The Bottom Line to Carbon Abatement in Existing Buildings

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1 The Bottom Line to Carbon Abatement in Existing Buildings Michael Skelton Research and Knowledge Manager, Australia New Zealand June 21, 2011

2 Electricity Price Projections 20% 20% 15% 15% 10% 10% 10 Year Average = 6% 5% 5% 20 Year Average = 4% 0% 0% -5% Annual Change Forecast -5% Source: Adapted from ABS (Australian Electricity Index)

3 Comparative Commercial Sector Sizes Tenant Drivers Differ Dramatically Hotel 27% Office 41% Office Total Market Size (m²) 23,574,853 (NLA) Shopping Centre 18,563,434 (GLAR) Shopping Centre 32% Hotel 15,975,922 (GIFA) Source: Property Council of Australia, Davis Langdon Research

4 Australian Property Investment Market Industrial, $52.00bn Office, $92.00bn Retail, $87.00bn Source: RICS, Davis Langdon Research

5 Lack of New Office Stock New Office Construction Volumes Source: Construction Forecasting Council

6 Australia s Ageing Office Stock

7 Recent Studies

8 Energy Rating Tools Currently Available Office Hotels Retail (>15,000sqm Lettable Area) Planned Schools Hospitals Transport Coming Soon...? Industrial

9 Asset Improvement Study CBD Tower Level 1 Level 2 Level 3 NPV of Investment (10 Years) -$19,000,000 -$15,000,000 $7,000,000 IRR of Investment (10 Years) 4.2% 5.1% 10.0% Fringe High Rise NPV of Investment (10 Years) -$11,700,000 -$2,650,000 $4,200,000 IRR of Investment (10 Years) 5.4% 9.2% 11.2% Suburban Office NPV of Investment (10 Years) -$1,900,000 -$1,000,000 $200,000 IRR of Investment (10 Years) 3.4% 7.7% 10.9%

10 Typical Capital Cost Step Change Base Building Office Capital cost and emissions savings kgco 2 /m 2 $/m Baseline Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 $1, $ $ $ $ $ $ $ $ $100 0 $0 2.0 Star 2.5 Star 3.0 Star 3.5 Star 4.0 Star 4.5 Star 5.0 Star Cost Range GHG Saving (LHS) Mean Cost (RHS) Source: Davis Langdon Research

11 Avoiding Obsolescence Vacancy Rate Sensitivity on Net Present Value Source: Davis Langdon Research

12 New Build Return on Investment Cost Premium to Move from 3.0 to 4.5 Star Design Source: Davis Langdon Research

13 Distribution of Base Building Energy Use Tenant condenser water loop and cooling tower fans 2% Outside Lighting 5% Toilet, stairs and plant room lighting 5% Foyer lighting 1% $ $ Lifts 11% Hydraulic Servicing 2% Mech Exhaust 7% Carpark Lights 5% Carpark Fans 4% Domestic Hot Water Heating/Cooling 24% AHUs 25% $ $ Elec Reheat 0% Heating Gas 3% Pumps in Plant Room 2%

14 Reducing Base Building Energy Outgoings

15 However - Typical Doesn t Really Exist Impact of existing condition 1.5 to 4.5 Star Upgrade Building NLA Building Age Low Capex Required Well Maintained Base Building (Existing) Base Building (Upgraded) Green Power Included 10,000 sq. m 15 years 1.5 Star NABERS Energy 4.5 Star NABERS Energy Yes (1 Star) Total Capex $1,111,320 GHG Savings (Actual) Equivalent Passenger Vehicles Building Class 1,012 tonnesco 2 /year 166 B-Grade kgco2/m² Per Year 1.5 to 4.5 Star Green Power Energy Efficiency tonnes CO2 1,200 1, Building NLA Building Age High Capex Required Poorly Maintained Base Building (Existing) Base Building (Upgraded) Green Power Included 10,000 sq. m 15 years 1.5 Star NABERS Energy 4.5 Star NABERS Energy Yes (1 Star) Total Capex $4,358,400 GHG Savings (Actual) Equivalent Passenger Vehicles Building Class 1,012 tonnesco 2 /year 166 B-Grade

16 Energy Efficiency Drivers in the Office Market

17 Government Leased Area 25,000,000 20,000,000 15,000,000 10,000,000 Other State and Territory (Leased) Commonwealth Government (Leased) 5,000,000 26% Government Leased 0 NLA Source: Government Property Group, Davis Langdon Research

18 What can we achieve? Existing Buildings are the Key! Emissons (Mt of CO2-e per annum) Estimated Trajectory if 20% of Existing Buildings <2.5 Star upgraded to 4.5 Star Forecast Total GHG from Office Sub-Sector 0 Source: Adapted from AGO 1999 & DEWHA 2009, Davis Langdon Research

19 Where are Incentives Required Larger Incentives Required High CO2 Abatement High Cost of Abatement Low Level of Industry Investment without Grants/Green Depreciation (Investment and Awareness of Cost to Industry should be Focussed Here) $300 $300 Cost of Abatement $250 $200 $150 $100 $50 $0 -$50 -$ Value for Money from Grants/Accelerated Depreciation/etc Maximised by Targeting These Initiatives 9 Width IndicatesSize of Abatement (Tonnes CO2 Over Time Horizon) $250 $200 $150 $100 $50 $0 -$50 -$100 Cost of Abatement MinimalIncentives Required Low CO2 Abatement Negative Cost of Abatement Higher Levels of Industry Investment (Government and Industry Commentators Focus Too Much on These Figures)

20 Human Resources the Biggest Driver!

21 Business Expenses - Tenants Other Expenses 10% Training 2% IT Equipment 1% Depreciation and Amortisation Expense 1% Telephone and Data 1% Travel and Motor Vehicle 3% Fees 13% Rent/Outogings/Fitout (Ex Electricity) 6% Electricity 0.2% Employee Remuneration and Benefits 63% Tenant s Focus??? Source: Davis Langdon Research

22 Staff Response when asked What Provides Improved... Job Satisfaction Effect of: Technology Pay Incentives Advancement Opportunities Work-Life Balance Effect of Workspace Source: CABE & BCO

23 People Performance Physical or Mental Environment? IEQ Improved Physical Surroundings Workspace Design Improved Mental Surroundings VS Impact on Performance? Impact on Performance?

24 Embodied Carbon

25 Embodied Carbon Metric Source: Davis Langdon

26 Embodied Carbon Case Study Educational Facility and Hospital Building Source: Davis Langdon

27 Thank You Michael Skelton