RIA Real Investment Analytics
MEASURING THE PERFORMANCE OF OFFICE BUILDINGS
13 June 2017
Anthony De Francesco
Founder and Director of RIA
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RIA Real Investment Analytics
Outline
❶ Introduction
❷ Performance measures
❸ Summary
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RIA Real Investment Analytics
Outline
❶ Introduction
❷ Performance measures
❸ Summary
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RIA Real Investment Analytics
Structure of the Australian property market: office sector is significant part of the market
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RIA Real Investment Analytics
The property office sector: segmented by type and grade
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Office: CBD, 80%
Office: Non-CBD,
20%
AUS property office by typevalue as at March 2016
Source: RIA.
Premium office, 35%
A-grade office, 55%
Secondary Office, 10%
AUS property office by gradevalue as at March 2016
Source: RIA.
RIA Real Investment Analytics
Measurement axioms for “green” information tools that feed into investment strategy
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Space Management (Operational efficiency)
Space Utilization (Occupational productivity)
Space Ownership (Investment
performance)
• Investment return
• Pricing measures
• Rental levels & growth
• Vacancy rates
• WALE
• Productivity measures
• OPEX - Operating expenses
• CAPEX – capital expenditure
DIRECTION MEASURE AXIOM
Strengthen returns with improved profitability
Tighter asset pricing with lower risk premia
More robust rental growth
Better tenancy retention
Longer leases
Improved workplace productivity
Lower running costs: both labour & technology
Better use of capex: lower maintenance capex
STRATEGY
Fund level Portfolio level Asset level
RIA Real Investment Analytics
Outline
❶ Introduction
❷ Performance measures
❸ Summary
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RIA Real Investment Analytics
A snapshot of relative performance measures for Green-star rated office buildings
22%
-4.3pts
-43%
9%
20%
-0.3pts
23%
-50% -30% -10% 10% 30%
WALE in years
Vacancy Rate
Capex in $/sqm
Opex in $/sqm
Net Income in $/sqm
Capitalisation Rate
Capital value in $/sqm
AUS: Green Star vs All Officeannualised results for period to Dec 2014
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Source: MSCI
RIA Real Investment Analytics
Return performance for Green-star rated office buildings
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15.1
11.0 11.011.8
10.9 11.110.5
11.0 11.3
13.0
0
2
4
6
8
10
12
14
16
1Y 5YA 1Y 5YA 1Y 5YA 1Y 5YA 1Y 5YA
All office All Stars 4 Star 5 Star 6 Star
Returns: all office versus Green-star rated officeannualised returns as at March 2017
capital return income return total return Source: MSCI, RIA
RIA Real Investment Analytics
Need to consider the influence of the investment market cycle: if in upswing or downswing mode
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AUSTRALIAN ALL PROPERTY RETURNS ANNUAL RETURNS ON QUARTERLY PERIODS
19.3
10.6
13.7
12.2
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Sep 2006 Sep 2007 Sep 2008 Sep 2009 Sep 2010 Sep 2011 Sep 2012 Sep 2013 Sep 2014 Sep 2015 Sep 2016
Income Return Capital Growth Total Return
10.0
Source: MSCI
RIA Real Investment Analytics
Selected performance measures across selected CBD office markets
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Source: MSCI
NABERS
4 to 6 star Sydney CBD 18.7 5.8 1.8 4.5
Melbourne CBD 15.3 5.8 4.0 4.6
Brisbane CBD 9.0 6.7 6.9 4.5
Perth CBD 0.2 6.9 4.3 5.9
GREEN STAR
4, 5 & 6 star Sydney CBD 19.7 5.6 1.3 5.0
Melbourne CBD 16.4 5.7 0.6 6.2
Brisbane CBD 11.8 6.2 0.6 5.8
Perth CBD 4.4 6.6 1.7 6.7
ALL AUSTRALIAN OFFICE
Sydney CBD 18.8 5.8 3.4 4.6
Melbourne CBD 15.7 5.8 5.1 5.2
