measuring the performance of office buildings...2017/06/13 · ria real investment analytics...

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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Outline

❶ Introduction

❷ Performance measures

❸ Summary

2


Outline

❶ Introduction


❸ Summary

3


Structure of the Australian property market: office sector is significant part of the market

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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.


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


Outline

❶ Introduction


❸ Summary

7


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


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


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


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


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


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


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


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


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

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


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


Outline

❶ Introduction


❸ Summary

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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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Thank you

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Contact

Anthony De Francesco

0438 506 284

[email protected]

mailto:[email protected]

measuring the performance of office buildings...2017/06/13 · ria real investment analytics...

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