Assessing energy rating premiums in the performance of green office buildings in Australia
| Pages | 352-370 |
| Published date | 01 July 2014 |
| DOI | https://doi.org/10.1108/JPIF-10-2013-0061 |
| Date | 01 July 2014 |
| Author | Graeme Newell,John MacFarlane,Roger Walker |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Assessing energy rating
premiums in the performance of
green office buildings in Australia
Graeme Newell
School of Business, University of Western Sydney, Penrith, Australia
John MacFarlane
University of Western Sydney, Penrith, Australia, and
Roger Walker
Walker Ecostrategies, Engadine, Australia
Abstract
Purpose – Green office buildings have recently taken on increased significance in institutional
property portfolios in Australia and globally. The key issue from an institutional investor perspective
is the assessment of whether green office buildings add value. Using an extensive portfolio of green
office buildings, the purpose of this paper is to empirically assess the level of energy rating premiums
in the property performance of green office buildings in Australia.
Design/methodology/approach – Using a portfolio of over 200 green office buildings in Australia
benchmarked against a comparable portfolio of non-green office buildings, the level of energy rating
premiums in the property performance of green office buildings in Australia is empirically evaluated.
Hedonic regression analysis is used to account for differences between specific office buildings and to
explicitly identify the “pure” green effect in identifying the level of energy rating premiums in several
commercial property performance characteristics (e.g. office value, rent).
Findings – The empirical results show the added-value premium of the 5-star National Australian
Built Environment Rating Scheme (NABERS) energy rating scheme and the Green Star scheme in the
property performance of green office buildings in Australia, including office values and rents. Energy
rating premiums for green office buildings are evident at the top energy ratings and energy rating
discounts at the lower energy ratings. The added-value “top-end” premium of the 5-star vs 4-star NABERS
energy rating category is clearly identified for the various property performance parameters, including
office values and rents.
Practical implications – This paper empirically determines the presence of energy rating premiums
at the top energy ratings in the performance of green office buildings, as well as energy rating
discounts at the lower energy ratings. This clearly highlights the added value dimension of energy
efficiency in green office buildings and the need for the major office property investors to prioritise the
highest energy rating to facilitate additional property perfor mance premiums. This will also see green
office buildings become the norm as the market benchmark rather than non-gre en office buildings.
Social implications – This paper highlights energy perfo rmance premiums for green office
buildings. This fits into the context of sustainability in the property industry and the broader aspects
of corporate social responsibility in the property industry.
Originality/value – This paper is the first published property research analysis on the detailed
determination of energy rating premiums across the energy rating spectrum for green office buildings
in Australia. Given the increased focus on energy efficiency and green office buildings, this research
enables empirically validated and practical property investment decisions byoffice property investors
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Received October 2013
Accepted January 2014
Journal of Property Investment &
Finance
Vol. 32 No. 4, 2014
pp. 352-370
rEmeraldGroup PublishingLimited
1463-578X
DOI 10.1108/JPIF-10-2013-0061
The authors acknowledge the Australian Property Institute and the Property Funds Association
for funding this research, JLL and CBRE for providing proper ty data concerning specific office
properties, the NSW Office of Environment and Heritage for providing the NABERS energy
performance data and the Green Building Council of Australia for providing the Green Star data.
352
JPIF
32,4
regarding the importance of energy efficiency and green office buildings, and the priority to achieve
the highest energy rating to maximise property performance premiums in office values and rents.
Keywords Sustainability, Green office buildings, Green premiums, Green Star,
NABERS energy rating, Non-green discounts
Paper type Research p aper
Introduction
Sustainability has taken on increased importance in recent years at all levels of
property stakeholders, including governments, tenants, investors, developers, owners
and the community (World Green Building Council (WGBC), 2013). This has seen
increased awareness internationally that sustainability is a high priority. In particular,
the property industry has a major impact on the environment, with bu ildings
contributing up to 23 per cent of CO
2
emissions, 40 per cent of energy requirements, 16
per cent of water usage, 30 p er cent of solid landfill waste, 40 per cent of raw materials
and 71 per cent of electricity consumption (Centre fo r International Economics, 2007).
Legislation regarding sustainability has recently been introduced in Australia. The
introduction of the Federal Government’s Building Energy Efficiency Disclosure Bill
2010 has seen the mandatory disclosure of greenhouse p erformance for commercial
office buildings upon lease or sale impacting on both new and existing office properties
from November 2010, with Building Energy Efficiency Certificates required from
November 2011. Similarly, government policy requires minimum energy ratings for
government tenants from 2011. This is also in the broader context of carbon pricing
introduced by the Australian Government as part of the Clean Energy Future package.
This has seen green office buildings become a key feature of the commercial property
landscape in Australia, with energy efficiency for office buildings being seen as crucial
to the sustainability agenda.
This focus onsustainability has seenkey groups establishedin Australia to champion
the sustainability agenda. Thisincludes the Green Building Councilof Australia and the
Investor Group on Climate Change; as well as act ive support from the professional
property organisations, including the Australian Property Institute (API), Property
Funds Association of Australia(PFA), PropertyCouncil of Australia (PCA)and the Royal
Institution of Chartered Surveyors (RICS). Pension funds in Australia have also actively
supported the sustainability agenda by prioritising sustainable commercial property in
their portfolios.
Importantly, the property industry in Australia has actively contributed to this
sustainability agenda in the context of their corporate social responsibility (CSR)
strategies. This has seen a large number of property investors effectively integrate
sustainability into their business platform at all levels of their commercial activities;
this includes the larger property players as well as the smaller property players.
The original focus on risk reduction and future proofing, driven by the sustainability
legislation, has also been expanded to a fuller articulation of the business case in
the context of CSR (Newell, 2008; Newell and Le e, 2012). Many Australian property
companies and Australian Real Estate Investment Trusts (A-REITs) are amongst
the leading property players globally in championing the sustainability agenda for
property (Newell and Lee, 2012). This includes GPT, Stockland, Lend Lease, Colonial
First State, Dexus and Investa. The establishment of the green building rating schemes
in Australia, namely Green Star and the National Australian Built Environment Rating
Scheme (NABERS), are also key ingredients for advancing the sustainability agenda in
the property industry in Australia; particularly concer ning energy efficiency.
353
Green office
buildings in
Australia
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