Controlling the value of buildings

Commercial buildings play a major role in the financial sector, and should be viewed as major assets. Like any form of investment, good return requires careful management. Ian Ellis explains why that means monitoring and control of performance are essential.

The UK’s commercial property market is worth over £500 billion. The ownership of these huge assets is divided fairly evenly between owner-occupiers and the big investors such as pension portfolios.

In the world of property portfolio management, the numbers are always big. For example, Prudential Property Investment Managers (PRUPIM) manages 740 properties worldwide; the real estate investment portfolios it manages range from £41 million to over £6 billion; these buildings have thousands of occupiers around the world.

Commercial property, including retail, office and some industrial, has always been viewed as a steady investment. And in a world where markets are constantly shifting, property is viewed as an important stabiliser.

The FTSE UK Commercial Property Index report for 2011 states: “Property as an investment class remains an attractive proposition…The story is compelling.” And the RICS reflects this view in its March 2012 UK Economy and Property Market Chart Book, saying: “Commercial property remains an attractive asset compared to bonds.”

The performance of large property portfolios ultimately depends on the performance of individual buildings. How quickly they can be let or sold, how much energy they use, whether they meet current and future legislation on carbon emissions – these are the questions that require reliable answers because they effect the long-term value of important financial assets.

This means that collecting data on the building performance is becoming increasingly important at all levels of building management – from the FM, to the landlord, to the property fund manager. A building energy management system (BEMS) can provide accurate, timely data on numerous aspects of building performance making it a vital property management tool.

The energy performance of buildings in particular is rising higher up the agenda. One driver for this is the growing interest in ‘green’ investment funds as well as the understanding that sustainable buildings are a better financial bet in the long term.

In a study by Maastricht University (The Economics of Green Building, 2011) research into 26,000 office buildings in New York showed that sustainable and energy efficient buildings saw higher rents, better occupancy rates and increased selling prices compared to ‘non-sustainable’ but comparable offices. Investors are also showing greater interest in ‘green’ funds.

But this interest in more sustainable and energy efficient commercial buildings is not based entirely on improved corporate social responsibility. There are some hard financial reasons to ensure that buildings operate as efficiently as possible.

The government backed away from its proposal to introduce compulsory Display Energy Certificates, but a number of bodies including the RICS are calling for compulsory DECS. Perhaps more pressingly, the Department for Energy and Climate Change (DECC) announced last year that from 2018, buildings with an Energy Performance Certificate (EPC) less than E will not be able to be rented out. This means that from 2016 landlords will not be able to refuse ‘reasonable requests’ from tenants to improve a property.

Another driver is the growing emphasis on the carbon footprint of commercial buildings, and a greater understanding of how climate change will affect the operation of shops and offices. The RICS report, Non-domestic real estate climate change model (2011), quantifies the impacts of climate change on the operating costs and carbon emissions of buildings.

Their conclusions are that while rising temperatures in the UK might reduce the need for heating in commercial buildings, properties with a high cooling demand and air conditioning will face rising costs. And those buildings with lower heating demands at the moment will face this transition from savings to increased costs sooner. Controlling the need for cooling with techniques such as demand controlled ventilation will become increasingly common in the future.

The requirement to understand performance at a portfolio- and single building-level has seen a proliferation of energy efficiency and benchmarking schemes aimed at property owners and managers.  Benchmarking allows portfolio managers to view how they are performing against competitors in the sector, and to demonstrate success to their shareholders.

The benchmarking schemes require regular and accurate collection of building energy performance data, most effectively achieved through the BEMS. For example,  the London Better Buildings Partnership (LBBP) is a collaboration of London commercial property owners and related organisations.

The LBBP acknowledges that accurate measurement and monitoring of how much energy a building uses is crucial, stating: “One of the biggest barriers to improving the energy efficiency of commercial buildings is a lack of performance data. Both owners and occupiers are often unaware of how well or badly their building is performing…”

When thinking about a BEMS, it should be viewed not simply as a mechanism to control the heating, ventilation, air conditioning and lighting, although it will do all these. It is important to consider the information that might be required from the BEMS at the early stages of specification.

Data for its own sake can lead to overload, so it is important to focus on what is important. For example, it is possible to track minute-by-minute energy use, but it is important to ask if that level of detail is what is required. The BEMS can also help to analyse the success of investment in energy saving technologies with a before-and-after analysis.

At BRE’s 40% Symposium in 2011, PRUPIM’s director of sustainability Nina Jackson, made the very fundamental point that: “We can’t manage what we can’t measure.”

When the giants of property management have seen the importance of good building performance data, it is a lesson that all building managers should take to heart. The BEMS is a business tool that provides hard data on building performance and helps to manage, monitor and improve it in the future.

Ian Ellis is President of the Building Controls Industry Association (BCIA)
The BCIA National Conference May 10th will examine how to use BEMS and controls for more efficient, sustainable and profitable buildings.
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