One million square metres of Premium or A-Grade Australian office space has NABERS upgrade investment potential31 March 2022
Measuring NABERS outcomes over the past five years has led to a 17% uplift in Australian office buildings rated 5-star or above, with Premium and A-grade assets primed for vast upgrade potential, as revealed in CBRE’s latest analysis.
Not only are landlords and occupiers driven to be more sustainable in their decision making, but the increased potential this has on improved returns sees nearly three quarters of Australian office buildings now being NABERS energy rated.
CBRE Pacific’s Head of Research, Sameer Chopra explains why Premium and A-grade assets could be the investment opportunity that investors are looking for.
“24% of ‘vintage’ offices built pre-2000 have already been upgraded to a 5.5 or 6-star rating. In turn, these higher rated assets have the ability to command higher occupancy, higher rents and much lower energy costs. The next big opportunity for value creation is in the 15% of footprint residing in Premium and A-grade assets with 4.5-stars. That’s one million square metres of office space waiting for energy efficiency upgrades which would enhance yields and returns,” Mr Chopra said.
In Australia, NABERS ratings are compulsory for all office buildings over 1000sqm and this has been instrumental in transforming the Australian property industry. The CBRE analysis compares NABERS rated office buildings in key cities. While ratings continue to influence both investor and occupier interest in an office building, location still remains the key determining factor.
In relation to location, Flint Davidson, CBRE’s Pacific Head of Capital Markets, Office said, “Cap rates are still primarily influenced by location, building grade and cashflow strength, however energy efficiency is becoming an increasingly significant consideration for investors. Melbourne has a 6% occupancy advantage in assets rated 5.5 and above, while in Perth there is strong evidence of rent premiums for higher NABERS rated buildings. The Resources and Mining Services sector has an increased focus on ESG outcomes which could further grow the differential in rents.”
Mr Davidson added that ESG has featured as a differentiator in a number of recent CBRE sale campaigns, with buyer due diligence focused on NABERS ratings, access to wellness features and tenant ESG alignment.
“This is evident in our research showing 4%-11% higher occupancy rates for NABERS 6 Star and 5.5 rated assets.” Mr Davidson said.
Mr Chopra also noted that “Energy makes up 10-15% of the operational cost of buildings and with rising energy costs, a 2 Star upgrade which delivers 50% energy cost saving becomes compelling.”
Read the full analysis report here at cbre.com.au