According to CBRE’s recent NABERhood Watch report, there is an opportunity to enhance the energy efficiency of over 1.2 million square metres of high-quality office space in Australia.
These upgrades would be particularly appealing to companies focused on environmental, social, and governance (ESG) factors when making leasing decisions.
The report highlights that despite a 22 per cent increase in Australian office buildings achieving a NABERS Energy rating of 5 Stars or higher over the past five years, approximately 13 per cent of the country’s premium and Grade A office stock currently holds a rating of only 4.5 Stars.
“This represents more than 1.2 million square metres of office space where there’s an opportunity to both “do good” and tap into the growing pool of office occupiers prioritising ESG,” CBRE Pacific Head of Research Sameer Chopra said.
“It’s also apparent that age is no barrier when it comes to ESG upgrades, with circa 43 per cent of the NABERs rated “vintage” offices built pre 2000 having a rating of 5 Stars or above.”
Rising energy costs are expected to put even more emphasis on NABERS upgrades, given that energy makes up 10-15 per cent of the operational cost of office building.
“In today’s high energy cost environment, the business case is easier to justify,” Mr Chopra said.
The research said as a percentage of rent, the energy costs for Premium and Grade A offices were 0.6- 1.6 per cent lower in 2022.
“Competition to attract the best tenants is another driver, with our analysis showing a seven per cent spread between the occupancy rates of buildings with 4 Star NABERS Energy ratings compared to their 5.5 Star and 6 Star peers. That widens to 24 per cent for buildings rated 3 Star or less,” Mr Chopra said.
In terms of financial impact, the report emphasises that each additional NABERS star rating can provide a rent advantage of two to four per cent for buildings within the same city CBD location. Notably, the evidence suggests significant rental premiums in Perth, especially considering the increased focus on ESG outcomes in the resources and mining services sector.
As this sector continues to prioritise ESG considerations, the rental differentials between buildings with varying NABERS star ratings are likely to widen further in Perth, the report said.
“Our analysis also highlights a slight correlation between cap rates and NABERS ratings. There is a slight premium for 6 Star rated buildings and a slight discount for 4.0 Star rated buildings, although valuations are also impacted by location and cashflow strength,” Mr Chopra noted.
NABERs rating is compulsory for all office buildings over 1000sqm and nearly 54 per cent of the NABERs rated office stock has 5 Stars or above rating.
