumption of energy.

Air conditioning, for example, is a great user of power
and water and while air-cooled systems can result in less water use, passive
building design can also achieve less reliance on air conditioning, enabling
systems to achieve energy savings. If buildings are designed to allow window
opening, especially at night, then air cleansing can be achieved without relying
on air conditioning, which is a better outcome for the health of building occupants
and the environment. Lighting is also another great user of energy, leading to
sustainable buildings being designed to take greater advantage of natural light
as well as relying on technology to allow lights to be turned off more
frequently to save energy.

Night skylines are still too often unnecessarily lit
up by office lighting when this can be avoided with sensor systems that switch
lights on only when needed. Lift systems can also be an interesting decision
point in relation to sustainability since the more energy efficient solutions
are noticeably more expensive to purchase and install, which is a factor that
investors need to consider – it can cost more to buy a green star rated building.

However, probably the biggest issue in relation to sustainable buildings that is
not widely appreciated is that Green Star ratings are only stage one of the process.
It is one thing to follow the guidelines and create a Green Star rated building
but it is another to persuade tenants and owners that unless buildings are
operated as a Green Star property, their green halo can slip.

Ongoing
management systems for both the landlord and tenants need to be incorporated
into operational initiatives to ensure the building achieves environmental
efficiency and there is ongoing cost and effort required to achieve this. Often
the biggest hurdle is in persuading tenants of the rules they need to follow to
ensure a building retains its maximum sustainability operational performance. This
means they need to install green fitouts, which can be more expensive, abide by
lighting system rules and manage with less car parking as staff are encouraged
to make greater use of public transport.

Offsetting lack of car parking are things
like bicycle racks and shower facilities but these link to issues of the wider
education process of owning and living in sustainable buildings. These
management systems can be more costly and require changes of behaviour which
may prove to be barriers for many tenants and owners. In recent times it has
not been uncommon for potential tenants, when confronted with a list of rules
accompanying lease documentation for occupying a sustainable building, to pull
out because of what they see as unnecessary red tape.

Lawyers for potential
tenants often advise clients that they should not make forward commitments to
lists of rules but this is the basis for stipulating how a building can retain
its maximum sustainable operational performance. Without this agreement about
how to live in a sustainable building, all the effort to focus on efficient
energy and water systems in constructing the building can gradually be undone
or greatly eroded. This area should be one on which institutional property
investors increasingly concentrate.

Buying a brand new Green Starrated building
might be a marketing point but it comes with an expectation that the
operational performance of this rating will be maintained and not disappear
through lack of understanding about what is required to live in and manage such
a building. The added responsibility for owners of sustainable buildings is the
education process that goes with it.

There is a ripple effect in which everyone
can win by being associated with a sustainable building but it also requires
changing behaviour about building use and sometimes accepting that more
expensive solutions are best for the longer term. Triple bottom line
accounting, which balances profit, people and the environment, requires some
understanding in relation to property investment.

As sustainable solutions can
initially be more costly, profit needs to take on a longer term perspective to
successfully meet the interests of all stakeholders and the wider community
perspective. While the growing interest in sustainable buildings by
institutional property investors is based on sound investment reasoning, it
does require a longer term perspective. The reasoning is that sustainable property
has better longer term value appreciation, principally because it attracts better
quality tenants, becomes a more satisfying workplace for employees and has been
constructed in a way that adds positively to the environment.

However,
underlying this reasoning is the assumption that there is an ongoing commitment
to sustainability throughout the lifecycle of the building and this is where
greater emphasis is required. St
Hilliers is a construction and property funds management group involved in the
creation of sustainable buildings, with its most recent wholesale property fund
involving REST and

First
State Super as cornerstone
investors.

 

Leave a comment