REITs are hiring people dedicated to locating secondary office assets, which are ripe for refurbishment and repositioning to address occupier demand for higher quality spaces with a lower carbon footprint.
“No longer are investors focused on acquiring the newest buildings out of the ground to achieve sustainability ratings, as occupiers now seek offices with a lower carbon footprint due to development in addition to lower operational carbon during their tenancy,” said Simon Hunt, Managing Director Office Leasing, Colliers Australia.
Lisa Hinde, Head of Sustainability at Colliers, said the reuse of materials and equipment for secondary asset upgrades was preferable in a bid to reduce the cost of carbon offsets required to align with current investor and occupier net zero goals.
“The Net Zero carbon definition for the real estate industry is extending to the embodied carbon space, as investors and occupiers become attuned to embodied carbon frameworks from NABERS and the New Buildings tool from Green Star,” Hinde said.
“Developers were initially being forced to be creative with the reuse of equipment and materials for both refurbishments and new builds, due to supply chain issues and labour shortages impacting accessibility of materials.
“However, the industry is now catching up by rewarding projects with an ESG lens as they go down this path.”
309 Kent Street
B-grade average net face rents recorded the strongest year on year growth of 6.1%, compared to other grades of office assets by end of Q3 2022, according to Colliers.
For example, the B-grade office at 309 Kent Street in Sydney was refurbished to provide fit-outs of an A-grade standard and saw rental uplift of between $50 – $100 per square metre.
Colliers has completed 14 leasing deals at the 17-level building over the last 12 months, which offered a new ground floor plane and lobby, in addition to several new VC friendly meeting rooms and sit-to-stand workstations.
“Across the 14 deals an average of four and a half months downtime was experienced from completion of the fitout to a tenant’s lease commencement date, which is a testament to the landlord’s commitment to delivering high quality fitouts that satisfy what the majority of tenants in the market are seeking,” Hunt said.
“Four of the deals were completed before the space was available on the basis that the landlord would construct a high-quality fit-out bespoke to the occupant’s needs.”
Other successful B-grade refurbishments include 6 O’Connell Street in Sydney and 473 Bourke Street in Melbourne.
The O’Connell Street property refurbishment delivered $150 more per square metre this year for the lower floors, while the Bourke Street property refurbishment saw rental uplift of $100-$150 per square metre.
“The majority of suites at 473 Bourke Street were leased prior to practical completion of the refurbishment, and we are currently still experiencing demand from occupiers who wish to be notified if a vacancy arises in what is renowned as one of the most dynamic boutique office’s in Melbourne’s CBD,” Hunt said.
Hinde said that in addition to refurbishment of an actual building, ESG credentials can be enhanced by occupiers who also sought to repurpose furniture and equipment.
“For schemes like Green Star, the value of re-used items is the same as the highest ESG qualification a product can achieve off the shelf, meaning the same sustainability credentials at a fraction of the cost,” Hinde said.
“The flex up and down of occupier requirements has led to an increase in high quality furniture and equipment deserted and now primed for re-use in short turnaround fitout projects.”
Just this month in Adelaide, a re-homing audit was conducted by Colliers, which will see three floors’ worth of high quality re-usable office equipment diverted from landfill to meet new demand.
