Ten questions answered for owners of sustainable commercial buildings

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The ten questions were developed through industry consultation - including a cross-industry, cross-geography workshop, telephone surveys, and a series of focus groups in 2005 and 2006. For each question, specialised authors provided brief answers and links to further information. Over time, the ten questions are likely to evolve through additional surveys and in response to your comments on this website.

How can I profit from owning a sustainable commercial building?

The recent positive uptake of sustainable buildings by the commercial property sectors may be attributed to the recognition that sustainable buildings hold a real opportunity for profitable investment. Sustainable commercial properties are often associated with higher quality spaces and lower operating expenses and this is often linked to a sustainable commercial property's ability to attract tenants and command a premium, or above-market, rental. Other areas which can improve profitability include reduced capital cost for mechanical systems, water and energy savings, and waste reduction. Profits may be realised through lower vacancy rates and higher net operating income.

See Profit and the business case for sustainable commercial buildings and The business case for owners of sustainable commercial buildings for more information.

How can a sustainable commercial building help meet my corporate social responsibility/corporate responsibility obligations - financial, environmental and social?

A sustainable commercial building can help a company gain a competitive advantage, through lowering its costs and differentiating itself from its competitors. It can help a company achieve its vision of sustainability and contribute to a culture of sustainability. It can provide opportunities for gained shared value, and be used to demonstrate the company's performance in its sustainability report.

See Aligning mission, vision and strategy for sustainable commercial buildings and Culture change for sustainable commercial buildings for more information.

What are the legislated sustainability requirements for commercial buildings?

The answer to this question is dependent on the meanings of the terms 'commercial buildings' and 'sustainability'. In The legislative context of sustainable commercial buildings article, 'commercial buildings' are generally taken to mean buildings of Class 5 - 9 in accordance with the Building Code of Australia (BCA) Classification (Section 1.3) and 'sustainability' indicates issues associated with energy efficiency, water efficiency, material usage or indoor environment conditions.

The current mandatory requirements - common to most States and Territories - are the operating Energy Efficiency Provisions of the BCA (Section 2.1 & 2.2) and Existing Building Provisions (Section 2.3). Sustainability requirements and related legislations (Section 2.4) particular to each Australian state and territory are listed under States and Territories Provisions.

Water issues are regulated under Plumbing Code of Australia but its current content is mainly about installation. Material usage regulations are currently mainly about waste disposal which are under state and territory control, well established long before the term sustainability was invented. Similarly, there are long established requirements in the BCA about indoor environment conditions such as indoor air quality, sound, light and disabled access.

See The legislative context of sustainable commercial buildings for more information.

What value is a sustainability rating?

A building with a certified sustainability rating provides confidence to the facility owners, managers, tenants/users that it meets the performance associated with that rating, as opposed to having nothing to show for any sustainability claims. This flows to other benefits, including:

• recognition and prestige
• operational savings (e.g. in water and energy use)
• improved social interactions, worker well-being and productivity.

When responsible environmental performance is validated, the companies involved can improve their corporate social responsibility (CSR) status, and gain significant market advantage associated with 'doing well by doing good', a concept that is also known as 'virtuous circles'.

Building-specific performance assessment also helps owners and facility managers to:

• validate how well actual performance compares with the original goals or targets, where they have been specified and documented (e.g. project brief)
• compare a particular building's performance - intended or in service - to others of similar type and/or size (i.e. benchmarking)
• identify areas of improvement for the next round of funding or upgrades
• make informed decisions about the facility (e.g. to develop appropriate investment and management strategies and actions).

In the planning and design stages, the use of performance assessment methods or tools:

• serves as a common language platform for discussing and understanding what stakeholders mean by a 'green' or 'sustainable' building,
• allows facility owners to identify and set priorities about sustainability goals, and
• provides clear measures that owners can use to monitor or assess the outputs of their designers, engineers and builders.

See the section on Building-specific benefits in the Performance setting and measurement for sustainable commercial buildings article for more information.

How much does it cost to achieve a five star rating?

The cost to achieve 5 Green Stars rating can vary a lot because this depends on many factors including size, geometry and type of building, whether it is new or existing, knowledge, experience and skills of the delivery team, innovation and risk appetite in technology, process and procurement method, among others. In some cases, it may be possible to achieve a high rating without additional cost while in others, it can cost up to 10% or more than that for a comparable building delivered without explicit sustainability goals in mind. However, this is not the full picture. The payback period for the extra investment (when it costs more) should also be considered. For example, a 10% extra investment may be fully recovered within 10 years, after which any further financial benefits are extras (which a comparable building without sustainability features will not have).

See Performance setting and measurement for sustainable commercial buildings for more information.

What is a green lease?

A Green Lease sets environmental performance criteria and responsibilities as part of the lease agreement. It outlines the committments of the owner and tennant to fitout as well as operate the building to achieve sustainable performance goals. Green Leases have been developed and supported by large investors in commercial buildings, such as Investa Property Group. A Green Lease provides a way for exisiting building stock to improve performance as well as new buildings to achieve their design potential. The benefits range from resource efficiency through to corporate responsibility and include attracting and retaining staff and employee wellbeaing and productivity.

See Green Lease Guide For Commercial Office Tennants for more information.

What is a tenant manual?

A Tenant Manual is a document produced by the building owner to inform the tenant how to operate the building. It provides a resource that stays with the building and provides continuity for building operation throughout the building's life.

