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Market pulse shows investors are greening up their questions

It’s good to check the sentiment pulse from time to time, especially when people like David Yates executive general manager sustainability and investor relations for Dexus says investors are asking increasingly pointy questions about the nature and shape of sustainability objectives.

What’s really going on in the economy? Is it tanking or booming? The share market looks to be like an insane tulip mania but the retail industry is diving on the back of crashing sentiment in the housing market.

There’s no better people to ask about what’s really happening in the economy than the people whose livelihoods depend on the finest tuned most sensitive antenna. Generally we rate commercial property agents highest for that talent.

On Wednesday night was one opportunity, the launch of the Dexus developed new building at North Sydney, that the big audience on the night heard would transform this “poor cousin” pocket of Sydney’s twin CBDs.

The building looks beautiful. See our article about it.

that mentions its 41,500 square metres targeting a Shell & Core WELL Gold rating, 5 star Green Star and 5 star NABERS Energy rating.

It’s understated elegance with a pretty strong susty bent. What isn’t understated is the amazing art piece of the biggest digital screen we’ve ever seen. During the presentations you couldn’t help but be captivated by the serene bird’s eye view of slowly circling dogs around a group of picnickers on a lawn. Hypnotic. Followed by actual birds moving poetically through blue sky. The clever thing is the interactive nature of the art piece.

Nick Hunter, creative director of Paper Moose, which is responsible for the work, said the murmuration, or synchronised movements of the birds, intensified as the foyer’s activity intensified. When the room was stilled, the screen would also come to rest on the Dexus logo.

Together with the quality feel of the event it was a lovely reprieve among busy daytime lives for a quite influential crowd. The important thing at such events is to take a quick pulse of the sentiment. So what was the chat?

Interestingly a commercial real estate agent, in sales, was bemoaning that he had plenty of buyers for commercial properties but no sellers. So current owners didn’t fear an imminent crash in their asset values then?

Quite a contrast to the miserable plight of retail property that in some areas pundits say is showing 30 per cent vacancies. Hmmm, maybe that’s the tightening pinch on the purse string from spending too much on mortgage repayments and FOMO (fear of missing out) capital gains punts.

One of the happiest on the night was Ray Brown managing director of Architectus, which with Skidmore, Owings & Merrill LLP was architect for the project, conferring with one of the senior execs from Laing O’Rourke, which at one stage owned the site and ended up collaborating with Dexus as builder and now as tenant. Nice way to show off your skills to potential clients of course.

Brown pointed out the façade was a “thinner” version of the double skin façade at 1 Bligh Street in Sydney on which his studio also collaborated on with Ingenhoven Architects.

Happiest on the night had to be Dexus boss Darren Steinberg. The building was 95 per cent leased by the time of opening, he told us. He’d tipped maybe 60 per cent but that was a “conservative estimate”, he confessed. Still it’s always better to under promise and over deliver, in our book.

Yes, the vibe was good and it’s always pleasing to see the end result of what is clearly a huge effort to create such a beast as a major new office tower. Especially when aspired to be green and healthy.

But what got us excited on the night was the growing interest in sustainability, not from the owners, not from the tenants, not from the public, but the investors.

David Yates, executive general manager sustainability and investor relations with Dexus is the man who gets to accompany Steinberg on the investor roadshows that the company does after reporting season, like every other REIT.

This is the chance the investors get to really quiz the company on its performance and direction. The investors like burrow down to find out how their money will be protected, enhanced or otherwise.

According to Yates the nature of questions started to change significantly about 12-18 months ago.

“Investors started asking not just about the environment but about ESG (environment, social, governance),” he explained in a follow up call on Thursday. In the past  questions around the environment had been based on targets and now people are taking a lot more interest in the detail.

“We set net zero target by 2030 so investors want to know ‘how are you going to get there? What’s the detail around the target?’ And not just assuming we will buy offsets.

The energy supply agreement with Red Energy is an example of some of the answers.

  • See our article: Dexus late last year announced a deal to use Snowy Hydro-owned Red Energy to supply off-site renewable energy to more than 40 Dexus buildings in NSW in one of Australia’s first supply-linked renewable energy supply agreements (ESA).

“That was a key win for that strategy because it’s off site renewables, even though it’s only for NSW, so explaining the detail behind that, and that it’s not just renewables it’s other things like energy efficiency in there, refrigerants and the new developments we’re doing.”

The thing is there are now more than a few property companies with net zero target so the investors want to know the reality behind the goals, he says.

And they’re not so keen on hearing that the company will simply offset emissions they’re more interested in the future proofing of their assets.

So who are the investors most interested to ask these penetrating questions?

In general, Yates says, it’s the longer term capital that’s most interested – the pension funds and property specialists, that are asking “the right questions” as he puts it.

Last week, he said, the question was on green leases: how many tenants were signed up to these? Not something we’ve heard a lot about lately.

Yates was happy to say that 97 per cent of commercial tenants had signed up to green leases.

As for the nature of the most interested investors, he said domestically Sydney based investors are asking the right questions; also off shore pension funds that make up about 57 per cent of all investors.

Last week he and Steinberg met some of these investors in Hong Kong – mostly European or US funds with offices locally in Asia – for the last round of post results meetings (and yes they did get caught up slightly in the melee of protests against China’s extradition treaty proposals).

Melbourne based superannuation funds are another identifiable crowd – but essentially it’s the longer term capital that is most interested, who wants to know “how sustainable is your business model?”.

Among the emerging issues is the Modern Slavery Act that takes force for companies with turnover of $100 million or more. Watch for that to take up more oxygen soon as well.

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