fe eb pm chapter 3

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THE TENANTS & LANDLORDS

GUIDE TO HAPPINESS

BESTPRACTICEANDGREENLEASIN

G

A COLLABORATION WITHTHE BETTER BUILDINGS PARTNERSHIP

PRINCIPAL AUTHORLYNNE BLUNDELL

CHAPTER 3

GETTING TOGETHER


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CHAPTER THREE:The birds and the bees -Getting togetherBy Lynne Blundell


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THE BIRDSAND THE BEES -GETTINGTOGETHER

So youve decided to move on andyoure at the tricky stage of reviewingwhats available out there in themarket. Making the final choice istough. Nows the time to call on the

backup to help you run through thecriteria and survey the candidates.After all, youre hoping for a longrelationship.

This is the stage where things caneasily go off the rails. Just like in anynew relationship, third parties tendto have their own agendas and caneasily overlook what the two keyprotagonists in the story really want.

The message can become lost intranslation.

To ensure this doesnt happen whena new building is being selected,the influencers in the propertyindustry tenant representatives,property agents, lawyers and buildingconsultants need to listen carefullyto what tenants and landlords aretelling them.

Ben Thomas and Amanda Steele


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THELANDLORD

THERE'S A NEEDTO ANTICIPATETHE TENANT'SNEED


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Emlyn Keane, head of property

management and sustainableperformance at AMP Capital says froma landlord point of view its a case ofunderstanding the needs of tenantsand being one step ahead in meetingthem.

It is a challenging market rightnow and economic drivers areextremely high. As a landlord we are

concentrating on tenant needs forretention. When it comes to factorssuch as make good we are not justmaking good, we are making a lotbetter, says Keane who is co-chair ofthe Better Buildings Partnership withMirvac's Paul Edwards.

BIKES IN CARS OUT

Despite the focus on cost,sustainability drivers are definitelythere when it comes to site selection they are becoming the norm, Keanesays. For example, executive carspaces, once considered a given, areno longer in such demand. Insteadbicycle parking and maintenanceareas as well as state-of-the-art end-of-trip facilities with showers and high

security lockers are the new normal.

At 50 Bridge Street, Sydney, AMPhas converted car spaces under thebuilding to install high quality end-of-trip facilities. The company has donethe same in buildings in Canberra andMelbourne to meet tenant demand.

In Canberra these facilities are

instantly full. Wherever we install themthey are applauded and well used,says Keane.

Currently around 70 per cent ofColliers clients are renegotiatingleases rather than relocating. Typically,they are better off doing this andbenefiting from upgrades, says Crouch.

Emlyn Keane


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LIGHT UP OUR LIVES

In its own tenancy at 50 Bridge Street,AMP Capital has trialled replacementof fluorescent tube lighting with LEDs

on seven tenanted floors.

"We simply changed like for like anddid it over the weekend so nobodyeven noticed the change. We reducedenergy use by 44 per cent from oneweek to the next and I think we caneasily get to 50 per cent with a fewtweaks and zonal control, Keane says.

The work involved converting "already

efficient" single tube T8 light fitting toLED tubes.

"The total savings are approximately$28,000 per annuum across all floors.And energy use dropped from about6.5 Watts a square metre to just over 4Watts a sq m," Keane says.

The use of energy savings certificates

also produced a 25 per cent reductionin the cost of installation.

Keane says total projected payback isless than 2.5 years.

FLEXIBILITY IS KEY

Another key building attribute tenantsare looking for at all ends of themarket is high indoor environmentalquality and flexible workspaces.

Flexible work arrangements and theworkspace that allows this is a keystrategic driver for many companies.If I can provide flexible workarrangements for an employee andthey can fit their personal prioritiesinto their work structure I will get an

increase in productivity from thatperson. That person becomes soengaged they commit to the business,"says Keane.


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THE AGENT:Theres plenty of (smaller) fish in thesea but theyre feisty

Jenine Cranston, senior director CBRE

Office Services, says communicatingthe benefits of green buildings tosmall tenants occupying less than1000 square metres is the key toshifting demand for better performingbuildings.

The big market in Sydney is that ofthe small tenant, Cranston says. Thissector represents those tenants under

1000 sq m and accounts for between60 and 70 per cent of tenant demandin the Sydney CBD.

For this group cost containment isa major focus. They are averse tofinancial surprises of any natureand focus on cost identificationand containment during leasenegotiations.

Discussion with lawyers confirmsthese tenants are similarly costconscious about green initiativesand keen to reduce any risk of costsurprises during the course of theirlease term, Cranston says.

And while there is evidence tosupport the financial and operationalbenefits of high performing buildings,cost doesnt mean the same thing toeveryone.

