At the recent Future Proofing Property conference, Dr. Christopf Husmann from Hochtief Real Estate remarked, “Why does a CFO come down to talk to you about sustainability? Because it all comes down to economics”.
The commercial sector is the dominant force in creating a sustainable built environment. With $16 billion of work in the pipeline in 2010, the green commercial market is twice as big as the green multi-residential market. The gap is even more noteworthy because the green projects make up 7.4% of the commercial sector but only 4.7% of the residential sector.
Retail versus Offices
If the commercial sector can be broken down in terms of distinct infrastructure, the two main categories would be offices and retail shops. As indicated in the graph below, the proportion of green office construction compared to green retail construction is dramatic. The benefits of building green to office developers; reduced energy costs, happier tenants and higher yields’ on rent or sale are more assured and considerable than the benefits conveyed to retail developers. An additional $2 billion is being poured into Green Star rated office buildings compared to 2009, but the investment in green retail has not changed. While the general disparity between office and retail can be largely explained by intrinsic usage differences, what explains the retail sector’s static rate of green development from 2009 through to 2011? From comprising 13% of all green commercial work to only 8% at the end of 2010, the retail sector has been resistant to changing attitudes and improving technology.
Government funding
The benefits of green building are numerous but in order to secure finance in the commercial sector, economic benefits are the foremost consideration. Green design and construction are becoming increasingly more lucrative but often still involves a higher initial outlay. This is the point at which government funding becomes so crucial. Government prerogatives and priorities are different to that of private investors and there is more scope to build green for the environmental and social impacts, to develop technologies and trends, and to enhance this already strong construction sector.
Constituting 11% of finance provided for green commercial projects in 2010, government funding exceeded $789 million. Moreover, nearly a quarter of all sustainable office projects are federally funding. The apparent discrepancy indicates that government funded projects tend to not be as large-scale as privately funded projects. Employing best-practice sustainability standards in construction of government offices limits the impact and provides opportunities for emerging technologies and professionals to expand their capabilities. Mixed private and public office buildings are at the forefront of sustainable commercial work, such as the $500 million, federally funded, York Park North Precinct in Barton, ACT. It is anticipated that the Department of the Environment & Water Resources staff will occupy 35,000 square metres of the commissioned building with another 25,000 square metres space available for private sector tenants.
State comparison
Nationally, the trend towards sustainable building has continued to increase. This is reflected in the markets of four of the five biggest states. The only decrease in the value of the green commercial market is that of NSW (including ACT) which dropped $129 million or 5% since 2009. A small drop like this might seem insignificant if not compared to the vigorous rises in the other states. The Queensland market grew by 30% and is now the greenest commercial sector with over $2.5 billion of projects in the pipeline. South Australia and Western Australia are relatively small markets for green building but both had strong increases, 79% and 49%
respectively. The most dramatic state boom was Victoria whose growth reached 90% marking an additional $1.1 billion of ongoing work with Green Star briefs or registration. In Victoria, this growth can be largely attributed the re-commencement of a lot of work that was deferred over the financial crisis, as opposed to new projects entering the pipeline.
Forecast construction starts
In the 2009 / 2010 financial year, the green commercial sector grossed $1.87 billion, averaging $467 million per quarter. The beginning of the 2010 / 2011 financial year had relatively low levels of construction commencing; leading up to what might be Australia’s most prolific period of green commercial starts in history: fourth quarter 2010 with $2.490 billion of work set to begin. This quarter has already seen site works for the 735 Collins Street office towers in Melbourne’s Docklands begin in October 2010. At a total cost of approximately $750 million, the design aims for the highest Green Star rating and incorporates blackwater treatment, rainwater collection, an onsite gas-fired tri-generation plant and high performance glazing to allow maximum natural light whilst
avoiding glare. To some extent, the phenomenal fourth quarter 2010 escalation can be attributed to hopes rather than expectations. In the final quarter of any year there is often an exaggerated optimism that projects will commence before the Christmas break. A portion of the projects predicted to start in this quarter will be pushed over to 2011. Things are set to quieten down towards the end of 2011 with the first half of the year seeing over $3 billion of work getting to the end of the pipeline. Over the next 6 months we are likely to witness an unprecedented propagation of green commercial projects being realised.