What are the risks of incorporating sustainability initiatives?

Legislation
Within the legislative environment context, regulatory requirements are minimum requirements. The risk of not incorporating any of these requirements is that the building may not be approved for occupancy. Since more sustainability requirements are likely to be introduced in the future, it is a good strategy to design buildings to reflect 'best practices' - well above the minimum regulatory requirements - to maintain the building value in the market place in the future as long as possible.

See The legislative context of sustainable commercial buildings for more information.

Energy
The risks of incorporating energy efficiency initiatives will differ depending on the type of initiative being considered. Many simple improvements can be made that are well tested and will have immediate paybacks with little if any risk involved (eg the upgrading control systems on the HVAC system). However, other initiatives may require longer term commitments and involve less certainty about their likely impact. Generally, investment in energy-efficiency projects is a long-term investment and should be analysed accordingly.

Classifying the risk level of an energy-efficiency project can be difficult. Because of uncertainty about future events (e.g. the price of electricity in the year 2010), anticipated cash flows may be difficult to estimate. However, compared with other investments that a company may make, such as new product development, energy-efficiency projects are widely considered to be low risk.

The prospect of a carbon trading scheme is one risk that is likely to cause definite shifts in the accounting of energy-efficiency investments. Depending on how they operate and how the costs will pass through the entire economy, such schemes could result in what would today be regarded as a border-line or even high-risk investment suddenly becoming a low-risk investment.

See the section on What are the risks? in the An introduction to energy efficiency in commercial buildings article for more information.

Water
There are risks for owners in incorporating water efficiency in buildings. These risks include:
Health risks - Replacing potable water with alternative sources in a public building can pose some health risks. The risk will depend on the source of water, the treatment process and the end use. Appropriate approvals and risk management systems will need to be in place for such options.

Older buildings are more susceptible to adverse conditions occurring as a result of wastewater flow reduction in sanitary plumbing and drainage systems and/or changes to the characteristics of the wastewater. These conditions in the pipework may compromise the health of the building's occupants. Consideration needs to be given to the possible effects that these changes may have on the safe operation of the sanitary systems.

Unproven new technology - New technologies to improve water efficiency in buildings are continually emerging such as different types of greywater systems and waterless urinals. Implementation of new technologies may prove unsuccessful and thus assurances / warranties will need to be obtained from the suppliers.

Market and social acceptance - There are alternative technologies that may provide great results in water efficiency but may not be widely accepted. An example is the composting toilet that has been used for many years in places such as caravan parks. Although the technology has improved by reducing odours and improved aesthetics, composting toilets are still not widely used and accepted in a public building. Such options if considered appropriate will need to be implemented alongside an educational and marketing campaign.

See the section on What are the risks? in the Water use and sustainable commercial buildings article for more information.

Social
Innovations often fail for cultural rather than technical or financial reasons. Sustainability in the property industry is an emerging and ever-expanding field, and so sustainability initiatives usually require some level of learning and behaviour change. To minimise risks, ensure that sustainability initiatives are:

• packaged with appropriate learning and awareness raising components for design professionals, builders, building managers and tenants
• aligned with a company's mission, vision and strategy
• compatible with the company's culture.

The concept of risk, however, is not only about the potential 'downside' of a decision, but also the 'upside', as there could be both positive and negative effects. Many of the features of a sustainable building can assist in reducing risk. Improved indoor environment quality can reduce the likelihood of sick building syndrome. Future liability, for example those arising from the toxicity of materials, can be reduced in sustainable buildings. The tightening of environmental benchmarks is also risk associated and sustainable buildings may assist in future proofing in this area.

Will my investment in sustainability be reflected in the building's valuation?

The degree to which the initial investment is related to the overall value depends on a number of variables in the market at any given time. Since every building is different and influences on value are constantly changing, each valuation must be undertaken on a building-by-building basis. From a broad starting point there should be consideration given to the initial level of investment (e.g. over-capitalised or under-capitalised) and to what degree the building can be classed as 'sustainable, followed by examining what amount of premium the market is paying for a sustainable building. This will require a careful analysis of the perception of and demand for sustainable buildings in a specific market, from both an owner/investor's and a tenant's perspective, as well as discussing the relevance of other variables e.g. possible increased operating costs in the future and other factors of value. Since a valuation is a hypothetical sale, it is essential to examine the overall levels of supply and demand for sustainable buildings. Thus most investors take a long-term view with regards to an investment, so consideration should be given to whether the level of sustainability in the building will result a higher return over the long-term. Other influences should also be noted, such as the supply of competing (either new or refurbished) sustainable buildings coming onto the market, and whether your sustainable building will meet the government's minium criteria if they were a prospective tenant.

See Valuation of sustainable commercial buildings for more information.

How can I make sure the developer delivers on sustainability?

There is chain of events that must occur in order for sustainability outcomes to be delivered:

• Identify sustainability goals in the brief
• Develop a process for evaluating sustainability measures during design development
• Document the design intent for systems that impact on sustainability
• Monitor changes during construction to ensure that sustainability measures are not compromised
• Plan for adequate commissionin
• At handover, ensure documents are updated to reflect the systems "as installed"
• Monitor performance and compare with sustainability targets
• Fine-tune systems for improved performance
• Continue to monitor and report performance

See Project management and sustainable commercial buildings for more information.