Opportunity Knocks for Mid-tier Buildings
Mid-tier buildings make up 80% of Australia’s commercial building sector and present easy opportunities to improve energy efficiency for the built environment. While these non-premium buildings have often been neglected, addressing the energy efficiency not only reduces costs, but translates into vast benefits such as increased occupancy comfort and attracting/retaining both key tenants and employee talent. Read through to see the challenges, initiatives, options, and rewards by addressing energy efficiency in this sector.
The Sydney Forum
The Sydney Forum is a collaboration between The Australian Institute of Refrigeration, Air Conditioning and Heating (AIRAH), The Energy Efficiency Council, The Green Building Council of Australia (GBCA), The National Australian Built Environment Rating System (NABERS), The NSW Office of Environment and Heritage, and The UTS Institute for Sustainable Futures, concentrating on improving energy efficiency in the built environment. Opportunity Knocks, their most recent event hosted at the UTS school, focused specifically on strategies, opportunities, and incentives for mid-tier commercial buildings in Australia to address energy efficiency while making the buildings more attractive for tenants. We heard from three speakers, covering the intersection between the role of supporting governmental policy, results of energy ratings, and trends in the real-estate industry.
Jonathan Cartledge, head of Public Affairs with the GBCA, discussed why it is so important to focus on mid-tier commercial buildings: 50% of all commercial floorspace is in mid-tier buildings but they often have outdated HVAC equipment with consequent negative outcomes for energy efficiency and tenant comfort. He went through a policy agenda recently developed with the rest of the consortium which focuses on five immediate, governmental policy actions to create the right environment to encourage energy efficiency for this sector through a combination of stick and carrot approaches along with government leading by example.
Dennis Lee, Head of Technical Standards at NABERS, spoke about improvements in commercial buildings which have used the NABERS rating system, and the correlation between higher energy efficiency and greater occupant comfort.
Jag Dhandwar, Associate Director for Business Development at CBRE, discussed Sydney trends in the commercial real-estate market, as well as the perspective of tenants and variables that influence their decision-making.
What are Mid-Tier Buildings?
The mid-tier sector covers commercial buildings which are outside of the premium and A-Grade categories. These buildings were typically built between 1960 and 2000, with on-site heating, ventilation, and air conditioning (HVAC) equipment older than 25 years. They are further characterised by limited management resources, often with one facilities manager who struggles to balance project managing building upgrades while trying to resolve tenant complaints. This lack of resources means they’re always lunging from one burning blaze to the next, unable to make significant progress. Premium buildings are typically better off because they often have a team working to liaise with tenants, manage equipment upgrades, and maintain energy efficiency.
Mid-tier buildings are often smaller and found in corridor areas, secondary zones, and the older parts of the CBD and are owned by private or foreign landlords. While rent costs less per square meter and they have shorter lease terms, their older HVAC equipment presents challenges in delivering consistent occupant comfort.
Why Are Mid-Tier Buildings Important?
According to GBCA research, the often overlooked mid-tier sector makes up 80% of Australian commercial buildings, with the overall built environment accounting for 25% of Australia’s emissions. Having therefore highlighted mid-tier buildings as a key target, GBCA estimates that 10% of the 2030 emissions reductions target could be achieved with directed energy efficiency measures making use of modern HVAC, lighting, and controls technologies.
Another reason to target these buildings is that because they have typically been neglected, they are easy buildings from which to get results when the required time and effort are invested. Results from NABERS assessments show that when ratings are carried out, energy efficiency swiftly increases. Adding to the business case for change, energy efficiency improvements correlates with greater occupant comfort.
It is currently a landlord market in many capital cities, meaning that they don’t have to work hard to sign leases due to supply shortfall. However, this looks set to swing back in favour of tenants by 2020/21. As such, owners should anticipate the needs of tenants and proactively improve their buildings to maintain a competitive edge. One of the greatest challenges for building owners is attracting and retaining key tenants, with a government contract often valued as a golden ticket. At a deeper level, good quality building space is critical for office tenants, as they themselves are trying to attract and retain talented employees in a competitive job market.
The right incentives and regulation at the federal level, as well as support by state and local governments, can help in bringing together these common goals; balancing advantages for tenants, employers, landlords and owners in an appropriate timeline that coincides with market demand. With the right strategies, addressing energy efficiency in the built environment is a win-win situation for all parties involved.
How Can We Make Improvements to This Sector?
With an understanding of what mid-tier buildings are and why they present an important area for improvement, we will review the challenges, proposed initiatives, and current solutions available for this sector.
Role of Governmental Policy
When tasked by the current energy minister, Josh Frydenberg, to find ways that the Federal government can spur emissions reductions, this think-tank of eight organisations got together over the last six months to develop these five specific action items to help meet Australia’s emissions targets.
- Reduce the threshold required to disclose energy performance of buildings
- Expand disclosure requirements to new sectors with a focus on tenants
- Support business through targeted tax incentives for building upgrades
- Governments to lead by example through higher efficiency requirements for their own tenancies and offices
- Invest in research to improve our understanding of energy opportunities across the building sector
The proposed legislative actions combine expanded disclosure of energy ratings for buildings, alongside financial support to implement upgrades, with government leading by example with their market presence, and investing into further research for improving the built environment.
