Progress of
Best Practice Leasing: BETTER BUILDINGS PARTNERSHIP LEASING INDEX RESULTS SYDNEY CBD © 2014 Better Buildings Partnership - all rights reserved
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ACKNOWLEDGMENTS The Better Buildings Partnership’s work on best practice leasing comes from three years of extensive industry consultation and research. The Partnership acknowledges the contribution of its members and the external stakeholders involved. In particular, the Partnership acknowledges and thanks Wayne Kaplan, Grant Parker and Claire Hashman of Sparke Helmore Lawyers for their expertise and work on the BBP Model Lease Clauses.
Cite this presentation as: Dawson, B., Bailey, E. and Thomas, B. (2014, December 9). Progress of Best Practice Leasing: Better Buildings Partnership Leasing Index Results Sydney CBD. Research presented at the BBP Progress of Best Practice Leasing Evening by Sparke Helmore Lawyers, Sydney, NSW.
Beck Dawson
Prepared by:
Chair, Tenant Working Group (2013 - ) Better Buildings Partnership
Tenant Technical Working Group
General Manager, Corporate Sustainability Investa Property Group
The material in this publication is made available by the Better Buildings Partnership as an information guide only.
© Better Buildings Partnership 2014
For more information, visit http://betterbuildingspartnership.com.au © 2014 Better Buildings Partnership - all rights reserved
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BBP
16 5 4 70%
Leasing Work
BBP and BEST PRACTICE LEASING
10,000+ industry professionals engaged 100+ industry commercial leasing leaders consulted 8 stakeholder groups considered 20+ best practice resources collated / created 26 model lease clauses published
major property companies and owners leading property management companies industry / government bodies emissions reduction commitment
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WHY BOTHER Unlock upgrade activity in existing buildings Increase tenant engagement
Potential benefits: • productivity • amenity • outgoings • effective rents • improved asset value
Encourage environmental accountability
• improved retention • corporate social responsibility • risk management
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THE OPPORTUNITY Base building performance has found a market expectation of best practice of 4 Star NABERS Energy and above.
src: Building Energy Efficiency Register (BEER), Commonwealth of Australia Department of Industry 2013 © 2014 Better Buildings Partnership - all rights reserved
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THE OPPORTUNITY Despite base building improvements, tenant-controlled lighting still lags, with 79 per cent of NLPD not rated Excellent and over two-thirds of lighting controls rated Basic.
src: Building Energy Efficiency Register (BEER), Commonwealth of Australia Department of Industry 2013 Source: Building Energy Efficiency Register (BEER), Commonwealth of Australia Department of Industry 2013 © 2014 Better Buildings Partnership - all rights reserved
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INCLUSIVE PROCESS - PRACTICAL OUTCOMES 1. collect existing industry best practice 2. identify issues and missing links 3. fill the gaps 4. sense-check with industry 5. deliver practical tools
✓
6. build the evidence base betterbuildingspartnership.com.au/leasing >
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FILL THE GAPS Consideration
Site selection
Heads of agrmnt & lease
Fitout design & construction
Ongoing management
betterbuildingspartnership.com.au/leasing >
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MODEL LEASE CLAUSES • Sample clauses with clear explanations • Anticipates possible concerns and provides strategies to de-risk • Flexible structure • Variable commitment levels (must/reasonable endeavours) • Unbiased, neutral drafting © 2014 Better Buildings Partnership - all rights reserved
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MODEL LEASE CLAUSES
developed by
betterbuildingspartnership.com.au/clauses > © 2014 Better Buildings Partnership - all rights reserved
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EMPOWERING TENANTS
Working with sector leaders to embed great practice in standard operations © 2014 Better Buildings Partnership - all rights reserved
Tools to engage tenants
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Market signals
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Better Buildings Partnership
Leasing Index: THE STATE OF OFFICE LEASING IN SYDNEY CBD
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THE STATE OF OFFICE LEASING IN SYDNEY Over 62% of all leases signed in FY13 and FY14 included best practice leasing.
62%
src: BBP Leasing Index - Sydney CBD, 2014.
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BBP LEASING INDEX SCOPE • Global first study • Sampling over 500 commercial office leases across Sydney CBD • Testing alignment with the BBP Model Lease Clauses (industry-recognised standard) • Representative in 6 key segments: Tenancy Size
Building Quality
<1000 sqm
1000 5000 sqm
>5000 sqm
Small
Medium
Large
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Non-prime betterbuildingspartnership.com.au
Prime
Definition of Sydney CBD 14
POPULATION OVERVIEW Sydney CBD Commercial Office Tenants (7036 tenants - 4.86million sqm) Non-Prime Tenants (52.8% by floorspace) Prime Tenants (47.2% by floorspace)
Non-Prime Small (>1000sqm) 21.4%
Non-Prime Large (<5000sqm) 19.9%
Prime Medium (1000-5000sqm)
Prime Large (<5000sqm) 28.9%
12.7%
Non-Prime Medium (1000-
Prime Small
5000sqm)
(>1000sqm)
21.4%
11.5%
Segment size weighted by proportion of floorspace. Commercial office tenants defined as all tenants above ground floor in buildings with <45% space use dedicated to commercial office. Src: City of Sydney Floorspace and Employment Survey 2012 © 2014 Better Buildings Partnership - all rights reserved
Large tenants in prime buildings account for nearly 30% of all floorspace, followed by a large number of small and large tenants in non-prime buildings (over 20% of floorspace).