Tenants are looking for the best

possible commercial deal inwhatever sector of the market theyare in. Perceived value is criticaland financial conservatism reignsbreakout

Tenants are looking for the bestpossible commercial deal inwhatever sector of the market theyare in. Perceived value is critical

and financial conservatism reigns,Cranston says.

Jenine Cranston


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THE AGENT

Smaller tenants do not necessarilyhave a tenant advisor to help them,and occupancy costs represent a hugeportion of their total costs

Smaller tenants do not necessarilyhave a tenant advisor to help them,and occupancy costs represent a hugeportion of their total costs. Over thepast few years they have becomeacutely focused on due diligencewhen choosing a new building.

This small tenant market has beenparticularly active in 2013 and we

dont see any major change to thembeing a key market driver for thenext 24 to 36 months.Landlordsand agents therefore need to knowwhat they are saying and how tocommunicate it to the specifictarget market."And the amount ofdocumenta

There is an opportunity for

engagement with tenants at thesmall end of the market. In manycases, these tenants dont knowwhat they dont know. The key is toconvey to them how green initiativeswill positively affect costs to theirbusiness.

Amanda Steele


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Landlords and agents therefore needto know what they are saying andhow to communicate it to the specifictarget market.

By not communicating effectively,agents and landlords are limiting theengagement possibilities with thetenant audience.

And nobody in this market is so awashwith demand that this can be ignored.

So who is the greenest of them all?

Multinationals and engineering firms

are the greenest tenants, accordingto Cranston. At the other end arefinancial groups and law firms.

But even though RFPs, or requests forproposals, from tenants to landlordsand agents do not always stipulategreen criteria, it would be a mistaketo assume green is not important tomany tenants.

It is our view that the evolution ofthe market has meant that green hasbecome an implicit requirement inmany cases, as in the case of qualityand amenity.

The market has also become alittle more refined around greendiscussions so that they form part ofan overall matrix."

And the amount of documentationavailable these days to help agentssell the case for greener buildingsis making the difference betweenclients committing to green initiativesor not.

With opportunities to undertakeworks occurring at limited times in anassets life, its a matter of seizing the

opportunity, says Cranston.

CBRE makes the followingrecommendations to landlords whenlooking to upgrade their buildings:

Get good advice Make it green Limit tenant surprises Communicate the benefits

effectively to the target audience


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THETENANT REP

Gavin Martin, regional director,corporate solutions with Jones Lang

Lasalle, says that green credentialsare not yet tier one considerationsfor large tenants when choosing anew office space. For this to changethe so called C-suite of executives including the chief financial officerand the chief executive officer mustbelieve green factors have a materialimpact on the bottom line of thebusiness, he says.

We are operating at the large end ofthe market and our aim is to deliverreal estate solutions that meet ourclients business needs.

First we need to define those businessneeds and we do that through focusgroups and workshops. Then wemove on to preparing a Statement of

Requirement, Martin says.

Once requirements are defined,JLL takes its clients through to theimplementation phase. Round oneinvolves the collation of informationand round two involves short-listingand inspection of properties.

Key at this stage is cost, quality andservice. Then green considerationscome in they are not yet key factorsin round one, says Martin.

To make green considerations moreinfluential the property sector has to

make a strong case to the C-suite.

When the CFO understands thatbeing in a better performing buildingwill affect the bottom line they willbecome key factors in choosing aspace.

The share price has to be affected andannual outgoings must be lower if

the company is in a better performingbuilding, says Martin.

Other important benefits of betterperforming buildings, such ashealthier work places, higher levelsof staff attraction and retention, aswell as increased productivity, are juststarting to get traction.

Increased productivity is the holygrail, Martin says. Once we have solidevidence of this there will be a bigshift in demand for green, but I dontbelieve its there just yet.

In the short term, cost benefits willbe the key factor to drive demandfor better performing buildings fortenants. If we can prove that it willhelp move green credentials to a tier

one consideration in site selection.


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Gavin Martin

Increased productivityis the holy grail Once

we have solid evidenceof this there will be a

big shift in demand forgreen, but I dont believeits there just yet.


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You canchoose to have

switches thatautomaticallyturn off theairconditioningbut I prefer toeducate clients

to switch it offthemselves toengage and buildan awareness


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have switches that automatically turnoff the airconditioning, but I preferto educate clients to switch it offthemselves to engage and buildan awareness of how they impact onenergy use.

Its all too easy to drop the ball post-occupancy, says Moore, but it needsto be an ongoing process where toolssuch as metering are used to trackand monitor energy use.

Any time anyone is going through anupgrade we recommend installingmetering. Its not just about thetenant if we can communicate tothe base building operator whattenants are looking for this caneducate and motive anddrive the market.