The expansion of mandatory disclosure to smaller buildings, new sectors, and tenants will help landlords understand and improve building performance. At the same time, providing significant financial incentives will ease the upgrade and payback process for those new to the space who may have limited resources. When leading by example, government owned or occupied premises can create a model for local businesses to follow, while supporting the supply chains that implement energy efficiency. Through government investment into research, we can further quantify and understand requirements to meet our emissions targets and work to implement improvements with greater ease.
You can support these proposed initiatives with a quick message to the federal energy minister, Josh Frydenberg, and to your state energy minister, such as Don Harwin for NSW. Additionally, joining professional groups such as AIRAH, the GBCA, and the Energy Efficiency Council helps advocate for energy efficiency as a priority.
Energy Ratings (NABERS)
As can be seen through the lens of NABERS assessments, the simple act of rating buildings often leads to energy efficiency improvements over time. On average, building using the rating system have reduced their energy usage by 40% by the ninth assessment. While much of the uptake has been with Premium and A-Grade Buildings who have higher ratings, the same reductions in energy intensity over time has also been seen with B and C-Grade buildings. This is due not only to the requirement in revealing ratings, but also that the increased awareness naturally encourages improvement.
As demonstrated in the figure above, even B and C-grade buildings make changes and improvements when they are engaged. Research also showed that higher comfort ratings correspond to the buildings that have higher efficiency. This means that the original purpose of buildings to provide a comfortable, dry, safe, and appealing place to be is maintained and furthered with a proper focus on energy efficiency.
Although common areas can amount to a substantial portion of all floorspace, the majority of a building’s real estate is leased to tenants. For that reason, it is vital to bring tenanted space into the rating fold to expand energy efficiency in the building sector. One simple way is by doing a whole building energy rating, which can be simply done at the same time as the normal base building assessment for minimal cost. Getting buy-in from a greater number of tenants with this approach can be more effective than trying to encourage them separately.
Provide Better Workplace Environments for Office Workers
According to CBRE’s Occupier Survey, people want to work in sustainable and comfortable environments. After cost and proximity to public transport, the third priority in selecting an office location is sustainability.
With costs relating to staff contributing as much as 70-90% of a company’s expenses, it makes sense that businesses are looking at ways to support their workers through improved workplaces and offerings. Key skills are hard to find for employers, and while employees are living longer, they are also less healthy.
An important consideration for attracting and retaining good employees is in understanding the workforce needs, desires, and priorities. By 2025, it is predicted that 60-70% of the workforce will be made up of millennials. One of the biggest influences on selecting a workplace for this group is considering wellness and relaxation facilities which includes sleeping/rest areas, games space, and end of trip facilities.
One of CBRE’s recent publications, Wellness in the Workplace, highlights trends and provides solutions to improving workplaces, which is equally important considerations for both tenants and building owners alike.
By now we can see the benefits in improving a building’s efficiency, but there are many barriers to implementing these strategies, whether it’s getting funding, connecting with the right person, or finding the time to action a plan. It can be hard for tenants to feel like they have ongoing engagement with the building owner or landlord. Communication often only occurs when it’s time to renew a lease or when something is broken. Time is generally a large constraint for facilities managers who are project managing building upgrades, working with tenants to maintain comfort and organising tradespeople. What’s more, they generally aren’t empowered to fix underlying energy efficiency.
Solving Time Constraints
Hiring a dedicated person to look after a building’s sustainability is a worthwhile consideration. There are multiple ways in which better buildings reduce costs, from decreased electricity usage to improved productivity and employee retention, outlined by CitySwitch in their Why Choose a High Performing Building resource.
Additionally, salaries for facilities managers are typically paid through outgoings of tenants to service the building and its occupants. The cost savings from energy efficiency improvements mean that a dedicated role can usually pay for itself. KPIs and incentives can be introduced by management to empower the responsible person to achieve sustainability goals and initiatives.
Focus on Quick Wins
Often after their first NABERS assessment, there are a number of improvements that can quickly boost ratings. These include upgrades to efficient lighting, installing a BMS to control A/C, and low cost, high value HVAC upgrades.
- Improve equipment performance before upgrades
- 50 best practice initiatives – short-term paybacks by market sector and climate zone, produced by the Clean Energy Finance Corporation.
CitySwitch Incentive Programs
Through the CitySwitch program, incentives are available to Australian cities to help promote energy efficiency and reduce emissions. Getting in touch with them gives you great access to advice and financial grants to meet your efficiency goals if you’re eligible to sign up. Below are some highlighted opportunities available.
- Grants for NABERS assessments
- Innovation grants
- Building upgrade finance
- Building upgrade finance in Sydney
- Green grants for office tenants
For Mid-Tier Buildings, The Right Incentives and Tools Can Enable Improved Energy Efficiency Nationally
By looking at the cross-over between policy, market trends, and effects on the industry to date we can easily see great opportunities in this commercial sector. With the right incentives and action, we can harness this market to meet our emissions reduction goals at a national level, while providing better workplaces to meet the needs of the changing workforce.
With a transition back to a tenant market by 2020/21, it’s important to have the right government policies in place for requirements and incentives to be expanded to more of the built environment. As seen with the NABERS rating scheme, improvements in energy efficiency emerge over time, as buildings enact changes.
Bearing in mind that buildings are created to deliver comfort and security, improving sustainability achieves these goals at the same time. Both energy efficiency and occupant comfort improvements deliver bottom line benefits to both building owners and tenants. If mid-tier buildings raise their efficiency standard, key tenants such as government bodies can be brought onto the mid-tier sector, it will be easier to retain other commercial tenants, and tenants can better attract key talent.