All Aboard

All Aboard

In 2008, a tenant client agreed to a 6-page green lease schedule to reinforce its corporate commitment to the environment. It was similar to the NSW government’s requirement at the time for its premises to have a 4.5 star energy rating. However because our client was non-government and such schedules were only voluntary at the time, we were only able to secure a “reasonable endeavours” commitment from the Lessor. The GFC followed.

Shortly thereafter, we were asked to share our experiences at an RICS forum and outlined how amongst the tenant community, sustainability in CRE was directly correlated to the level of resources one could direct to any such project. Resources include, time to spend to focus on ESG matters, money to pay consultants or pay the higher rent relative to higher ratings, and people to spend that time and money to maximise the ESG benefits.

Today we see CRE tenant sustainability on a bell curve; 3 distinct groups.  At one end is the major users’ group – the ones with resources. At the other end are those who have limited or no resources. In the middle is the majority of tenants who have to accept a slightly lower rating than desired due to their resources.

Using a train analogy, everyone is on board, it has left the station and there is no turning back. It’s just that different parties will get off at different railway stations.

In 2025 we see the following:

• Everyone will care more than they did previously
• Resources will play a bigger part in decisions than it has to date – some will increase resources and others will reduce resources
• The well-resourced CRE tenants will continue reaching for the “stars” but the number of them will reduce
• The group with limited resources will reduce as the battle of “b’s” (B Grade and Backfill office space) will allow some to move to the middle
• Those in the middle will move along the curve in one direction or another– mandatory reporting will nudge some to the right and others will nudge to the left due to market uncertainty.

• Base building – 17.68 million m² (65% of total)
• Tenancy – 2.67 million m² (10%)
• Whole – 2.1 million m² (8%)
• All (Base Tenancy and Whole) – 22.46 million m² (83%)