Builder-developer Built and investment manager Investa are putting together a small club of three or four investors who will take part in an ambitious $400-million plan to turn ageing city buildings into environmentally sustainable office space.
The partners are finalising a list of investors prepared to commit to a brown-to-green strategy of “buying, fixing and holding” older office buildings, initially in Sydney and Melbourne.
They point to a report by JLL, the global real estate services company, which says about 80 per cent of “mature city” office buildings will still be in use in 2050. But to meet net zero commitments, existing commercial stock will need to be retrofitted at a rate of between 3 and 3.5 per cent a year.
Investa chief executive Peter Menegazzo said there had been a lot of interest from its existing investor base as well as new customers in regenerating existing space rather than demolishing buildings and constructing new ones.
There had been “really good interest” from Australian pension funds, as well as foreign investors.
“I think where we’ll end up it’ll be a very small club, maybe three or four, high-quality institutional investors,” Menegazzo told The Urban Developer.
He said they were actively screening potential sites.
While he would not be drawn on where those opportunities are, Menegazzo said the venture would focus on the gateway cities of Sydney and Melbourne, both the central business districts as well as the fringe markets.
“But we absolutely see an opportunity here that could potentially extend to markets all around the country,” he said. “This is a country wide issue, but we want to make sure we’re focusing on the markets we know best. And it’s a really good starting point.”
The global pandemic has changed work patterns—particularly in Australia’s major city centres—which has forced landlords and employers to get creative when encouraging staff back to the office.
Tenants want quality. And they are increasingly demanding green credentials.
In bringing new life to the older assets, the venture is aiming for reductions in embodied carbon of 40 per cent and will target a minimum five-Star NABERS weighted average portfolio rating. The buildings will be fully electric and chase Green Star and WELL building status, eventually achieving net-zero in scope 1 and scope 2 emissions.
Built and Investa have worked together on a handful of other occasions.
The builder-developer was behind the construction of Investa’s 23-storey high-tech office tower Barrack Place in Clarence Street, Sydney. And for its part, Built has a history of repurposing secondary assets, redeveloping the Sub-Station No 164 on Clarence Street, a multi-award-winning The Urban Developer Awards for Excellence project.
Built chief executive and managing director Brett Mason said Sub-Station No 164 had proven the success of, and increased demand for, the brown-to-green approach to boutique developments.
“Not only did the retention of the original buildings in construction reduce embodied carbon by 23 per cent in comparison to a conventional build, Built also secured an international fund partner and fully leased the building during Covid and challenging economic conditions, showing the market demand for these types of assets,” Mason said.
Menegazzo believes it’s the first time the strategy has been tried in the Australian market.
“We think this is going to be a really great opportunity to do a lot of transactions in this space, because there's a lot of investor interest and these are the sorts of assets that tenants want to be in.”
