Q&A with Russell Bullen of Quintessential Equity

A commercial office building at 2-6 Bowes Street (pictured above) in Canberra's Phillip was recently launched after undergoing a significant refurbishment to improve its energy efficiency.

The building, owned by boutique property fund manager Quintessential Equity, is targeting a 5-star National Australian Built Environment Rating System (NABERS) energy rating. The company recently acquired two other commercial properties in Canberra, 14 Moore Street and the Optus Centre in Civic.

We spoke to Russell Bullen, head of Property at Quintessential Equity, about energy efficiency in the commercial property space.

How has the demand for "green" office spaces changed over the past ten years?

It's certainly evolved significantly in that time. I think the whole "green movement" gained a lot of momentum, and it was certainly assisted by the government's changes to legislation around disclosure.

If you sell or lease a building, you now have to disclose your NABERS  energy rating.

Up until the changes, it was really dependent on market forces. It was up to tenants to really demand energy efficient buildings, or really up to the landlords, off their own backs, to disclose. So once the legislation came in, it provided more accountability around energy efficiency - if you had a building with poor energy efficiency, but didn't have to disclose it, there wasn't much of an incentive to improve that.

I think that's probably been the biggest change in that time period.

What are some elements that make commercial office buildings "green"?

Probably one of the things that gets forgotten is management.

And one of the biggest improvements in energy efficiency, and reducing our carbon footprint, is good management. We have a national engineering manager whose main focus is just that. That is probably one of the biggest impacts that you can make to a building - making it operate efficiently.

Apart from that, you can introduce things that are very costly, in terms of plant and equipment. You can improve heating and chilling and make that more energy efficient, and also use computer building management systems to improve efficiency.

What are the benefits of energy efficient office buildings to investors and tenants?

From a tenant's perspective, the operating costs are less.

We've got a project in Parramatta, where we were awarded Best Commercial Building Energy Efficiency Project by the Energy Efficiency Council. We've seen the electricity costs in that building fall by more than a third from work that we did. We were able also to achieve a four and a half star NABERS energy rating there.

The reduction of cost is a real and tangible benefit, and you also of course have an environmental benefit.

But also buildings that have a higher NABERS rating have a greater level of comfort and reliability, which is better for landlords because it improves tenant retention. From a landlord or investor's perspective, if you can make a building run efficiently, reliably and comfortably, you're going to retain tenants for longer.

Outside of Canberra, are there places where energy efficient office spaces are in greater demand than others?

If you had to say one location where energy efficient buildings were more in demand, it probably is Canberra. In Canberra, over two thirds of tenant demand is from the government (either Commonwealth or ACT). They actually have requirements within their leases that buildings have to achieve certain levels of energy efficiency.

Outside the ACT, in general, CBDs where there are large corporations who also have efficiency targets also show strong demand.

What role do you predict "green" innovation and energy efficiency will play in the commercial property market in 10 years time?

It's a difficult question, because there was certainly a strong impetus for energy efficiency, but when the GFC [global financial crisis] happened, there was a focus on cutting costs. And that's the thing with achieving energy efficiency - there is an upfront capital cost.

But if you take a 30,000 foot view, it's inevitable that it will continue to grow and get more traction. Disclosure obligations aren't going to go away. Companies are more and more focussed on their costs, and that's only going to continue in terms of ongoing operations. Outgoings are a significant part of companies' operating costs - so energy efficiency is not going to go away.