Brisbane CBD 9.9 6.6 7.1 4.6
Perth CBD -0.5 6.9 12.3 5.8
TOTAL RETURN CAP RATE VACANCY WALE
RESULTS FOR THE 12 MONTHS TO JUNE 2016
RIA Real Investment Analytics
Need to consider intrinsic diversity of CBD markets
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RETURNS ACROSS AUS CBD OFFICE PROPERTY MARKETS ANNUAL RETURN
14.9%13.4%
19.4%17.7% 16.2%
13.2%
9.9% 9.4%
-0.4% 0.7%
14.0%13.4%
-10%
-5%
0%
5%
10%
15%
20%
25%
J16 S16 J16 S16 J16 S16 J16 S16 J16 S16 J16 S16
Total Office SYD MEL BRI PER CAN
capital return income return total return
Note: J16 refers to Jun 2016 and S16 refers to Sep 2016. Source: MSCI
RIA Real Investment Analytics
Cycle performance varies across “asset grade” sub-market
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0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Sep-14 Mar-15 Sep-15 Mar-16 Sep-16
TOTAL RETURN
Brisbane Prime Brisbane Secondary
Brisbane CBD Brisbane Non-CBD
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Sep-14 Mar-15 Sep-15 Mar-16 Sep-16
TOTAL RETURN
Melbourne CBD Premium
Melbourne CBD Grade A
Melbourne Non-CBD
5%
7%
9%
11%
13%
15%
17%
19%
21%
23%
Sep 2014 Mar 2015 Sep 2015 Mar 2016 Sep 2016
OFFICE TOTAL RETURNS
Sydney CBD - Premium Sydney CBD - Grade A
Sydney CBD - Grade B
Parramatta North Sydney
RETURNS ACROSS VARIOUS CBD OFFICE PROPERTY MARKETS ANNUAL RETURN
Source: MSCI
RIA Real Investment Analytics
Performance varies across asset quality grade
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11.110.1
11.311.2
9.0
11.911.0
9.9
11.2 11.510.3
11.8
0
2
4
6
8
10
12
14
16
Allstars
0-3.5s 4-6s Allstars
0-3.5s 4-6s Allstars
0-3.5s 4-6s Allstars
0-3.5s 4-6s
Prime Secondary CBD non-CBD
Returns: all office versus NABERS energy rated buildingsannualised 5 year returns to March 2017
capital return income return total return Source: MSCI., RIA
RIA Real Investment Analytics
Evaluating risk for “green” office property portfolios
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0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
3.0 4.0 5.0 6.0 7.0 8.0 9.0
Vac
ancy
Rat
e (
%)
WALE, WALT (years)
Selected office property marketsvalues as at Dec 2014
AUS Green Star
AUS Prime Office
AUS Secondary Office
AUS All Office
AUS NABERS Energy 0-3.5 Stars
AUS NABERS Energy 4-6 Stars NZ All Office
NZ Green Star
Low risk assets with highly stable income streams
High risk assets with less stable income stream
6.6
6.8
7.0
7.2
7.4
7.6
7.8
8.0
3.0 4.0 5.0 6.0 7.0 8.0 9.0
CA
P R
ATE
(%
)
WALE, WALT (years)
Selected office property marketsvalues as at Dec 2014
AUS Green Star
AUS Prime Office
AUS Secondary Office
AUS All Office
AUS NABERS Energy 0-3.5 Stars
AUS NABERS Energy 4-6 Stars
NZ Green Star
NZ All Office
High risk assets with less stable income stream
Low risk assets with highly stable income streams
RIA Real Investment Analytics
Outline
❶ Introduction
❷ Performance measures
❸ Summary
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RIA Real Investment Analytics
Take away points
• Important to have clear performance measures to evaluate the influence of “green” initiatives. Such measures will support investment strategies.
• There are a variety of performance measures which evaluate investment, occupational and operational performance.
• Performance measures based on PCA/IPD Green Index provide evidence of green-rated buildings outperform non-rated buildings.
• However, these measures are highly influenced by market type, market quality, market location, and market cycle.
• Importantly, when formulating “green” policies, one needs to take into consideration individual market characteristics and features .
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RIA Real Investment Analytics
Thank you
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Contact
Anthony De Francesco
0438 506 284