Beginning on November 1, Australia will require landlords to disclose the energy efficiency of their office buildings when they either sell or lease space that is larger than 21,530 square feet (2,000 square meters). Ratings will be based on the National Australian Built Environment Rating System (“NABERS”), which is on a scale of 1 to 5 stars (Australia’s current median market performance stands at 2.5 stars). After an initial one-year transition, landlords will also be required to provide other information, including an assessment of tenant lighting. The new regulations also extend to foreign REITs that own buildings in Australia (incidentally, foreign investors are responsible for over 70 percent of all real estate transactions in Australia and have purchased over $1.2 billion in assets there over the past 12 months).
According to CB Richard Ellis’s Mark Willers, who is quoted in a press release detailing the new requirements, Class A and Class B buildings should be able to earn a NABERS rating of between 3.5 and 4 stars by “fine-tuning” their existing plants and systems, but “[t]he ability of a building to achieve NABERS . . . in excess of 4 stars will depend on its configuration and construction, and may require significant capital works.” In Australia, government entities have committed themselves to occupying space in buildings with NABERS ratings higher than 4.5 stars by 2011, though only 11 percent of the overall Australian market has achieved this rating to date.
One of the thornier green real estate questions that the new requirements may help answer is whether a higher NABERS rating correlates to increased rents and asset values. Unlike the numerous studies performed here in the U.S. (which have been critiqued on a variety of grounds by many commentators), there have been no comparable studies performed to date in Australia. One particular U.S. study, authored by Piet Eichholtz and Nils Kok of Maastricht University and John Quigley of Berkeley, released by the Royal Institution of Chartered Surveyors (“RICS”) in 2009, and actually noted in the press release, concluded that there were “no significant market effects associated with the LEED label. Energy Star concentrates on energy use, while the LEED label is much broader in scope. Our results suggest that tenants and investors are willing to pay more for an energy-efficient building, but not for a building advertised as ’sustainable’ in a broader sense.”
(As you may recall, the RICS study was titled “Doing Well By Doing Good? An Analysis of the Financial Performance of Green Office Buildings in the USA,” and the purpose of the study was to determine whether investors are currently willing to pay any premium for green (Energy Star- and LEED-certified) commercial office buildings and, if so, what that premium was.) If any Australian studies are eventually undertaken, it will be interesting to see if their conclusions mirror those from RICS and offer any insights that will be transferable to the North American market.