Mandatory energy disclosure

AS we move out of the downward cycle, owners now also have to consider the changing market and the new demand factors for sustainable building operations in their capex planning. This is a significant change in building competition for attracting quality tenants.

A significant factor in this new environmental landscape is the recent Australian, state and territory government approval of a mandatory disclosure scheme for building operations energy efficiency. This legislation is considered a significant step in the move towards driving efficiency of commercial office stock and the Department of Environment, Water, Heritage and the Arts has advised this will be introduced in the second half of this year.

Under the legislation, all office buildings (Class 5 under the BCA, which includes office buildings in industrial zoned land) with a net lettable area (NLA) more than 2000 sq m will require a NABERS base building energy efficiency star rating to be included on any advertisement of sale or advertisement for lease of an area this size.

With this required release of information, it is expected those properties with a low NABERS energy rating and high capital expenditure for efficiency improvement works will provide a buyer or lessee with a negotiation lever which may lower returns and possibly capital value.

With recent market feeling indicating the average NABERS rating is between two and three stars, building owners will need to review what options are available for energy efficiency improvements in their capex planning.

This is particularly pertinent to owners looking to lease to state and federal government tenants who have policies indicating preference for tenancies with a minimum 4 to 4.5 star NABERS energy rating.

As corporate policies on environmental standards become more developed, the mandatory disclosure scheme will provide companies with the ability to set their own minimum standard. This will likely have an effect on attracting new tenants and retaining existing ones, especially in areas with higher vacancy rates.

A more efficient building will carry lower running costs thus reducing service charges and outgoings contributions. An efficient property is also seen by some investors now as a financially appealing one as it may provide a lower long term risk of vacancy.

While older stock on the market is generally achieving lower ratings than new properties, this is not to say they cannot achieve improved results. As demand for efficiency solutions increase so too does the supply of innovative technology. Tri-generation, solar harvesting, lighting upgrades, lighting controls, building management system improvements and HVAC advancements are just a few of the areas open to property owners to enhance efficiency.

NABERS ratings look at the previous 12 months performance so any upgrade will not be fully reflected in the rating until the works have been in place for a full 12 months. The time needed to prepare the NABERS rating should also not be underestimated.

You do not want to be in a position where you are ready to advertise an area of more than 2000 sq m for lease and do not have a NABERS rating which will be legally required for the advertisement.

I encourage all building owners to be proactive in their consideration of how the mandatory disclosure legislation may impact their property. Undoubtedly it will provide a clearly comparable tool for tenants and investors alike, which will establish fresh challenges for the market.