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Value Case for Green Star-rated Fitting Out of Central Government Office Accommodation

Executive Summary

1 Introduction

2 The Motivation

3 Green Star New Zealand – Scope of Building Features Assumed in the Value Case

4 Green Star New Zealand – Environmental Key Performance Indicators

5 Value Case Assumptions

6 Value Case Results

7 Conclusions

References

7 Conclusions

7.1 New leased office accommodation

The previous government mandated the following minimum standards for the base buildings of new leased office accommodation:

• 5 stars for A-grade buildings

• 4 stars for B-grade buildings.

A 6-star standard has therefore been discounted from further analysis. It would also be reasonable to assume that the fit-out rating should match the base building rating, although a higher rating is theoretically possible. On this basis, a 4-star fit-out is appropriate to a 4-star base building and a 5-star fit-out to a 5-star base building.

A further 4-star with energy focus standard, representing a 4-star rating with an enhanced score in the energy category, was also developed given the Government’s particular concern for cost effectiveness and carbon abatement. This results in an identical NPV over a nine-year period. Given the additional benefits of carbon abatement and demonstrating government leadership for the same investment performance, a 4-star with energy focus minimum standard is recommended.

Based on the results of this value case, the following minimum fit-out standards are recommended.

Table 14: Recommended minimum fit-out standards for new leased office accommodation

7.2 Existing leased office accommodation

There are currently no mandated minimum standards for the base buildings of existing leased office accommodation. Ideally the base building should be upgraded to at least a 4-star minimum standard as a condition of a new or extended lease. Where this is not feasible, upgraded lighting and on-floor HVAC systems are recommended. Again a 4-star with energy focus minimum standard is recommended for similar reasons to the new leased accommodation case above.

Based on the results of this value case and the overview above, the following minimum fit-out standards are recommended.

Table 15: Recommended minimum fit-out standards for existing leased office accommodation

7.3 Sensitivity analysis

Given the varying nature of government departments and their accommodation needs, there is likely to be some variation in the cost–benefit analyses given in section 6. Two further refinements to the cost–benefit analyses for the recommended minimum standards have therefore been undertaken.

As a general rule investment costs tend to be underestimated and operating cost benefits overstated in studies of this nature. The effect of a 10 per cent increase in the capital cost investment for achieving the stated Green Star fit-out rating and a 10 per cent reduction in the potential operating cost savings have therefore been included in the cost–benefit analysis in Table 16. Based on these results, the further effect of a +/- 10 per cent variation in total fit-out costs from the $750/m² assumed in the value case in section 6 have been included in Table 17. This gives a likely range of potential fit-out costs of $675–825/m².

Table 16: Cost–benefit analysis for 4-star, 5-star and unrated base building with 10 per cent increase in capital cost investment and 10 per cent reduction in cost savings

Notes:

NLA (net lettable area) = the area for which a tenant could be charged for occupancy under a lease.

Simple payback = the amount of time it will take to recover the initial cost premium, ignoring the time value of money, inflation and the life of the investment.

IRR (internal rate of return) = the discount rate with an NPV of 0 over a period of time.

NPV (net present value) = the stream of costs and benefits over a period, converted into an equivalent value today.

Table 17: Capital cost investment for 4-star, 5-star and unrated base building with 10 per cent increase in capital cost investment and 10 per cent reduction in cost savings

Note: NLA (net lettable area) = the area for which a tenant could be charged for occupancy under a lease.

7.4 Fit-out value case final results

Based on Tables 16 and 17, the final results of this value case are given in Table 18. This summarises the likely range of costs and benefits of the recommended minimum standards.

Table 18: Cost–benefit analysis for recommended minimum fit-out standards

Notes:

NLA (net lettable area) = the area for which a tenant could be charged for occupancy under a lease.

Simple payback = the amount of time it will take to recover the initial cost premium, ignoring the time value of money, inflation and the life of the investment.

IRR (internal rate of return) = the discount rate with an NPV of 0 over a period of time.

NPV (net present value) = the stream of costs and benefits over a period, converted into an equivalent value today.

7.5 Magnitude of savings possible if minimum standards were applied to all central government accommodation

Central government is the most significant owner and lessee of commercial buildings in New Zealand. Their buildings use between 20 and 25 per cent of government’s total energy use. Adopting these new standards across all central government accommodation over the next 10 years as new fit-outs progressively fall due could result in the macro outcomes given in Table 19.

Table 19: Estimated outcomes if minimum standards are applied to all government office accommodation

Note: GWh (gigawatt hour) = unit of electrical energy equal to one billion watt hours.

Based on Table 19, the average projected reductions in energy, CO₂ and associated operating cost savings are estimated to be approximately 25 per cent of current use.

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