All in all, NABERS effects have proven a boon to the high-end property industry. Particularly for listed real estate investment trusts (REITs) and fund managers, but also many unlisted investors, which value stable capital growth as much as income, and continually trade or "recycle" assets to manage their portfolios. By allocating capital efficiently for market-oriented purposes, these investors can play a positive role in urban development, as long as green distortions (amongst others) don't get in the way.
An Australian Property Institute study at the end of 2011 found that office buildings with a 6 star NABERS rating enjoyed a premium in value of 12 per cent, those with a 5 star rating 9 per cent, those with 4.5 stars 3 per cent, and those with 3 stars 2 per cent. In May 2012, the IPD green property survey found that "prime office buildings with high NABERS ratings – from 4 stars to 6 stars – outperformed the broader prime office market over the past year … the greener buildings delivered an 11.3 per cent total return compared with the overall CBD office return of 10.8 per cent." Further, buildings with a high NABERS rating "significantly outperformed assets as having a NABERS rating of 3.5 stars or less … better-rated assets delivered 11.8 per cent compared with 8.7 per cent for the lower-rated properties."
Capital growth conscious REITs and funds must have been pleased to hear, from a principal of the IPD Green Property Investment Index, that "owners who improve the sustainability attributes of their buildings are more likely to experience relatively stronger growth in capital values and will mitigate downside risk in asset values." That's a bonus for such local and global investors who have poured billions into the "safe haven" of Australian – especially Sydney – commercial real estate for other reasons, like the diminished standing of other asset classes, stock market volatility, a relatively sound economy, a reputable legal system and links to the booming Asia-Pacific region. Sydney was the world's fourth most popular destination for cross-border property investment in the 18 months to June 2010, while the spreading use of NABERS culiminated in November 2011, when a rating became mandatory for space above 2000 square metres.
This is how a mayor can spend her life cultivating a progressive persona, only to end up the unwitting tool of some canny fund managers.
Green building is promising to be a goldmine for the well-placed, and a dead weight for almost everyone else. In an April 2012 Market Overview for Parramatta, a second-tier CBD servicing Sydney's western region, Knight Frank explain that "the gap between economic rents and market rents remains a constraint on new [office] supply." In other words the cost of land acquisition, planning and building processes, construction and fitting out, and a profit margin, on a square metre basis (economic rent) exceeds the rent obtainable from prospective tenants (market rent). Not all the gap between economic and market rents can be pinned on green standards, now essential for investor interest. But they are an undeniable factor. On one estimate, by consultants Davis Langdon, achievement of a 4 to 6 star NABERS rating can add between 3 and more than 11 per cent to construction costs.
If supply constraints are serious in Parramatta, where the federal and NSW governments have relocated several agencies and departments, apparently they are acute in more suburban locations. According to a newspaper report in April 2011, "the trend across the Sydney metropolitan markets is falling [office] supply … this is evident across all key markets including North Sydney, St Leonards, Parramatta, North Ryde, Rhodes and Homebush … at present there is no speculative development across these suburbs, so the problem of reduced A-grade space will only increase during the next couple of years, putting pressure on rents and incentives." The only speculative office block started at the time was at Norwest, says the report, a specialised business park in north-west Sydney. The building was designed for a 4.5 star NABERS rating.
These weak conditions have various causes, but green standards shouldn't be underestimated. Investors have lost interest in non-rated projects, and the economics of rated projects are trickier beyond high-rent centres like the CBD or business parks. According to a CBRE director, as of June 2011 there was "more capital looking to invest in the office sector than was evident before the global financial crisis … however, the majority of this capital is only chasing prime assets with very few groups willing to consider smaller secondary assets and non-central business locations." For their part, more demanding tenants are also retreating to the green citadels and ABW theme-parks of Sydney CBD. Noting the CBD's low office vacancy rate, Jones Lang Lasalle explain that "any downsizing that has occurred in the financial services sector has been offset by tenant centralisation … [a]s companies continue to look to improve the environment and amenity for staff as a means of attracting and retaining the best talent." They detect a "trend to centralisation". Similarly, a Colliers director observed that "tenants were being driven out of metro markets by tight vacancy rates for quality space and are attracted by a greater ability to attract and retain staff if located in the CBD."
Phrases like "attract and retain staff", of course, suggest NABERS rated buildings adapted for ABW. The portability of communications devices should be liberating workers from fixed locations, not just assigned desks. ABW advocates love phrases like "work is a thing you do not a place you go" and "work is becoming a process not a place". But green imposts are having a countervailing effect.
This withdrawal of capital and tenants is bound to choke-off a range of suburban and peripheral businesses, the small to medium sized service operators, start-ups, microbusinesses, consultants, franchisees and sole traders which rely on freely-available space and low rents.
To all but the greenest ideologues, it should be clear that the decentralisation of offices – as well as factories and warehouses – over recent decades has fuelled Sydney's prosperity, enabling the city to absorb an extra 1.5 million people since the mid-1980s. Equally, it should be clear that decentralisation offers better outcomes on access to affordable housing, traffic congestion and employment dispersion. On average, peripheral Local Government Areas (LGAs) still experience higher unemployment rates than central LGAs. That's why the centralising forces unleashed by green planning and building codes pose serious dangers to economic vitality across the greater metropolitan region. Plenty of attention has been lavished on the pampered few in their ABW playgrounds. Some should be spared for the vast majority who seek to make a life in Sydney.