MEASURING THE PERFORMANCE OF OFFICE BUILDINGS

Transcription

1 MEASURING THE PERFORMANCE OF OFFICE BUILDINGS BULDING UPGRADE FINANCE EVENT 27 July 2017 Anthony De Francesco Founder and Director of RIA

2 Outline ❶ Introduction ❷ Performance measures ❸ Summary 2

3 Outline ❶ Introduction ❷ Performance measures ❸ Summary 3

4 Institutionalised property office sector: segmented by type and grade AUS property office by type value as at March 2016 AUS property office by grade value as at March 2016 Office: Non-CBD, 30% Premium office, 31% A-grade office, 49% Office: CBD, 70% Secondary Office, 20% Source: RIA. Source: RIA. 4

5 Secondary/non-CBD office segment: characterised by lower value buildings & low NABER ratings $350 Office values across asset types and grades average capital values, as at March % Market share of NABERS rated office buildings based on capital values, as at March 2016 $300 70% $250 60% $200 $150 50% 40% 30% $100 20% $50 10% $0 Total Office CBD Non-CBD Premium A-grade B-grade C & D grade 0% Total Office CBD Non-CBD Prime Secondary Source: MSCI, RIA. Source: RIA. 5

6 Measurement axioms for green information tools that feed into investment strategy AXIOM Space Ownership (Investment performance) Space Utilization (Occupational productivity) Space Management (Operational efficiency) Asset level MEASURE Investment return Pricing measures Rental levels & growth Vacancy rates WALE (weighted average lease expiry) Productivity measures OPEX - Operating expenses CAPEX capital expenditure STRATEGY Portfolio level DIRECTION Strengthen returns with improved profitability Tighter asset pricing with lower risk premia More robust rental growth Better tenancy retention Longer leases Improved workplace productivity Lower running costs: both labour & technology Better use of capex: lower maintenance capex Fund level 6

7 Outline ❶ Introduction ❷ Performance measures ❸ Summary 7

8 When evaluating performance, we need to consider intrinsic diversity of CBD office markets 25% RETURNS ACROSS AUS CBD OFFICE PROPERTY MARKETS ANNUAL RETURN 20% 19.4% 17.7% 16.2% 15% 14.9% 13.4% 13.2% 14.0%13.4% 10% 9.9% 9.4% 5% 0% -0.4% 0.7% -5% -10% capital return income return total return J16 S16 J16 S16 J16 S16 J16 S16 J16 S16 J16 S16 Total Office SYD MEL BRI PER CAN Note: J16 refers to Jun 2016 and S16 refers to Sep Source: MSCI 8

9 Also need to consider the influence of the market cycle: premium softening; secondary strong OFFICE TOTAL RETURNS OFFICE CAP RATES 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% Sep 2014 Mar 2015 Sep 2015 Mar 2016 Sep % 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% Sep 2014 Mar 2015 Sep 2015 Mar 2016 Sep 2016 Sydney CBD - Premium Sydney CBD - Grade B Parramatta Sydney CBD - Grade A North Sydney Sydney CBD - Premium Sydney CBD - Grade B Parramatta Sydney CBD - Grade A North Sydney Source: MSCI 9

10 Return performance varies across asset grade and type: higher rated buildings outperform 16 Return: all office versus NABERS energy rated buildings annualised 5 year returns to March All stars 0-3.5s 4-6s All stars 0-3.5s 4-6s All stars 0-3.5s 4-6s All stars 0-3.5s 4-6s Prime Secondary CBD non-cbd capital return income return total return Source: MSCI., RIA 10

11 Return performance for Green-star rated office buildings vary across time frames Return: all office versus Green-star rated office annualised returns as at March Y 5YA 1Y 5YA 1Y 5YA 1Y 5YA 1Y 5YA All office All Stars 4 Star 5 Star 6 Star capital return income return total return Source: MSCI, RIA 11

12 A broader set of relative performance measures suggest rated buildings outperform AUS: Green Star vs All Office annualised results for period to Dec 2014 Capital value in $/sqm 23% Capitalisation Rate -0.3pts Net Income in $/sqm 20% Opex in $/sqm 9% Capex in $/sqm -43% Vacancy Rate -4.3pts WALE in years 22% -50% -30% -10% 10% 30% Source: MSCI 12

13 Outline ❶ Introduction ❷ Performance measures ❸ Summary 13

14 Take away points There are a variety of performance measures which evaluate the influence of green initiatives in terms of investment, occupational & operational performance. Return performance measures provide evidence of green-rated buildings outperform non-rated buildings. High energy NABERS rated buildings outperform low energy rated buildings. This is the case even for secondary/non-cbd type assets. The value proposition for rated buildings is supported by broader set of performance measures. However, these measures are highly influenced by market type, market quality, market location, and market cycle. Importantly, when formulating green policies or strategies, one needs to take into consideration individual market characteristics and features. 14

15 Disclaimer Real Investment Analytics Pty Ltd ABN All rights reserved. No material may be reproduced without prior permission. Disclaimer: Nothing in this document constitutes general or specific financial product or services advice and is provided for general information purposes only and should not be relied upon. Real Investment Analytics Pty Ltd (ACN ) makes no representation or warranty, express or implied, as to the correctness, currency or completeness of the information contained this document and disclaims all responsibility and liability for any loss or damage, whether direct or indirect, incurred by any person or entity who relies or purports to rely upon this document. 15

16 Thank you Contact Anthony De Francesco