By Leon Wurfel – Founder, Bueno Analytics
NABERS: Background
The proliferation of NABERS has lead to the Australian property market being universally recognized as the most sustainable in the world. Each year the country gives outsized performance across the sector leaders in the Global Real Estate Sustainability Benchmark (GRESB). While the dominance of Australian property owners has cooled over the past 5 years the 2023 benchmark shows 7 out of the 39 sector leaders are Australian. This is 18% of the leaders from a country with Just 0.33% of the global population.
Alongside the recognition above the NABERS annual report lists impressive direct benefits over time with $1.7Bn of energy bill savings and 11.57Mn tonnes of CO2 emissions avoided. How did NABERS influence the market and create such positive change? What levers did the industry use in order to drive change using this rating platform?
Government bodies were the first ones to act to adopt the scheme. Variously they introduced the embryonic versions of what were to become Green Leases into the market by specifying minimum performance standards for the types of buildings that their procurement departments were allowed to lease. The federal government’s Energy Efficiency in Government Operations (EEGO) policy which was implemented in 2006 is often cited as the first transformative milestone that drove the adoption of the scheme, but the NSW state government were actually the first government body to require minimum NABERS performance in 2002.
What did EEGO mean? Government agencies were now only allowed to lease or otherwise occupy buildings with:
- At least a 4.0 star NABERS Energy rating (for existing buildings)
- At least a 4.5 star NABERS Energy rating (for new developments)
- Greenpower was not allowed to be used to “buy” the rating outcome
This was quite impactful for property owners, firstly because the federal government is the single biggest occupier of office space in the country (and government leases were highly sought after for being long term and low risk), but ever more so for owners of buildings in either Canberra (the capital of Australia and location of the federal government) or in any of the government building districts in the other capital cities in Australia. These buildings were shutting themselves out from their target tenant segment without achieving their minimum NABERS performance. The impact on the valuation of some of these properties was very significant, anecdotally we saw cases where property values halved if they didn’t meet the government’s minimum performance standard.
A courageous factor in setting this performance standard was that at the time of the NSW government’s policy implementation, there were no 4.5 star buildings in the state. There were no buildings performing at that level and the industry as a whole had no expertize/repeatable roadmap in achieving this performance level for new buildings. Yet this performance level quickly became commonplace and as of the 2023 NABERS annual report the average NABERS Energy rating across the whole country has improved to 4.9 stars.
The policy leadership of the government was soon followed by various blue chip occupiers of office space who variously implemented their own 4.5 or even 5 star minimum performance standards. This proved to be a popular decision because (cynically) they could claim a sustainability outcome in their ESG reporting while outsourcing the responsibility of delivering that outcome to someone else (their landlord).
These blue chip occupiers tended to be the anchor tenant for new developments and fairly soon it became common place for all significant office developments in the country to have at least a 4 star commitment agreement for NABERS Energy. How this was enforced was another story with everything from:
- Fairly broad “Green lease schedules” being included in leasing agreements
- Warranty/DLP retentions being tied to NABERS performance making it the responsibility of the developer to deliver the NABERS performance obligations of the commitment agreement
- Through to the most punitive examples being the rent review clauses (where landlords can increase the rents being charged every year) being tied to continuous delivery of the NABERS performance throughout the life of the lease.
The first example that I personally came across with an example of the lease review mechanism was 11 Waymouth St in Adelaide (of all places) which was completed in 2007 with a 5 star NABERS Energy commitment agreement. For the time it was quite a leading example of HVAC design with a highly complex system of passive chilled beams attempting to push the boundaries of building performance. The rent review clauses in all of the leases were all tied to achieving and maintaining that 5 star performance, and if it was missed in one year that rent review was lost for good. That meant that over the 10 year lease terms the cost of missing one year’s NABERS performance turned into a $10Mn loss in rental income over the life of the leases. This obviously elevated the importance of NABERS to the core business metrics of property owners (NOI and Asset value).
Commercial Building Disclosure program
Along came the Commercial Building Disclosure program. In 2010 the Federal Government passed a piece of legislation that required all property transactions (leasing or sales) above 2,000m2 to include the disclosure of the building’s NABERS energy rating. As discussed in a previous article this drove a significant expansion in the rated building stock in Australia (up to 74% of the commercial market as of 2021) but it also drove an uplift in rating performance. How? The masterstroke of the scheme was that one of the disclosure requirements was that any advertisement or marketing of spaces for lease or sale had to prominently include the NABERS rating. It can’t be understated that leasing agents/property managers/asset managers did not want to be advertising their office space and prominently displaying a poor rating on their marketing material. Vanity won the day.
Institutional owners such as REITs soon picked up on the value of brand differentiation due to NABERS and saw it as a way to signal sustainability credentials while reducing the operating costs of the assets (win-win). Being portfolio owners the REITs lobbied for a formal portfolio NABERS calculation methodology and then used that to set goals that they would strive to achieve over the following years. Examples of these that I was personally involved with were:
- Colonial First State’s CPA fund’s 4.5 star NABERS Energy target by 2012 (increasing from a baseline of 2.6 stars in 2005).
- DEXUS’ 1Mn m2 of office space at 5 stars or above by 2020 (and 4 star NABERS water)
- DEXUS 5 star NABERS IE portfolio average target by 2025.
As these first REITs set their portfolio rating targets it presented them with an opportunity to differentiate their ESG credentials to their investors. Adding “NABERS portfolio performance” and “NABERS portfolio target” to the dimensions that each of the funds was assessed by created a snowball effect where in a few short years every major REIT was publishing their portfolio ratings and had portfolio targets in place. Now the NABERS organization every year publishes a report on their own “Sustainable Portfolios Index”.
The interesting question is where is this going next, again its being driven by government. The latest EEGO policy equivalent is the “Net Zero in Government Operations Strategy” which was released in 2021 and includes the following:
- From July 2024 departments are instructed to preferentially select all electric buildings when procuring new leases
- From July 2025 a minimum NABERS energy performance of 5.5 stars is required for new leases
- From July 2026 all new leases must be 6.0 NABERS energy stars and are required to be all electric
- 5.0 stars NABERS energy for data centres performance is required for procurement via the Commonwealth Government’s Data Centre Panel
- 4.0 star NABERS warehouse performance will be required for procurement.
- NABERS Energy for Hotels minimum performance will be required from 2026/27.
Bueno Analytics modules can help you improve your buildings NABERs score. To learn more on NABERs or how Bueno can help you improve your NABERs rating get in touch.
Leon founded Bueno in 2013 with a goal to use technology to scale the impact of his engineering expertise in building energy performance.
Prior to starting Bueno Leon worked as an energy efficiency consultant in the commercial property sector in Australia and was involved in the development of the world’s first legislated Building Performance Standard (NABERS).
Source:
- https://nabers.info/annual-report/2022-2023/office-energy/
- https://oaktrust.library.tamu.edu/bitstream/handle/1969.1/148920/ESL-IC-12-10-28.pdf?isAllowed=y&sequence=1
- https://www.nabers.gov.au/sites/default/files/energy_efficiency_in_commercial_buildings_full_length_guide.pdf