Overseas trends show that investors are increasingly diversifying their portfolios to include ethical or socially responsible funds. Ethical investment in the USA and UK has increased by 50% per annum over the past 10 years. In Australia, Socially Responsible Investment (SRI) managed funds grew by 41% in the year to date to June 2004, more than twice as fast as the overall Australian retail and wholesale investment market, which grew by 18% during the same period.
Commercial building developers in the US identify real financial benefits that come from sustainable building, including:
A survey (Green Building Workshops, 2003-2004) of 10 major Australian property investors' thinking and attitudes towards green building found that:
Central and local governments in the UK, the US and Australia are also increasingly making sustainable building a requirement for their properties.
Costs for sustainable buildings internationally show a relatively marginal cost increase for sustainable building.
Davis Langdon states that significant environmental measures can be incorporated, leading to long term recurrent cost reductions, potential increased asset valuation and a more attractive home for tenants for as little as 2-4% additional capital cost (Davis Langdon Australia, 2004).
The Californian Sustainable Building Task Force identified an average capital cost premium of 2% for sustainable building. It is notable that a similar study just a few years earlier in the US estimated extra costs of 5-15%. The rapid drop in extra costs has been attributed to the normalisation of the market (ie, growth in industry experience and availability of materials and technologies) (Kats, 2003).
Davis Langdon states that significant elements of best practice, low energy and low embodied energy design can be adopted with a premium of about 10% (Davis Langdon and Everest, Matthiessen et al, 2004, Kats, 2003, Gottfried, 2003, McDonald, 2004 and Greater Vancouver Regional District, 2004).
In the commercial office market, two client surveys, by Richard Ellis and Stanhope Plc in the UK, showed environmental issues to be the second most important factor for tenants after location.
Similarly, a recent survey by BOMA/ULI of US and Canadian tenants looked at the relative importance and satisfaction of over 60 building features, amenities and services. Environmentally-friendly building systems and materials were rated as important by 90% of the respondents. The survey also found there was a gap between the relative importance to building users of indoor environmental quality (temperature, indoor air quality, acoustics/noise control etc) and their satisfaction with standards in conventional office buildings. Similarly, rental and operational cost issues were also very important with only a moderate degree of user satisfaction.
Contrary to accepted wisdom, aesthetic features were, however, considered less important and there was an established degree of satisfaction with conventional buildings. This survey reinforces the importance of building interior design and indoor environmental quality, which is an integral part of sustainable building design. It also confirms tenant pressure on total occupation costs and the need to add value in these areas of sustainable building if continued growth in rentals is to be realised.
The Australian Government, through the Australian Greenhouse Office, is developing a model green lease that will apply to all government tenancies (Power, 2004). The green lease will be linked to the Government's new Energy Efficiency Policy, which, among other things, will set minimum building energy performance standards. The following are some of the key features of the policy:
The following are the key concepts under the green lease schedule being finalised:
As an incentive to investment in sustainable building in the UK, the Finance Act 2003 introduced first-year allowances for capital expenditure on environmentally beneficial plant or machinery meeting strict water and energy efficiency criteria.
Australia also has some incentives, particularly with regard to uptake of renewable energy technologies.