Energy efficiency in the mid-tier market: should we be dangling the carrot or brandishing the stick?

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For some time now, Australia has featured at the forefront in the growth of green buildings, a trend which has been reinforced with the recent Global Real Estate Sustainability Benchmark results.

However, while Australia’s premium office market moves toward the next building evolution in optimising human health and wellness, the mid-tier office market is yet to see any notable shifts in energy and emissions reduction.

Mid-tier office challenges and opportunities

The breadth and size of this market is compelling. The Australian Sustainable Built Environment Council’s recent Low Carbon High Performance report cites mid-tier offices are estimated to make up 52 million square meters of the 64 million square meters of office space nationally.

Policy makers have taken this into account and have started to focus more heavily on investigating the associated challenges and opportunities facing this sector. One of the resulting reports has been the 2015 Mid-tier Commercial Office Buildings in Australia (‘Pathway’) report produced by Green Building Council of Australia, following extensive collaboration between government and industry stakeholders.

This report shone a light on the complex barriers affecting change - notably the lack of knowledge, capital, resources and time faced by building owners / managers with respect to the adoption of energy efficiency measures. 

Carrot and stick approaches

Drawing on some of the recommendations contained within the Pathway report, there have been a number of recent policy and program developments. A planned reduction in the threshold for the Commercial Building Disclosure program in mid-2017 is expected to see a good deal more small building owners being legally required to measure and disclose the energy efficiency of their assets. While there is potential for this scheme to work, it will be heavily influenced by tenant demand for green office space at this end of the market.

At the other end of the carrot and stick approach lies the need for targeted financial incentives:   

• Sustainability Victoria’s Energy Efficient Office Buildings Program was aimed at mid-tier office buildings through matched funding grants of up to $150K.

• NSW’s Office of Environment and Heritage has recently initiated the ‘No More Average Buildings’ program, which provides financial assistance for energy efficiency improvements in buildings with low NABERS Energy ratings. 

• At a national level, there are calls to consider measures such as ‘green depreciation’ in which tax breaks could help drive greater investment in energy efficiency measures when building refurbishment works are carried out.  

Efficiency in a global context

Looking around the world, locations such as the United States, European Union and Japan are aiming to achieve net zero energy performance for their respective commercial buildings in the next few decades.

In the United Kingdom, by mid-2018, it will be unlawful for commercial building owners to lease poorly performing buildings, which at current estimates represent close to 20 percent of the national market.

The penalties for non-compliance with the legislation are expected to be considerable, but balanced against this is the provision of grants and subsidies to assist building owners. With talk of the energy-efficiency bar being raised in subsequent years, this new approach in the UK is sure to provide an interesting litmus test for other jurisdictions around the world, including Australia, to consider.

This article was written by Dale O’Toole, Savills Manager of National Sustainability. Savills is a leading global real estate service provider offering the full spectrum of services from strategic advice to managing assets and projects and transacting deals. To learn more about Savills sustainability services, visit savills.com.au/earth.