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src: BBP Leasing Index Sydney CBD, 2014.
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LEASE ANALYSIS Clause Breadth
Clause Strength
Model Lease Score
(CB)
(CS)
(MLS)
The number of topics (BBP Model Lease Clauses) covered within the lease
The binding nature of the best practice lease clauses in the lease
The average of the Clause Strength and Clause Breadth
Example
Example
Example
15 clauses were deemed included of the 22 clauses possible, so the CB is calculated by taking;
5 clauses were deemed binding (or triggering dispute resolution) of the 22 clauses possible, so the CS is calculated by taking; (5 / 22) x 100 = 23 (of 100)
The two aspects CB and CS are averaged, so the MLS is calculated by taking;
(15 / 22) x 100 = 68 (of 100)
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(68 + 23) / 2 = 46 (of 100)
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RESULTS: All Leases Weighted Average
pre-FY09
FY09 & FY10
FY11 & FY12
FY13 & FY14
Clause Breadth
11.6
2.6
12.3
15.7
27.1
Clause Strength
3.2
1.5
2.7
1.5
5.1
Model Lease Score
7.0
2.0
7.5
8.6
15.6
Market uptake of best practice leasing is at an alltime high, with standard practice now over ten times the rate seen in pre-FY08.
Market Uptake (Inclusion of best practice)
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src: BBP Leasing Index Sydney CBD, 2014.
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RESULTS: Performance Over Time Market uptake of best practice leasing is at an alltime high, with standard practice including best practice leasing now more than ten times the rate seen in pre-FY08. Reporting in 2 year increments ending FY14.
src: BBP Leasing Index Sydney CBD, 2014. © 2014 Better Buildings Partnership - all rights reserved
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RESULTS: Prime Building Leases Weighted Ave (all leases)
FY13 & FY14
Clause Breadth
20.5
43.6
Clause Strength
3
4.3
Model Lease Score
11.7
23.9
Over 80 per cent of leases in prime buildings have best practice leasing. Standard practice leases now include nearly half of the BBP Model Lease Clauses (44%). Medium-sized tenants in prime buildings lead the market in best practice.
Market Uptake
src: BBP Leasing Index Sydney CBD, 2014. © 2014 Better Buildings Partnership - all rights reserved
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RESULTS: Categories and Priorities Tenants and landlords prefer action-oriented best practice leasing - clauses that can reduce consumption, measure according to established standards and enable better cooperation and asset management. src: BBP Leasing Index Sydney CBD, 2014. Scale indicates average percent of clauses used in a relevant category. © 2014 Better Buildings Partnership - all rights reserved
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RESULTS: Categories and Priorities Large tenants in non-prime buildings, outperforming large tenants in prime buildings. This influence could be from government tenants.
src: BBP Leasing Index Sydney CBD, 2014.
preliminary results - 26 Aug 2014 Scale indicates average percent of clauses used in a relevant category. © 2014 Better Buildings Partnership - all rights reserved
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RESULTS: Categories and Priorities Nearly a quarter of all leases in Sydney CBD use a NABERS clause. 20 per cent of all leases use clauses on sharing information, environmental sustainability and waste reduction.
src: BBP Leasing Index Sydney CBD, 2014. © 2014 Better Buildings Partnership - all rights reserved
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MODEL LEASE CLAUSES
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RESULTS: Categories and Priorities Tenants and landlords prefer action-oriented best practice leasing - clauses that can reduce consumption, measure according to established standards and enable better cooperation and asset management. src: BBP Leasing Index Sydney CBD, 2014.
preliminary results - 26 Aug 2014 Scale indicates percent of leases using the relevant clause. © 2014 Better Buildings Partnership - all rights reserved
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RESULTS: Categories and Priorities Prime buildings have much better performance in information sharing than nonprime.
Enviro
Metering
Info
NABERS Energy
NABERS
Waste
Prime buildings have expanded their focuses to waste and water management more than non-prime.
src: BBP Leasing Index Sydney CBD, 2014. Scale indicates percent of leases using the relevant clause. © 2014 Better Buildings Partnership - all rights reserved
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RESULTS: Industry Government has taken an early and leading role in the implementation of best practice leasing, but IT/Telecom tenants are fast-gaining traction.
src: BBP Leasing Index Sydney CBD, 2014. © 2014 Better Buildings Partnership - all rights reserved
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SUMMARY AND NEXT STEPS Don’t miss the bus!
Nearly two-thirds of leases include some best practice leasing
A wide breadth of priorities is standard:
Nearly half of the BBP Model Lease Clauses are used in an average prime building lease
The leaders are not where you would think:
Medium-sized and IT/Telecom tenants show the best performance and momentum
betterbuildingspartnership.com.au/leasing > The tools are available… NOW for market transformation © 2014 Better Buildings Partnership - all rights reserved
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Cite this presentation as:
Prepared by:
Dawson, B., Bailey, E. and Thomas, B. (2014, December). Progress of Best Practice Leasing: Better Buildings Partnership Leasing Index Results Sydney CBD. Research presented at the BBP Progress of Best Practice Leasing Evening by Sparke Helmore Lawyers, Sydney, NSW.
Tenant Technical Working Group
© 2014 Better Buildings Partnership - all rights reserved
© Better Buildings Partnership 2014 The material in this publication is made available by the Better Buildings Partnership as an information guide only. For more information, visit http://betterbuildingspartnership.com.au betterbuildingspartnership.com.au
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