From 1 July 2024, Australian Government travellers will be required to consider a hotel’s NABERS Energy rating when booking their accommodation. For astute hotel owners, it presents an opportunity to ride a once-in-a-generation investment wave like the one that transformed the Australian commercial office sector 20 years ago.

What are government travellers being told to do? Well, not much (for now), actually:

“From 1 July 2024, Australian Government travellers must consider the environment when booking travel. To support greener travel choices, NABERS Energy ratings will be displayed next to applicable hotels in the Online Booking Tool from 1 July 2024. The setting of minimum standards will be considered in 2026-27.”

This may not sound like a big deal, but the new requirement which is part of the recently announced Net Zero in Government Operations Strategy, has a familiar ring to it. 20 years ago, at the beginning of 2003, the NSW state government’s premier, Bob Carr, announced that government agencies would be required to consider environmental performance in their office accommodation briefs. A year later (in April 2004), frustrated that “the fastest growth in greenhouse emissions in Australia was from the commercial office sector”, he issued a similar but more specific memorandum, this time including the requirement that agencies must

“… endeavour to occupy premises where the building is rated at least 3 stars (this will increase to 3.5 stars from 1 July 2006) and require disclosure of the accredited rating for the building when seeking information about the building for leasing purposes.”

What happened next has every chance of being repeated in the hotel sector over coming years.

What happened in the office sector?

When the NSW government announced its requirement for NABERS ratings,[1] it occupied less than 5% of Australian commercial office space. Just like in the hotel sector, government is a significant but by no means dominant customer in the office market. And while government may not be the fanciest customer, its agencies are relatively reliable, and they pay their bills. In short, they are a good customer to have, and they influence the market.

In 2004, Investa Property Group was developing its sustainability strategy and saw an opportunity to ‘hitch its wagon’ to the NABERS scheme.[2] It had its national portfolio of office buildings rated and found, unsurprisingly, that they had an average rating of … average! (2.6 stars). But this was the light-bulb moment. A NABERS Energy rating is essentially an expression of a building’s energy bills. A better rating means lower bills, and vice-versa. By doing the ratings, Investa was able to identify where energy was being wasted. And over the next three years it was able to address improvement opportunities that had previously flown under its radar.

By early 2007, Investa had reduced energy consumption across its portfolio by 20% and improved its average rating to 3.5 stars. Its energy costs were 20% lower and its story to tenants and investors was a simple one:

Our buildings are better for the environment, better for the occupants, and cheaper to run. Better buildings means better investment returns because: 1) more demand from tenants translates to lower vacancy and higher rents, and 2) most energy saving projects already have a good ROI.

Investa now had a portfolio of buildings that exceeded the NSW government’s requirements and had grown to become the largest owner / operator of office buildings in Australia. But by then, it wasn’t just the NSW Government that had NABERS rating requirements. In 2007, the Australian Government introduced its Energy Efficiency in Government Operations (EEGO) policy which required a minimum rating of 4.5 stars for all office buildings and tenancies, with only a few exceptions. And major corporate occupiers were demanding the same.

In May 2007, Morgan Stanley made an offer to purchase the entire Investa platform for a 56% premium above its net tangible asset value. This was an extraordinary and unprecedented deal and reflected Investa’s competitive advantage in leasing, management and its ability to attract institutional capital to invest in its buildings and developments.

What if you could increase the value of your hotel by more than 50% just by improving its energy efficiency? Is that an opportunity worth exploring?

Investa was able to capitalise on its advantages and ‘made hay while the sun was shining’. Competitors learnt from its example, of course, and it wasn’t long before the entire sector was fixated on improving NABERS ratings. In 2010, the Australian Government introduced the Building Energy Efficiency Disclosure Act 2010 (BEED Act) which made full disclosure of NABERS Energy ratings compulsory for all commercial office buildings over 2,000m2 at the point of sale or lease. The threshold was tightened in 2018 bringing it down to 1,000m2. By then, a NABERS Energy rating was no longer a value-add to drive outsized investment returns, having one was considered as essential to an office building as a front door – and it had to look good!

In Australia there are now more than 1,500 commercial office buildings with a NABERS Energy rating of 4.5 stars or higher. In 2004 there were just 10. These 1,500+ buildings have, on average, cut their energy intensity by more than 40% and emissions by more than 50%. The expectation, presumably, is that something similar will happen in the hotel sector.

Buildings Alive has unique technology, expertise, and know-how to help hotel owners profit from the changes coming to the sector. Please contact us if you would like to know more!

 

[1] The National Australian Built Environment Rating System (NABERS) at the time was known as the Australian Building Greenhouse Rating (ABGR). The AGBR was incorporated into NABERS in May 2008, and rebranded NABERS Energy for Offices. NABERS Energy for Hotels is one of many sector-specific ratings that were subsequently developed.

[2] Buildings Alive’s CEO and contributor to this article, Craig Roussac, has a deep understanding of the Investa story as he led Investa’s sustainability, safety & environmental strategy and programs from July 2004 to October 2012.