The Growing Trend: Green Buildings

Much like household appliances have star ratings to assess the efficiency of the machine’s output, buildings and the tenancies within them can be rated to measure how efficient they are.

It is a growing trend amongst businesses to want to understand a building’s efficiency in order to ascertain how this impacts on the outgoing costs of the building and how its sustainability will impact the environment.

The country has certainly been moving to an active consciousness of being more energy efficient and a focus on how a building’s output impacts on the environment is a growing consideration. This is relevant to businesses (tenants), service providers and of course, building owners.

Environmental Social Governance or ESG is a measure of a company’s non-financial performance and is a trend that’s been growing overseas for many years and is commonplace in the commercial and industrial sector. It has become an accepted aspect in Australia for a few years too and it has already started to become apparent in NZ.

ESG IS FAST BECOMING

“THE NEW SEISMIC”

After the 2011 Christchurch earthquake, seismic ratings became the hot topic. Initial Evaluation Procedures (IEPs) and Detailed Seismic Assessments (DSAs), all of a sudden became common language in the C&I sector. Tenants, understandably, wanted to understand the performance of a building with regard to seismic events. ESG is moving into this same space, whereby it will be a common part of discussions between owners and tenants as to how the sustainability and energy efficiency of a building is rated.

Not only are tenants driving these discussions on a national level, central government are also a big part of the drive, in the fact they are making amendments to legislation to ensure companies of a certain size and output are measuring their energy performance. Amendments to the Building Act are already before parliament that will make it mandatory for buildings that meet a certain criteria (eg over 1,000sqm office floor area), to measure the performance of those buildings and display that rating, much like a Building Warrant of Fitness. Other large listed companies are already having to make disclosures on the climate-related aspects of their business, so the aspect of these ratings is already embedded on the NZ landscape and will only grow from here.

Society is already making a conscious shift towards environmental considerations. So when large requests for proposals (RFPs) are being requested from large service providers, such as Bayleys, the environmental considerations are front and centre when awarding those contracts.

Financial institutions are also driving this change in trend towards sustainability and offering certain products that reward companies or building owners for making a conscious shift towards environmentally sustainable change. Lower interest loan packages for things like changing to LED lighting, or installing solar panels are examples of product offerings that the likes of ANZ are offering in this space.

There are range of websites that give a whole lot of information around this topic and it can begin with a relatively simple self-assessment through the NABERS website (www.nabersnz.govt.nz) that gives you an initial measurement of your building or tenancy’s energy efficiency.

ESG IS HERE TO STAY:

1. The Government is changing legislation to “Put the environment at the heart of how New Zealand Builds”. Mandatory energy performance ratings and waste minimisation plans are being introduced.

2. Customers and society as a whole are becoming increasingly conscious of environmental impacts of development. It is becoming increasingly common to see environmental considerations at the forefront of RFP’s for large projects.

3. Banks are driving this change by incentivising and rewarding businesses that are making a conscious shift towards environmentally sustainable change.

4. All three of the drivers above will ultimately have an impact on the value of a building as efficiency and other ESG factors will be taken into account when calculating yields.

“Inevitably, these trends will have an impact on a building’s value, as the efficiency of the building’s output will impact outgoings expenses and will eventually be a consideration when assessing yields”.

Ben Westerman

DIRECTOR WESTERMAN PROPERTY SOLUTIONS