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Charter Hall on why demand and bottom line logic keeps driving sustainability

Chris Chappel

The market in general is strengthening – for sustainability in particular, because it has a bottom line logic – but what’s going on in Brisbane is a market in transition, according to the Charter Hall view.

Listed commercial property group Charter Hall has responded to what it says is a tenant driven market increasingly focused on sustainable office space, with a rolling program of energy efficiency upgrades across its entire $10.6 billion Australian property portfolio, and a number of new commercial  projects all built to 5 Star Green Star standards.

According to the company’s head of commercial and industrial, Chris Chapple, 10 years ago interest in sustainability was mainly philosophical. In the last five years committed bottom-line interest has been very much increasing.

In a recent interview with The Fifth Estate Mr Chapple said the three key reasons tenants say sustainability is a priority are staff satisfaction and engagement, managing ongoing costs for energy and water, and the aspect of corporate governance. These issues will continue to increase in importance, particularly for government tenants, he said.

In addition, tenants also want the kind of sustainability initiatives that go beyond the bottom line on energy bills into the realm of day-to-day experience.

“Tenant representatives who are seeking commercial leasehold space are much more in touch with wanting to see and feel those sustainability initiatives,” Mr Chapple said.

“That is why our philosophy with new projects is we will always do Green Star As Built as well as Green Star by Design.

“People want to know they will have the benefit of sustainability going into the space, and they also want to have those benefits be tangible.”

From the property group’s perspective as owners, the benefits of sustainability include long-term tenant retention, a longer building lifecycle and lower operating costs.

“When you get the asset right, you have a longer asset lifecycle.”

Industrial is also going green

In the industrial sector, which Mr Chapple said was an extremely strong market nation-wide in terms of construction activity, the sustainability equation includes right-sizing facilities, minimising the impact of the energy footprint and operating costs, and implementing efficiency in the construction phase, including choice of materials.

One of the distinctive aspects of the industrial sector he said was that most developments are built on a pre-commitment basis, so designing around the end user can occur from the outset.

“Our philosophy for both commercial office and industrial projects is the same, by getting the design right up front you get a much longer life.

“For any new project that includes incorporating all the typical sustainability features around energy, water and waste, and those features are decided as a function of a cost benefit analysis and the payback period for each [initiative].

“There is a growing level of interest by industrial users around what happens inside the building. That includes efficiency aspects such as the mechanical systems, incorporating solar hot water and water recycling, and metering of energy and water in that space. And this is something we are looking at with all our industrial assets nationwide. ”

Rolling upgrades across the capital city portfolio

100 Skyring, Brisbane

According to Mr Chapple the company was responding to the strength of the commercial property sector with a combination of upgrades to reposition existing assets and new commercial projects. It was “constantly” looking at the commercial portfolio across the country, and there was a specialist team for sustainability looking at energy and water as part of an annual rolling upgrade program.”

Future proofing was part of the motivation, both in terms of building costs and rising prices for energy and water and long-term tenant retention.

“A commercial building is much more appealing [in the market] when there are lower operating costs,” Mr Chapple said. Potential tenants will compare the net rent and outgoings and level of services as part of their decision-making process.

“So it is an important part of our decision making process when we roll out upgrade programs, how do we keep operating costs the same [despite rising energy prices] or lower?

”Sustainability has been core to Charter Hall for a long time, and we will continue to grow our focus on that as our tenants grow.”

The recovery gains pace

In terms of the market outlook Mr Chapple said that the commercial property sector was currently quite competitive after a period of relative downturn during the post global financial collapse period. While in 2008, the corporate sector “bunkered down” and was reluctant to invest in new leasing decisions for some time, the market had now picked up and there would continue to be a pick up in market activity throughout 2015-16 due to the growth in business confidence.

The company’s reach in Sydney, Brisbane, Melbourne and Perth had given it a good bird’s eye view. Since, 2013, Mr Chapple said, there had been a turnaround in confidence in Sydney and Melbourne.

“Many companies have been reticent over the last couple of years to make accommodation decisions, and are now making those decisions, [in some cases] on the basis of engaging more staff.”

Next to follow these growth trends, he said, would be Perth and Brisbane markets.

Why there’s so much action in Brisbane

Among the various city markets, Brisbane was an unusual market, and currently in transition, Mr Chapple said. Part of the reason was shortfall in the types of properties that tenants demanded.

Most space in the past has been of floorplates smaller than 1000 square metres and in buildings sub-A grade.

In the last seven years, however, there have been numerous construction projects delivered buildings that would cater to larger user requirements and demand for these “Sydney and Melbourne style floorplates” has been strong.

Much of the demand is coming from corporates that have identified Brisbane as a somewhat untapped market, where they now seek to establish a presence, Mr Chapple said.

“A lot of corporate have increased their size or established new offices in Brisbane

“There has been a structural shift in the population demographic, and that has generated an enormous boom.”

The response from Charter Hall has been to reposition some of its Brisbane commercial properties through refurbishments incorporating sustainability and amenity upgrades. At 175 Eagle Street, for example, refurbishment has included cyclist end-of-trip facilities.

Outer CBD developments gathering momentum

It is not only in the CBD where the commercial boom is occurring. Brisbane has a number of urban renewal growth precincts outside the CBD including Northshore Hamilton, Fortitude Valley and the Gasworks precinct at Newstead, where Charter Hall is developing the $175 million 100 Skyring project.

The 12-storey building designed by ML Architects and Bates Smart has been awarded a 5 Star Green Star Office Design v3 and is targeting a 4.5 star NABERS rating and a Five Star Green Star As Built rating.

The building features flexible 2200 sq m floor plates with natural light from all sides and views over the river and the new Gasworks public space. Bank of Queensland has already pre-committed to leasing some of the lower floors.

End-of-trip cyclist facilities include 192 bike spaces, showers and lockers, with a and the building offers a high degree of public transport connectivity, including bus, train and the Brisbane RiverCat ferries.

Charter Hall regional asset manager Belinda Kalinin said that in the current environment, offices that could deliver large, open floor spaces in locations offering work and lifestyle advantages are be the first to be leased.

“100 Skyring is our landmark project outside the Brisbane CBD and it is recognition that businesses are seeking quality premises with the growing amenity of a fringe location,” Kalinin  said.

“Although Brisbane’s near-city office vacancy levels are approximately 14.3 per cent the vast majority of this stems from older, secondary assets, evidenced by prime grade vacancy currently at 6 per cent.

“Office leasing in Brisbane looks likely to remain competitive up to 2016 as new supply is added, but there is also a significant level of secondary stock mooted for withdrawal and conversion. With few new major office buildings planned for the fringe in the short term, there will only be a limited amount of options available in these areas.”

 

 

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