That way we can

improve thebuilding stockof cities muchfaster.

THEBUILDING

CONSULTANTTHE EXPERTS HAVE IT.ASK THEM HOW

Erik Moore, senior engineer withArup says the benefits of engaging

specialists when choosing a site is thattheyve seen it all before and know thetraps to avoid.

It's important that you have the rightadvice at the right time, Moore says.

There's a lot of really good tools outthere to make sure that you're welleducated of what's happening, but

fundamentally nothing beats thecollaboration between the owner, thetenants and the consultant makingsure you achieve the best outcomefrom the properties available.

He would also like to see morebuilding occupants engaging withtheir environment rather thanpassively using the space once theymove in.

My preference is to work with clientsto encourage them to engage with thespace so they have more awareness ofenergy use and how they impact onthe indoor environment quality, saysMoore.

With ventilation, for example, if thereis the option to open windows and

have mixed-mode ventilation witha mix of air from the outside andairconditioning, you can choose to

Erik Moore


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TOOLS WILL HELP:

GET THE GUIDEPreparing site selection briefs can bean onerous task for companies of allsizes. The Better Buildings Partnershiphas recently released a template tohelp with the site selection process aspart of its BBP Leasing Lifecycle Tool.

The templates for tenant site selectionbriefs detail the services and featuresthat occupants should expect fromPremium, A and B grade officebuildings when selecting a new site.

The templates were created incollaboration with the PropertyCouncil of Australia and its Guide toOffice Building Quality 2012 as wellas other industry sources:

Green Star rating tools (GreenBuilding Council of Australia)

National Australian BuiltEnvironment Rating System,or NABERS

Building Energy EfficiencyCertificates, Commercial BuildingDisclosure (Australian GovernmentDepartment of Resources, Energyand Tourism)

The document contains tablesdesigned to copy and pasted intorequests for information from buildingowners, leasing agents and tenantrepresentatives to help compare andassess total cost of occupancy andcompliance with industry qualitystandards. The templates cover bothnew and existing Premium, A and BGrade buildings.

An electronic version of the templatecan be downloaded at http://sydneybetterbuildings.com.au/sites

BBP is also working with SparkeHelmore Lawyers to produce modellease clauses that will help tenantsand landlords establish a frameworkfor collaboration over the leaseterm. The clauses are expected to be

released in coming months.

John Godard


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The clause document will:

Offer sample lease clauses coveringcommon and less well known areasof best practice and green leasing

Demystify green lease clauses byaddressing concerns about risk

Provide strategies to de-riskarrangements

Deliver model clauses in a format

that can be dropped into a scheduleor used standalone

Offer differing levels ofcommitment such as must andreasonable endeavours

Deliver unbiased drafting of theclauses so both tenant and landlordcan agree to mutually beneficial

benefits of collaboratingAnother useful recently released toolis the free RICS leasing app calledLeasa, available on web and smartphone (see the recent story on this by

The Fifth Estate). The new app can callup key attributes related to a building,such as the Building Energy EfficiencyCertificate, or BEEC, which includes atenancy lighting assessment and theNABERS rating. It provides an instantdisplay on what tenants can expect topay in lighting bills and other energybills.

The app also allows for directcomparison between different sites.

Leasa can also allow the tenant to plugin all the details they might like to

know about, such as bicycle facilities,give them a weighting and make adecision accordingly.

John Godard


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CASE STUDY:

TWO HERITAGEBUILDINGSATTRACT TOP

SUSTAINABLETENANTS


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WWF CALLS IN

SUSTAINABLEBUILDINGCONSULTANTSFOR SITE

SELECTION

In our last chapter we talked to WWF aboutits decision to move to new premises whenits lease came up for renewal. This chapterwe look at the process WWF went throughto choose a building and the role of thespecialist building consultant in the decision.Once the decision to move was made, thesite selection process for WWF involvedculling a list of 60 potential properties downto two shortlisted properties. This was anintensive process, according to WWF Austra-lias operations and facilities manager Nata-lie Roberts.

Our search really began by researchingthe market, looking at leading facilities,looking at our international offices andthen meeting with real estate agents toreally get an understanding of what themarket had to offer us.

As a part of the process we attendedindustry events and participated inworkshops conducted through the Bet-ter Buildings Partnership and CitySwitch.

Through this we learned about criticaltools that helped us along our way. Theseresources included the online LeasingLifecycle Tool, says Roberts.

For WWF the priorities were aboutbalancing sustainability cost and culture.


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Initially it appeared that we had over60 options available to us, howeveronce we started to apply our keycriteria to these, such as NABERS starratings, we really started to refinewhat was available to us, Roberts says.

This is the stage where WWF calledon building sustainability consultantsArup to help with the final assessmentand decision.

