The construction industry, like most business sectors, is continuously improving standards, so a building which only meets the minimum statutory requirements today would be considerably more environmentally friendly than an equivalent building built 10 or 20 years ago. Andrew Smith reports…
As statutory minimum standards, best practice and industry standards continue to develop, as well as the continuous introduction of new materials, new construction techniques and new technology, construction will also continue to evolve. It is the speed of this evolution that can affect costs, early adopters investing in new or untested technology, will pay a premium, and this can be a gamble which might or might not pay off.
Reducing the environmental impact of construction and operation of buildings is a large part of this continuous improvement. Almost every part of a new building can be designed and built more sustainably. Optimising energy use, for example, will probably require a better performing building envelope, as well as more sophisticated energy management and monitoring technology.
Recent research shows that the additional cost of achieving a BREEAM rating of Very Good is minimal and the additional cost to upgrade from Very Good to Excellent may be in the region of 2% to 5%. The cost to achieve BREEAM Outstanding, the highest level of performance, can be significantly more. However, this is only targeted by the top 1% of properties and represents the ‘exemplar’ or ‘world class’ category in the current market. With BREEAM Very Good being the minimum standard now required by many local planning authorities, what is the motivation and what incentives exist to encourage developers to go beyond this level and pay the additional cost needed to achieve the higher sustainability standards?
The majority of the Government’s construction legislation takes the ‘stick’ approach, setting minimum standards for energy performance and requiring an understanding of carbon reduction measures that reflect the wider global agenda on sustainability and climate change. The direct impact on construction costs can be seen, for example, in the introduction of landfill taxes on the removal and processing of waste in 1996. This is now reflected in greater attention to recycling and waste avoidance. More demanding Building Regulations have also made it more expensive to build, but at the same time purchasers and occupiers have begun to value sustainability when they make buying choices.
The European Union also takes a similar approach which has a direct impact on construction with initiatives like banning incandescent lights, and R22 refrigerant which was commonly used in air conditioning plant. The European Urban Access Regulations, however, have an indirect impact on construction and sustainability targets as deliveries to sites in central London need to comply with the air pollution targets and low emission zones. To comply with the regulations the whole supply chain needs to keep their vehicles up to date, a cost which will filter down to all end-user clients. If vehicles are not compliant with the emission targets it can cost as much as £200 per day to enter low emission zones, which would increase a contractor’s preliminary costs.
So, is the carrot approach a more effective way of achieving the wider adoption of sustainable practices in the marketplace? Successive UK Governments have sought to introduce regulations (such as the Climate Change Act), in part to meet international protocols but also to incentivise innovation and the adoption of green technology. One effective example is the Enhanced Capital Allowance scheme which promotes investment in energy and water efficient equipment and systems. Whilst a limited number of components and products qualified for this favourable tax relief, there is now widespread adoption by end users. Indeed in some instances, there is a considerable benefit associated with selecting these components over non-qualifying assets.
Real change needs everyone involved in the development of buildings to take a longer term view of the benefits that can be achieved over the full life cycle of a building, or a fit out project, looking beyond the initial capital cost. This requires an understanding of the client’s capital and operational budgets, and an understanding of how a client depreciates their assets. For example, the decision to install more expensive LED lighting, rather than standard fluorescent lamps, brings benefits from increased energy efficiency, reliability and longer lamp life, and, due to falling costs, can reduce the payback period in refurbishment projects to less than 2 years.
As an industry we need to look at the bigger picture and see the long-term benefits of sustainable choices when we make decisions about the way we build, fit-out and refurbish our buildings. As market awareness continues to increase, the cost of going green will provide financial benefits in the future both for the occupier (reduced operating costs improved productivity) and the investor (increase in value). Through a combination of effective legislation, the value placed on corporate social responsibility by businesses and individuals’ willingness to look beyond the short term the built environment can help deliver a positive and sustainable change.
Andrew is a Director within CBRE’s Building Consultancy and Planning team. Andrew joined CBRE in 2014. Previously at EC Harris, he worked both in the UK and Moscow, with clients including Barclays, BDO Stoy Hawyard, Shire Pharmaceuticals, BAA, Bank of America, Deutsche Bank, Metro Cash and Carry and Kingfisher/Castorama. Andrew has extensive experience in all aspects of commercial and financial management of major fit out projects. He has managed teams of surveyors in many projects from inception through to completion and has developed strong working relationships with many of the UK’s leading consultancies.