Real estate investment trusts (REITs) are recruiting personnel committed to finding secondary office properties that are ready for renovation and repositioning in order to meet occupant demand for higher-quality buildings with a smaller carbon footprint, according to Simon Hunt, Managing Director Office Leasing, Colliers Australia.
“No longer are investors focused on acquiring the newest buildings out of the ground to achieve sustainability ratings, as occupiers now seek offices with a lower carbon footprint due to development in addition to lower operational carbon during their tenancy,” Mr Hunt said.
According to Lisa Hinde, Head of Sustainability at Colliers, due to the price of carbon per tonne attributed to new developments, reuse of materials and equipment for secondary asset upgrades is prefered to lower the cost of carbon offsets necessary to align with current investor and occupier net zero goals.
“The Net Zero carbon definition for the real estate industry is extending to the embodied carbon space, as investors and occupiers become attuned to embodied carbon frameworks from NABERS and the New Buildings tool from Green Star.” Ms Hinde said.
“Developers were initially being forced to be creative with the reuse of equipment and materials for both refurbishments and new builds, due to supply chain issues and labour shortages impacting accessibility of materials.
“However, the industry is now catching up by rewarding projects with an ESG lens as they go down this path.”
While landlords are undoubtedly benefiting from an increase in rent and occupancy, there is a hurry to reposition B Grade office assets to ensure that they remain competitive as occupiers raise their quality expectations and move away from an ESG tick box approach to requests for waste diversion, carbon neutrality, and other specific indicators post-pandemic, according to Mr Hunt.
By the conclusion of the third quarter of 2022, Colliers research showed that B Grade average net face rentals had had the largest year over year gain, at 6.1 per cent, when compared to other grades of office properties.
Sydney’s 309 Kent Street is a shining example of a B Grade restoration that was successful, offering fit-outs of an A Grade calibre and a rental increase of $50 to $100 per square metre for the 17-level buildings around 17,000 square metres.
At 6 O’Connell Street in Sydney, the renovation of 16,400 square metres of office space across 26 storeys is also resulting in a large rent increase, with lower levels getting around $150 more per square metre this year compared to when works began in 2020.