Few would argue that green buildings aren’t a good idea in principle. But does greening an existing building stack up as an investment? Recently published reviews of green offices and the capital’s office market suggest it might be where the smart money is at.
Article originally published at NZGBC
The downsizing of government functions over the past three years has lead to a marked shift in the demand for commercial office space in our capital. Demand for lower quality offices continues to reduce with a recently reported vacancy rate of around 11%; a rate that’s expected to increase further over the next three years of National’s term in office. Conversely, prime rentals are seeing increased demand for the first time in four years.
Amongst offices vying for any remaining government demand, those with green credentials can expect to be received more favourably. It’s the government’s stated aim to maximise value for money practices in the public sector through energy efficiency as part of their target for 10-20% greenhouse gas emissions reductions from 1990 levels by 2020.
As well as the inevitable increasing government sector interest in green buildings, a recent global survey indicates that over 50% of occupiers are willing to pay extra (up to 12%) for space in green buildings with a further 19% of occupiers acknowledging that any premiums would need to be offset by savings. An unprecedented 92% of occupier respondents now consider sustainability as a factor in location decisions, with 23% of respondents citing this as a major factor.
Increasing interest in green buildings is being reflected in international property values. An assessment of the US office market involving 10,000 subject and control buildings showed that Energy Star and LEED rated buildings benefit from an effective rent increase of over 6% and property values 16% higher than those for otherwise equivalent office buildings. Whilst there have been no conclusive studies of the New Zealand market, a valuation that ignores sustainability is considered irresponsible. There is a growing expectation in New Zealand that high-grade office space should be energy efficient and where possible, sustainable. As the country moves out of the worst grips of the GFC and attention widens from capital expenditure, a greater focus on efficient built assets by investors, developers and occupiers is anticipated. Well appointed green office space can expect to achieve higher rents, higher capital values and lower vacancy rates than ‘less green’ alternatives.
The end of a tenant’s lease provides the ideal opportunity to review a building’s sustainability. Quite often work will be undertaken to get the property ready for re-letting; incorporating improvements into these works minimises the additional cost, time and disruption involved. The savings to be made by integrating energy efficiency and sustainability improvements into major refurbishment works rather than undertaking these in isolation can be substantial. Providing an energy efficient, New Zealand Green Building Council Green Star certified refurbishment or fit-out could yield significant benefits. Even if improvements are not enough to achieve a Green Star rating, the looming introduction of energy performance assessment tools for existing buildings will serve to recognise any improvements made.
Sustainability is fast becoming a key factor in property decisions: Green office investments look set to reap the rewards of meeting an ever-increasing demand for sustainable workplaces.
By Michael Gray
A recent migrant from the UK, Michael Gray is a Chartered Building Surveyor and Energy Assessor at Prendos New Zealand Limited. Michael has managed and monitored office, industrial and retail new build and refurbishment projects and provided energy audits and advice across a range of commercial and government properties.
1] Hutching, C., NBR NZ Property Investor, National Business Review, 21 February 2012
 New Zealand Energy Efficiency and Conservation Strategy 2011-2016, Ministry of Economic Development, August 2011
 Jones Lang LaSalle and CoreNet Global Sustainability Survey 2010 published in Jones Lang LaSalle Perspectives on Sustainability March 2011
 Leadership in Energy and Environmental Design (U.S. Green Building Council)
 Doing Well by Doing Good? An analysis of the financial performance of green office buildings in the USA, Eichholtz, P., Kok, N., Quigley, J., RICS Research & Maastricht University, March 2009
 Valuing Sustainability: a new challenge for the profession, Warren-Myers, G., Australia and New Zealand Property Journal Vol 3 / No. 3, September 2011