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| The Value of Engineering Issue 32 - July 07 RFP looks at relationship between intelligent buildings and modern property valuation practices. Intelligent buildings are generally understood to be buildings full of hightech gadgetry fibre optic cabling and integrated building management systems. They are usually referred to as increasing the ‘value’ of the building but with little explanation of what this means. According to Dr. Albert So, of the Asian Institute of Intelligent Buildings (AIIB) who has developed a definition of intelligent buildings for Asia, an intelligent building is designed and constructed based on an appropriate selection of quality environment modules to meet users’ equirements by matching the appropriate building facilities to achieve long-term building value. a new approach David Faulkner Chairs the Valuation Faculty Committee for RICS in Hong Kong alongside his position as Regional Director, Colliers International. He is actively involved in the valuation of a number of commercial, retail and hotel properties around the region. He says that different valuation approaches are taken depending on the type of building or land being valued. When valuing a building a number of factors are taken into consideration but the first step, particularly for commercial premises, is to look for similar properties with which to compare it regardless of the systems within the building.  A valuer is looking to arrive at a figure that is representative of the highest and best use value. When looking to value part or all of a building the valuer seeks comparables and while entire office buildings are sold infrequently Faulkner says the active strata title market can help give an indication of a general figure. Some strata title buildings, such as Nine Queen’s Rd, Central, are considered grade A. Faulkner notes that recently there has been a change in the way that buildings are valued and says that location still fills the first and second positions in the building value hierarchy but now design quality is increasingly important. While design quality is not equal to intelligent buildings, if you use the AIIB definition, an intelligent building is judged not just by its number of automated gizmos but on management and design that improves the building for its intended use. And, according to Faulkner, buildings that are well managed, well designed, easy to maintain and use little electricity are valued higher than those which are not. as standard For office buildings certain design features have become standard in grade A premises, says Faulkner. For example a building could not now be considered grade A (and attract grade A tenants and their rents) unless it has raised flooring. This would affect the value of the building. If a building cannot attract premium rents because of a failing of this kind then regardless of its location it will be valued lower. Raised flooring is an example of how building for engineering and intelligence to be installed at a later date has now become a prerequisite. There are also examples that Faulkner pointed out where the engineering systems in the buildings themselves affect its value and he feels the move towards green buildings is leading the change. He is now seeing the ideas behind greening buildings affecting the types of rents that a landlord can charge, and he believes that the more tenants who demand to know the ‘green credentials’ of their landlords, the more likely this is to change. sustainable solutions A sustainability survey conducted by Jones Lang LaSalle in collaboration with CoreNet Global revealed that 64 percent of respondents from the Asia-Pacific are prepared to pay a premium for greener real estate. The report showed that of those surveyed, 93 percent of respondents expressed a notable increase in awareness regarding sustainable buildings over the last three years, with 62 percent expressing that such growth in associated environmental, economic and social awareness had been significant. When asked ‘how well are landlords and service providers servicing and promoting sustainability requirements within the real estate that you occupy and operate?’ only 18 percent of respondents considered current provisions of sustainable real estate good or adequate. Linda DeMars, Vice President for Programme Development at CoreNet Global said: “Clearly this presents an opportunity for developers to introduce and retrofit green real estate across Asia.” Faulkner believes that currently, a building that implements energy saving or other systems that have green elements is able to command a rental premium. He believes that in the future, the buildings without green elements will not be able to command average rentals. One of the obstacles that he sees here in Asia is that there is no broadly accepted standard rating system to use as a guideline. Faulkner was not aware of the AIIB and while their system provides a good standard to measure the effectiveness of buildings, until it is generally accepted it is unlikely to affect the way buildings are valued.
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| International standards such as the Green Building Council’s Leadership in Energy and Environmental Design (LEED) becoming more recognised might help like, says Faulkner, the Energy Star programme that has across the board support in Australia. Essentially a building is valued on what it can be sold for and this relates back to its profitability. If very unintelligent or environmentally detrimental features, like a marble lobby, means the property can command higher rents or is viewed as grade A then this is just as important as any engineering behind the scenes.  customer demand Paul Scroggie, Director, Corporate Consultancy, Knight Frank says that in the future buildings will be rated grade A based on their ability to deliver power to customers. Banks in particular are demanding more and more power from their buildings and companies are even reserving redundant power for their exclusive use says John Duffin, Executive Director, DSCO. Therefore an intelligent building that is well serviced from a power perspective with sufficient redundancy is also likely to command higher rents. Duffin says his company, which specialises in mechanical and electrical engineering, used to rarely get involved in international company’s site selection procedures, whereas now they are frequently called upon to determine whether a building will meet the engineering needs of its occupants. Landlords Duffin says, are often unaware of the requirements of their tenants and sometimes buildings are struck off a tenant’s list due to a misunderstanding about the building’s capability. Ignoring some of the more technical details, something as simple as floor to ceiling height might rule out a building but the landlord may not know that height was the problem. Suitability of the space for the intended purpose is also an important onsideration. According to Loren Smith, Vice President, Structuretone Asia the purpose of the building is also important. Smith works on a number of datacentre projects and says that often property people will suggest moving a datacentre to an industrial building because the high ceilings, floor loading and non central location fit the needs of datacentres. There are two problems with this, firstly industrial real estate is becoming increasingly expensive and secondly no one is selling. This is compounded by the inability of datacentres to be located with most other tenants and the huge engineering overhaul that would need to take place even if the property met the other criteria. “Right now in Hong Kong there are three industrial sites suitable for datacentres”, he says. “The first needs to be completely gutted, the second has been refurbished but only some of the floors are usable and the third needs to be razed completely before an environmental clean up of the site, which was used to process toxic chemicals.”  not yet valued? So while the engineers are telling us that engineering is driving real estate it seems it is going to take some time before it is drives valuation practices in any more than an indirect way. One area where efficiencies brought about through intelligent building systems is more immediately visible is in the valuation of hotels or retail centres, which are valued based on their operating accounts. If the energy bill is reduced then the hotel becomes cheaper to run. Some things are harder to measure though. An air cleaning system that benefits staff might have effects that are hard to quantify immediately, but over time if something affects the top or bottom line then it affects the value of the building itself. Shopping centres are more or less the same, and it is a critical question for developers whether they are going to install these green or intelligent systems. If they do and it increases the success of the shopping centre then it will improve the quality of tenants and increase commanding rents as well as keeping down operating costs. In the past, the emergence of intelligent buildings was developer driven, says William F. Concannon, Vice Chairman, CB Richard Ellis, but these days top-down customer requirements from clients have heralded a new demand for advanced building design and systems. Concurrently, Faulkner says that landlords across the board are increasingly seeing that they have to retro-fit both to reduce operating costs and to improve the perception of any type of building they own. Over time, valuers who typically come in at the front end of a deal are realising that now real estate is not about “the address” but also what happens after the deal is done. Where intelligent building fits into this is not yet clear, however any intelligence that reduces operating costs and increases the profitably of the building, regardless of its use, is sure to affect the value in the future. RFP
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Key title: RFP magazine
Abbreviated key title: RFP mag.
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