It’s taken some determined people, a shift in the market and offers of help by the City of Melbourne, but owners of second and third tier property might finally get the leg up they need to achieve major reductions in their carbon emissions.
A City of Melbourne lunch on Wednesday, hosted by Lord Mayor Sally Capp, had the cream of the CBD’s property influencers discussing options that might work to shift the energy efficiency dial for smaller, less glamorous buildings that often slip under the radar. Properties such as two storey buildings, or car parks or even heritage buildings.
Around the table were Lendlease, JLL, Cbus Property, Property Council of Australia, Forza Capital, CBRE and Urban Development Institute of Australia, among other industry representatives.
Options put forward by the city to achieve the success in reducing carbon that has eluded previous programs might include collaborations between owners of similar profiled buildings in order to share the costs of professional advice or take advantage of other services. Perhaps in the same way as the Melbourne Renewable Energy Project enabled bulk buying of clean energy.
Another includes the potential for zero carbon leases for tenants.
Or it might be the possibility of lower council rates in return for agreed achievements, backed by a New York style penalty for those owners lagging on their net zero commitment.
It’s all up for discussion through the City’s Zero Carbon Buildings for Melbourne discussion paper Participate Melbourne website.
The discussion paper is the chance for property owners’ chance to get involved and say what incentives will work for them.
Spurring action are the big new events such as the federal government’s recent legislation that Australia will reduce emissions by 43 per cent by 2030 based on 2005 levels.
This will soon start to filter down to specific industry targets.
The city has already set a target of net zero carbon by 2040 and says it needs about 80 buildings a year in order to get there. Currently around 66 per cent of the City’s emissions come from buildings.
The global picture is far more challenging. For example The Reduction Roadmap from Denmark says that in its own case the building sector needs a 96 per cent reduction in emissions to meet the Paris Agreement target of limiting warming to 1.5 degrees – and it needs this within seven to 14 years.
The new discussion paper by the city is an attempt to avoid the limited success of the past programs, when action was obstructed by the “significant market failures and regulatory lag at play”. (The city doesn’t mention hostile governments at federal and state level, but we can.)
There’s direct financial benefits on offer – and strong market trends
According to Caitlin Uren, head of ESG capital markets for JLL who attended the lunch, the feelings among the participants on Wednesday were positive and strong.
She verified her mention on the day that property owners could shave 200 basis points from their finance costs by reducing emissions by at least 30 per cent, so the financial incentive is clear.
These were sustainability linked loans such as through Commonwealth Bank of Australia, Ms Uren told The Fifth Estate.
The CBA achieves this by not imposing typical margin fees on the variable rates such as line fees, usage fees or for utilities.
Other banks also offer similar products with the rate of fees and reductions offered varying from bank to bank, Ms Uren said.
In the case of the CBA, “it’s basically to align with their commitment to decarbonise their business.”
She says the bank has $72 billion to be spent by 2030 to cover that commitment.
“All the major banks [are] offering it; but CBA is doing a lot in the property space and it’s done some big deals with the likes of Charter Hall [among other property owners].
“When someone is looking to retrofit their building and the cost associated to do that – it removes some of the hurdles.”
Ms Uren said the lunch was a “great session – so many great minds in the room; it was good to see different points of view.”
She thought partnerships between like-minded property owners and offers by larger owners to share learnings with smaller less well-resourced peers was particularly valuable.
“We’ve calculated there is around $21 billion of stock in the Melbourne CBD that requires repositioning, categorised as having 4.5 star NABERS or lower.”
Another idea proposed as a possibility by the City of Melbourne, to have periodic disclosure of NABERS ratings, was a step forward.
Currently owners are required to disclose ratings at the time of sale or lease of office space of 1000 square metres or more. But it was not hard to up the frequency.
“It’s not an arduous process,” she said. Merely a case of sharing utilities data.
“It’s not a costly exercise. NABERS has done a brilliant job of putting the focus on energy performance.”
The big gap she said was in owner occupied or vacant buildings.
The market was changing, Ms Uren said.
While the focus on good environmental performance had mostly been at the top end of the market, tenants too were now starting to take stronger interest. Not just because they want to do their part on climate ambitions but to keep costs down.
“We have regular meetings with landlords who say, ‘what do we need to do to upgrade and where do we need to aim?’”
And that’s a question particularly pertinent in this era of “flight to quality”.
The full set of initiatives proposed by the City of Melbourne and now up for discussion are:
- Developing zero carbon building leases – agreement between landlords and tenants to ensure the ongoing use and operation of zero carbon buildings
- Establishing a carbon risk tool – understanding the future risk of carbon for mid and low-tier buildings
- Incentivising periodic commercial building disclosure – a program to encourage periodic reporting of a building’s NABERS rating
- Promoting joint procurement – supporting lower grade and ungraded buildings to increase capacity to carry out deep retrofits jointly
- Convening zero carbon building retrofit teams – to create a more collaborative, relational way of working
- Incentivising building performance through rates – using rates to encourage emissions reduction
- Introducing an emissions cap through local law – establishing an emissions ceiling for buildings