All is not lost for buildings without green-star ratings
As we look to what's ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.
With growing evidence that higher green star and National Australian Built Environment Rating System ratings will be reflected in increased asset values – if they aren’t already - the question of where that leaves the market for less sustainable buildings is a crucial one. Owners of buildings with lower ratings could actually use this as a selling point when taking their assets to market.
Recent evidence suggests buildings with higher sustainability ratings show better returns, as consumption costs are generally lower and capital values of green buildings held firmer during the economic downturn.
Inevitably, higher ratings will be reflected in increased asset values. But this doesn’t mean good-quality older building stock is irrelevant in the marketplace.
With the introduction of the CBD scheme, there is nowhere for buildings with lower NABERS ratings to hide when seeking to attract a tenant or a buyer. But instead of making these buildings less marketable, savvy agents are turning it around as a positive, be it through offering the prospect of cheaper rents for tenants or potential capital upside opportunities for buyers.
At the end of the day, tenants and owners alike still value location and amenity, and if a lower rating also provides a value-add opportunity through refurbishment or reduced occupancy costs, the asset itself will remain competitive.
It is feasible that owners of one-star NABERS-rated buildings may focus their marketing campaign on this point as a key selling feature.
The key to unlocking genuine financial gains through sustainability is to implement a process of continually upgrading assets to minimise costs, particularly relating to energy and water consumption, to drive net return increases.
This makes particular sense in the current climate for owners looking to future-proof their assets or for those seeking to maximise value from recent commercial purchases.
Those who are undertaking upgrades now should benefit in the medium term, as the current work shortage in the construction sector enables these improvements to be undertaken at lower cost. These owners will also benefit from being able to charge higher rents to tenants whose outgoings are smaller due to the greater efficiency of the building.
David Woolford is managing director of Australian operations of Cushman & Wakefield
