Michael Skelton – Facility Management in a changing climate

Operational PerformanceOpportunities and Challenges

Michael SkeltonResearch and Knowledge Manager,Australia New Zealand

Overview

• Understanding the Market Size

• What Return on Investment can be Achieved

• Capex vs Good Facility Management

• Drivers and Incentives

• Financial Implications of the ‘x’-factors

Electricity Price Projections

-5%

0%

5%

10%

15%

20%

-5%

0%

5%

10%

15%

20%

Annual Change

10 Year Average = 6%

Source: Adapted from ABS 6401.0 (Australian Electricity Index)

20 Year Average = 4%

Forecast

Comparative Commercial Sector Sizes

Tenant Drivers Differ Dramatically

Office41%

Shopping Centre

32%

Hotel27%

Total Market Size (m²)

Office 23,574,853 (NLA)

Shopping Centre 18,563,434 (GLAR)

Hotel 15,975,922 (GIFA)

Source: Property Council of Australia, Davis Langdon Research

Australian Property Investment Market

Source: RICS, Davis Langdon Research

Office, $92.00bn

Retail, $87.00bn

Industrial, $52.00bn

Victoria – Total Office Stock

CBD18%

Metropolitan65%

Regional17%

CBD46%

Metropolitan45%

Regional9%

Number of Buildings Area of Buildings

Lack of New Office Stock

Source: Construction Forecasting Council

New Office Construction Volumes

Australia’s Ageing Office Stock

Recent Studies

CBD Tower Level 1 Level 2 Level 3

NPV of Investment -$19,000,000 -$15,000,000 $7,000,000

IRR of Investment 4.2% 5.1% 10.0%

Fringe High Rise

NPV of Investment -$11,700,000 -$2,650,000 $4,200,000

IRR of Investment 5.4% 9.2% 11.2%

Suburban Office

NPV of Investment -$1,900,000 -$1,000,000 $200,000

IRR of Investment 3.4% 7.7% 10.9%

Improvement Asset Study

Heating/Cooling24%

Elec Reheat0%

Heating Gas3%

AHUs25%

Pumps in Plant Room2%

Carpark Fans4%

Carpark Lights5%

Lifts11%

Foyer lighting1%

Toilet, stairs and plant room lighting

5%

Outside Lighting5%

MechExhaust

7%

Tenant condenser water loop and cooling tower fans

2%

Hydraulic Servicing2%

Domestic Hot Water

Distribution of Base Building Energy Use

$

$

$

$

Typical Capital Cost Step Change

Base Building Office – Capital cost and emissions savings

$0$100$200$300$400$500$600$700$800$900$1,000

050

100150200250300350400450500

2.0 Star 2.5 Star 3.0 Star 3.5 Star 4.0 Star 4.5 Star 5.0 Star

Cost Range GHG Saving (LHS) Mean Cost (RHS)Source: Davis Langdon Research

BaselinekgCO2/m2 $/m2

Step 1 Step 2 Step 3 Step 4 Step 5 Step 6

Avoiding Obsolescence

Source: Davis Langdon Research

Vacancy Rate Sensitivity on Net Present Value

Reducing Base Building Energy Outgoings

However - ‘Typical’ Doesn’t Really Exist

Impact of existing condition – 1.5 to 4.5 Star Upgrade

Low Capex Required – Well Maintained

Building NLA 10,000 sq. m

Building Age 15 years

Base Building (Existing) 1.5 Star NABERS Energy

Base Building (Upgraded) 4.5 Star NABERS Energy

Green Power Included Yes (1 Star)

Total Capex $1,111,320

GHG Savings (Actual) 1,012 tonnesCO2/year

Equivalent Passenger Vehicles

166

Building Class B-Grade

0

200

400

600

800

1,000

1,200

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1.5 to 4.5 StarGreen PowerEnergy Efficiency

tonnesCO2kgCO2/m²

Per Year High Capex Required – Poorly Maintained

Building NLA 10,000 sq. m

Building Age 15 years

Base Building (Existing) 1.5 Star NABERS Energy

Base Building (Upgraded) 4.5 Star NABERS Energy

Green Power Included Yes (1 Star)

Total Capex $4,358,400

GHG Savings (Actual) 1,012 tonnesCO2/year

Equivalent Passenger Vehicles

166

Building Class B-Grade

Energy Efficiency Drivers in the Office Market

Government Leased Area

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

NLA

Other

State and Territory (Leased)

Commonwealth Government (Leased)

26% Government Leased

Source: Government Property Group, Davis Langdon Research

What can we achieve? Existing Buildings are the Key!

Source: Adapted from AGO 1999 & DEWHA 2009, Davis Langdon Research

0

5

10

15

20

25

Emissons (Mt of CO2-e per annum)

Total GHG from Office Sub-Sector

Estimated Trajectory if 20% of Existing Buildings <2.5 Star upgraded to 4.5 Star

Forecast

Where are Incentives Required

1

4

65

Larger Incentives RequiredHigh CO2 AbatementHigh Cost of AbatementLow Level of Industry Investment without Grants/Green Depreciation(Investment and Awareness of Cost to Industry should be Focussed Here)

Minimal Incentives RequiredLow CO2 AbatementNegative Cost of AbatementHigher Levels of Industry Investment(Government and Industry Commentators Focus Too Much on These Figures)

-$100

-$50

$0

$50

$100

$150

$200

$250

$300

-$100

-$50

$0

$50

$100

$150

$200

$250

$300

Width Indicates Size of Abatement(Tonnes CO2 Over Time Horizon)

2 3

78

10

9

11

12

Cost

of A

bate

men

t

Cost

of A

bate

men

t

Value for Money from Grants/Accelerated Depreciation/etc

Maximised by Targeting These Initiatives

Incentives – What Currently Exists...

• Green Building Fund

• Low Carbon Australia (Carbon Trust)

• Tax Breaks for Green Buildings

• City of Melbourne, 1200 Buildings Project

• Sustainable Melbourne Fund

• Victoria Energy Efficiency Target

Human Resources

the Biggest Incentive!

Employee Remuneration and Benefits

63%

Training 2%

Other Expenses10%

IT Equipment1%

Depreciation and Amortisation Expense

1% Telephone and Data1%

Travel and Motor Vehicle3%

Fees13%

Rent/Outogings/Fitout(Ex Electricity)

6%

Electricity0.2%

Business Expenses - Tenants

Tenant’s Focus ???

Source: Davis Langdon Research

Staff Response when asked “What Provides Improved...”

Source: CABE & BCO

Job Satisfaction

Effect of Workspace

Effect of:•Technology•Pay Incentives•Advancement Opportunities•Work-Life Balance

Environmental Drivers

Embodied Energy and Water

Embodied CarbonCase Study – Educational Facility and Hospital Building

Source: Davis Langdon

Thank You

Michael Skelton

mskelton@davislangdon.com.au