Erik Moore, senior engineer withArup, said he had a pretty clear ideaof what WWF wanted in a propertyand Arups role was to review theavailable properties and advise WWFwhich ones best fitted their criteria. Inaddition Arup suggested strategies forgetting the most from the properties.

The key priorities for WWF werethinking about the organisation'saims and philosophy. In particularthey wanted good environmentalperformance of the space they weremoving into, having connectivitybetween the indoor and outdoorenvironment, providing a pleasantworking environment for the staff

and having ratings for energyperformance, water performance andan overall set of sustainability toolssuch as Green Star and NABERS.

These qualities also improve energyperformance of the building, againbenefiting both the tenant and thebase building operator, Moore says.

The selection was narrowed downto two buildings a new propertyat Green Square with a 5 Star GreenStar rating and a heritage building inSmail Street, Ultimo with no Green

Star rating and a 3.5 NABERS energyrating.

While the sustainability features ofthe new building were clear, theheritage building provided a beautifulenvironment and was close to WWFsoriginal workplace, which meant lessdisruption for staff and easy access totransport.

It also has large sash windows,which could be opened for naturalventilation and provided a realconnection between outside andinside. The building was shadedby a nearby building so that eventhough it faced west there was lessof an issue with heat. I assessed thatsustainable performance would not

be that difficult to achieve, saysMoore.


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Arup recommended that WWF usemixed-mode ventilation. Insteadof installing switches that allowedfor automatic shutdown of theairconditioning, Moore recommendedmanual switches combined with aneducation campaign on how to usethe space effectively, which wouldwork to build an awareness of energy

use.It is important to keep occupants

informed about how to operate thespace. If people use the windows theyturn the airconditioning off. This givespeople the ability to work with theirenvironment and to become engaged,says Moore.

WWF are interested in engaging

with their space and so we were ableto give them advice upfront in theinstallation and design process. Thisis one of the key benefits of engagingconsultants in site selection we areoften involved in design of spacesso can point out aspects our clientswont necessarily think of.

Our involvement is not just about

WWF but also about helping thelandlord get the most out of the basebuilding.

Arups key recommendations to WWFincluded:

Installing meters to track energyuse

Installing high performance blindsto moderate daylight on the clearwindows

Offsetting emissions with 100 percent green power

A green lease

Integration of Green Starbenchmark inclusions

The WWF workspace is being assessedas part of a pilot for the GreenBuilding Council of Australias Green

Star Interiors program.


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TRADINGCOMPANY

CHOOSES FIRST6 STAR GREENSTAR HERITAGEBUILDING

When Kador Group restored the iconicformer headquarters of Perpetual

Trustees, a heritage building at 39Hunter Street that Perpetual hadcommissioned, built and occupiedfor 90 years, it appointed CBREoffice services senior director JenineCranston.

The building was to undergo acomplete retrofit and Cranstonsmandate was to secure a single

building tenant for 6000 sq m, overseven levels, for a minimum 10-yearterm.

According to CBRE, the implicit designconstraints of heritage buildingsprovided for a challenging briefrequiring an innovative solution toboth the refurbishment and marketingof the building.

Early in the project, Kador committedto achieving a 6 Star Green Star OfficeDesign v2 rating. Cranston and theCBRE CBD leasing team undertook thefoundation course and achieved GreenStar Accredited Professional status.

According to Cranston, this allowedthe CBRE team to adequately and

credibly convey the sustainabilitybenefits of the asset to the targetmarket.

I felt the Green Star course wouldreally help us find the right tenant.

This was Australias first 6 StarGreen Star heritage building andit was important to find a tenantwho understood and valued such acredential, says Cranston.

During the investigation and designphase Cranston provided regularadvice to the design team on the keyrequirements of the identified targetmarket. The architects responded bycreating a design providing maximumoccupant flexibility, includingelements such as glass stacks aroundthe central atrium.

Site visits were conducted withpotential tenants as well as other keyinfluencers, tenant representativesand tenant advocates. Additionally,the invitation was extended tomajor architects and designers. Inall, well over 100 presentations wereconducted on site during the project.

Leading trading company Optiver was

identified as a key target even thoughthe space was substantially larger thantheir requirement of 4000 sq m.

The companys emphasis on providingan innovative as well as healthyworkplace was considered to be agood fit for the building.

Optiver moved to Hunter Street in2011 and in 2013 the company wasnamed by BRW magazine as Australiasnumber one place to work.


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THE TENANTS & LANDLORDS

GUIDE TO HAPPINESS

ISSUE 02. AUGUST 2013

2013 The Fifth Estatewww.thefifthestate.com.au

PO Box 563Glebe NSW 2037Sydney Australia

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