Gavin Read, Auckland Committee Regional Member and Head of Research, JLL New Zealand, shares his view on the hurdles Auckland is facing in its journey to achieving net zero by 2050.
Globally, the real estate industry is facing an enormous challenge in a bid to reduce global carbon emissions; retrofitting our buildings. It’ll take genuine leadership within the industry, and some risk-takers on the government side, to drive the asset transformation needed to achieve global targets. We face the same challenge in Auckland.
JLL has calculated that in mature cities around the world, approximately 80% of office buildings that exist today will still be occupied in 2050. This means current building stock will have to be retrofitted at a rate of between 3-3.5% per year to meet net zero carbon targets. The World Green Building Council estimates buildings account for 40% of global carbon emissions. Drilling down into cities, that percentage climbs significantly. An audit of 32 global cities found that buildings account for 60% of citywide carbon emissions.
Many local councils have set bold net zero commitments that exceed their country’s national targets. Regardless of ambition, these city-specific sustainability targets won’t be achieved without a proactive programme to significantly reduce emissions from buildings. The adage goes “the greenest building is the one that already exists”. This is due mostly to the embodied carbon associated with the construction industry, which is said to make up 11% of global carbon emissions.
Auckland’s goal is to halve greenhouse gas emissions by 2030 and achieve net zero emissions by 2050. We share many of the challenges faced by cities around the world, as well as some more local ones.
There’s currently no regulatory framework in place requiring buildings to achieve Green Star or NABERS ratings, and the goalposts for seismic upgrades seem to shift every few years. Many buildings in Auckland’s cityscape require seismic or sustainability upgrades to meet existing regulations, or regulations that are just around the corner. Despite this, there’s clear demand from occupiers for those buildings that have already been upgraded. Green Star-rated CBD office stock in Auckland is just 6.3% vacant, while non-rated properties jump to 11.5% vacancy.
Aside from occupier demand, given the lack of regulatory framework, there is little incentive for owners to get ahead of the market and invest in costly upgrades before they’re required by law. Regulators in local and central government must lead from the front in embedding this framework in New Zealand and incentivising positive environmental outcomes.
Cities incentivising developers¹:
Potential to receive up to 20% of development charges refunded by implementing a minimum number of environmental design measures.
The Solar Panel Tax Abatement programme offers property tax abatements to owners that install solar electric-generating systems (photovoltaic solar panels) on their buildings.
The Small-scale Renewable Energy Scheme incentivises individuals and small businesses to install small-scale renewable energy systems (e.g. solar panels, small-scale wind systems, solar water heaters) through the creation of tradable certificates, which wholesale purchasers of electricity are legally obliged to purchase.
Challenges to implementation
- Labour constraints. Even as the largest city in New Zealand, attracting the lion’s share of migrants, we’ll need more skilled and unskilled labour than is currently available or projected to do the work required to meet our net zero commitments.
- Infrastructure. What’s required to connect and improve Auckland’s productivity, and beyond that, nationally, to ensure the city is more resilient to weather events? Infrastructure will compete with owners for resources from the same labour pool to upgrade buildings. Transport emissions account for 30% of all carbon emissions. Add that to buildings and we have the ability to impact 70% of all emissions. Transport infrastructure will be critical to this and is an important attraction factor for prime building stock.
- Regulations on Green Star and NABERS ratings. Over 85% of owners in a recent JLL survey² expect more regulations are on the horizon. The uncertainty of what that looks like has many owners in a holding pattern.
- Seismic strengthening. This is no longer just seen as a Wellington and Christchurch issue. Auckland owners want to provide quality, safe spaces for their occupiers. The same JLL survey indicated building owners would prioritise asset resilience to natural disasters over sustainability improvements.
Footing the bill
Today’s inflationary environment, together with capacity constraints, and construction and labour costs, are hurdles many owners are all too familiar with. The cyclical nature of our economy means inflation and funding costs will ebb and flow, however measures such as removing depreciation from commercial real estate have the potential to impact any progress towards achieving net zero emissions.
Both major political parties have committed to the removal of the commercial building deprecation tax break, with National estimating it to be worth an average of $525 million annually. This equates to $3.15 billion by 2030 and $13.65 billion by 2050. This is desperately needed capital for the industry to bring our commercial properties up to the environmental standards necessary to meet both Auckland’s and New Zealand’s net zero targets.
Current and future leaders in the property industry will be instrumental in shaping Auckland into a future-fit city. What remains to be seen is how those leaders will react to funding and framework challenges that are already impacting the viability of upgrading buildings.
¹ Decarbonising Cities and Real Estate, JLL New Zealand
² Office Sentiment Survey report, JLL New Zealand
Head of Research, JLL
Gavin is based in Auckland, New Zealand. Focusing on the commercial property markets across New Zealand, he is responsible for presenting market insights to institutional and private clients, authoring thought leadership papers and providing data analysis for the wider JLL business and clients.