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New green builds bring new value for investors
As one of the foundation members of the New Zealand Green Building Council, McConnell Property has had a longstanding commitment to sustainable development, and in particular, the environmental element, but General Manager Nigel Richards says Green Star rated new builds represent more just than the ‘right’ thing to do:
“In the past, going green was a buzz word, a nice to have feature and something that looked good for CSR reporting, particularly in the property and construction sector. The majority of this sector would acknowledge that when times are tough, sustainability and Green Star features are often the first thing to go out the window, with many stakeholders demanding lower capex and reduced rental prices that tenants can wear.”
“And yet, the tide is slowly but surely turning, and now developers would rarely even consider a project that didn’t have some of the key sustainable elements at its core. From building materials, to efficiency in light and energy management, to reducing water and/or recycling, to the physical layout and flexibility of a space, environmental sustainability in development has grown to encompass so much more than a bike rack and a staff locker.”
“Ground-breaking research by the University of Auckland last year demonstrated that green building practices cost considerably less than many assumed in the past, which will be welcome news for developers, investors, design and construction firms. Moreover, what we need to keep sight of is that any investment in sustainable builds is returned through reduced operational costs generally, higher rentals and stronger covenants which all translates to firmer yields against the prevailing market.”
However, Richards says even in recent years he has seen cases where a tenant will move into a Green Star rated building and then proceed to remove base build sustainable elements; “This demonstrates that at the end of the day, buildings have to first and foremost fit the occupier’s needs, rather than satiate the building owner’s desire for a sustainably-designed building.”
Investors benefit from sustainable solutions
“For investors there are several benefits of going down the Green Star route: these buildings tend to be more efficient, cheaper to operate and provide a better quality of space. This is attractive for prospective occupiers plus the building tends to retain its end value longer. What’s more, green ratings and sustainable development practices will most likely become a global industry requirement within the next few years - we're already seeing that play out in Auckland's Unitary Plan.”
Recently released global research from PwC (Real Estate 2020: Building the future) reinforces Richards’ stance:
By 2020, it’s likely that all buildings in advanced economies will need to have sustainability ratings. What’s more, the concept of sustainability will have broadened to mean creating ‘places’ where people enjoy living and working. So, new developments will be designed with green spaces, good air quality, spaces for social gathering and so on.
Looking forward to 2020, retrofitting existing buildings to improve their performance is expensive, but what will happen to their value if this is not done? And will the premium for sustainable buildings continue to rise, or is there a danger of a green bubble? There’s likely to be far more emphasis on the whole life value of an asset.
Richards adds: “Coming out of the GFC, tenants are more aware of their total cost of occupancy, and are trying to identify where savings and efficiencies can be made - which is in fact leading to some positive and useful changes in how property requirements are considered. Commercial office occupiers are asking constructive questions such as: how much space do we really need to operate? Would open plan and/or activity based workspaces be more efficient? Can we reduce or outsource our file storage and IT equipment to free up space and use nearby café venues as meeting spaces and shift the dependency on carparks to supporting public transport?
“The result of this fresh thinking is of course that a growing number of businesses are moving to more useable, higher quality space with a reduced square meter requirement. These businesses have reshaped their workplace as a result and have shifted from the more traditional office to a flexible collaborative type of space that better suits their ways of working. In a number of cases total operating costs are coming down with the area requirements, so tenants can actually bring down their overall occupancy costs yet conduct their business from a higher quality facility. At the least, they’ll be getting better space outcomes for the same amount they were spending in a lower quality space before.”
Richards says that increasingly, McConnell Property is looking to develop and reposition non-performing or low-performing assets, which in some cases does include refurbishments that offer more sustainable property features. Check out Senior Development Manager Aidan Donnelly’s article in the NBR recently, which details the repositioning of assets – and why it’s an attractive if not critical option for investors and owner-occupiers.
Quality tenants demand great places to work
McConnell Property has a well-earned reputation for securing commercial developments that attract high quality tenants, owner-occupiers and residents. Richards says a key element of creating great places to live and work, is ensuring the properties are desirable for innovative, progressive businesses and organisations that value healthy and productive environments which are able to be adapted over time.
“For employees, the take-home pay is now just one part of the mix. For the younger generation of workers particularly, they want a great working environment which has informal shared spaces, a decent degree of the latest IT and is located close by amenity and transport connections.
“Whether that’s a games room, an on-site café or gym, or simply having the option of working in a flexible office layout, business owners and developers alike have to be quick to adapt to the emerging expectations and demands of the bright stars of tomorrow - if they want to snap them up and avoid their best people going to the competition.”
Richards says that CBRE market commentary from earlier this year demonstrates how factions of New Zealand’s professional sectors - such as the legal community - are increasingly moving from larger footprint, less efficient office spaces to higher grade, more efficient and smaller-sized office buildings, favouring a quality over quantity approach.
Future proofing the PwC Building in Hamilton
Awarded a four star Green Design Rating, the PwC Building in Hamilton represents best practice in design. However, McConnell Property considered the wider environment, adding a public plaza which acts as a public meeting place, connecting neighbouring Wintec and acts as a gateway to the heart of the Hamilton city centre. McConnell Property and Hawkins Construction delivered the design and associated documentation to a high standard receiving Green Building Council commendation for the submission.
Doors wide open to sustainable development investments
Richards says that professionals working with and advising investors are well-placed to connect their clients with innovative, proven investment opportunities, and that McConnell Property welcomes discussions around adaptive re-use and new build opportunities projects in the market.