Savills recently revealed how to give your old office building a green makeover – retrofitting it to ensure it is eco-friendly and more economical to run. In part two of this series, Savills explores the time and money savings that green-building initiatives could deliver to savvy developers.
With sustainability high on the commercial agenda across Australian businesses, many developers are exploring the pros and cons of green-building initiatives in their next residential or office development.
Actual and percieved costs of green building
Romilly Madew, CEO of the Green Building Council of Australia, has led this green movement and encourages Australian developers to consider more sustainable future developments. She states that many of the traditional challenges developers faced in this field have now been addressed.
“One of the biggest obstacles in the past has been the cost – or perceived cost – of green building,” she says. “However, research has found that building green does not necessarily need to cost more, particularly when cost strategies, program management and environmental strategies are integrated into the design and development process right from the outset.
“Interestingly, there is a significant gap between the actual and perceived cost of a green building. While developers estimate that green features cost up to 29 percent more, the World Green Building Council’s Business Case for Green Building 2013 found that the cost premium for green buildings is somewhere from minus 0.4 percent to 12.5 percent. In other words, some green buildings actually cost less to build than their non-green counterparts, because early consideration of initiatives can save time, resources, materials and space.”
The World Green Building Council has also found that a minimal 2 percent upfront cost to support green design can result in average lifecycle savings of 20 percent of total construction costs – more than 10 times the initial investment.
And with the Clean Energy Finance Corporation offering grants across the property sector the financial advantages are substantial.
For those utilising green initiatives in existing developments, Environmental Upgrade Agreements between building owners, local councils and financial providers allow local government to finance environmental upgrades by taking responsibility for the owner's loan and repayments.
Green-building initiatives can also hold advantages for developers in terms of increased ROI. A range of reports have confirmed that green buildings boost return on investment. The 2011 Building Better Returns report found that 5 Star Green Star-rated buildings deliver a 9 percent ‘green premium’ in value and a five percent premium in rent, when compared to non-rated buildings.
The June 2014 Property Council/IPD Australian Green Property Index found that Green Star-rated CBD office assets outperformed the broader CBD office market.
Productivity improvements are now a huge driver for green building in the commercial sector. Modelling from Australia’s CitySwitch program has found that a typical financial or professional-services firm operating from a 5 Star Green Star-rated office of 5000 square metres could save $18,200 a year in electricity costs – plus potential savings of over $4 million through reduced absenteeism, employee retention and increased productivity.
In fact, ‘green space’ is now one of the top four attributes tenants look for – along with bike racks, childcare facilities and a gym.
In the residential sector, many buyers are beginning to see a green rating as a mark of quality when they hunt for a new property, and evidence is emerging that a green rating translates into a higher sale price when it comes time to sell.
The Energy Efficiency Rating and House Price in the ACT report examined the relationship between energy efficiency and house prices, finding that each half-star increase in energy-efficiency rating translated into a 1.2 percent increase in capital value.
Another broader American study, The Value of Green Labels, involved a pricing analysis of 1.6 million single-family home sales in California from 2007 to 2012. The researchers found that, while the average sale price of a non-certified California home was $400,000, a green certification lifted the price by an average of $34,800. This translated into a 9 percent green premium.
For smart developers, green-building initiatives present a distinct opportunity to save time, money and resources while addressing a burgeoning market need.