SFT:
Hello and welcome to Talking Property, our CBRE podcast series where our team of experts, our clients, and industry specialists share insights into the way we live, work, and invest through the lens of commercial real estate. I'm Su-Fern Tan, CBRE's Pacific Head of ESG, and I'm your host for this latest Talking Property episode. It's the latest in our ESG in Conversation series in which we'll talk to clients about their sustainability strategies as they future proof their portfolios and focus on innovation.
Today we'll be talking about The YARDS, a $1 billion project, joint venture by Frasers Property Industrial and Aware Real Estate. This Sydney project, which will accommodate approximately 400,000 square metres of industrial space across 77 hectares, recently set a phenomenal new benchmark in Australia. It's become the first industrial estate to ever achieve a Green Star Communities rating from the Green Building Council of Australia. And not only that, The YARDS has also achieved the highest possible rating of 6 Stars, something that's only ever achieved by residential, mixed use commercial and retail precincts. So how was this possible? And is this going to reset expectations for what can be achieved in the industrial sector? To talk me through this, I'm delighted to welcome Andrew Thai, the National Sustainability Manager for Frasers Property Industrial, and Tamara Williams, who is the Head of ESG for Altis, Aware Real Estate's development partner. Welcome.
AT:
Thanks Su-Fern.
TW:
Thank you.
SFT:
Andrew, for our listeners who aren't familiar with the Green Star Communities tool, could you tell us what this tool measures and what differentiates it from other sustainability tools and why you decided to go down this path at The YARDS?
AT:
A Green Star Communities tool is a suite of rating tools that's administered by the Green Building Council of Australia. The tool itself assesses the planning, design, construction of large-scale development projects at a precinct neighbourhood or a community level. And the intention is that it provides a rigorous and holistic rating across impacts that relate to large scale developments. It differentiates itself from other sustainability rating tools by going beyond just the aspects around environmental performance and procurement, but really focuses on things around governance, around economic prosperity, livability innovation, but also focusing, like the other rating tools, on the environmental impacts. The reason why we decided to go down this path with The YARDS was because traditionally there's been a lot of focus on rating schemes for buildings, and we wanted to understand what does a good industrial estate look like from a community perspective beyond the bounds of the four walls that we create. We really didn't know the answer to that question, and not a lot of work has been done in this space. And so with our joint venture partner, Altis, we decided to embark on this adventure to understand the unknown, and that's where the Green Star rating tool allowed us a framework to apply to uncover what the challenges were, what were the questions we had to ask ourselves and engage with our consultants and also perspective occupiers of the space, what they really needed from the space that they're going to be occupying for their businesses to thrive.
SFT:
I also understand that Tamara, of much of this came from you as well, pushing in the background?
TW:
Yes, some of it did actually. So I remember when I joined Altis a few years ago, and when we first joined, I was looking for opportunities to put Altis and Aware sort of on the sustainability map, and I realised that Frasers were a lot further advanced than us in a number of these different initiatives. And so I was looking for opportunities to kind of demonstrate our commitment to ESG. And so, I picked up the phone to Andy one day and I said, 'Look, I think we should do this communities rating because no one's done it before'. And I note that in our development we have a fair bit of amenity planned and it is the perfect opportunity to demonstrate and formalise our commitment to ESG. And when I say ESG, not only the environmental, but the social impact of the way that our users will actually use that site. So it took a little bit of convincing, but I think we both sort of put our heads together and thought, well, this could be unusual, but if it is successful, it will be able to provide a framework for us and hopefully others to adopt a Communities rating into industrial precincts, which is typically a rating which is designed for residential precincts.
SFT:
Yes, great. And once you had convinced them that this was the way to go, I understand that to both of you,. I know that there were some challenges in getting this over the line. So can you talk to us about the process and how you managed to overcome some of the hurdles and inherent risks in retrofitting a tool that hadn't been used in the industrial sector before?
TW:
The main barrier for us was the fact that no one had done this and we really weren't sure what the result was going to be. So there was a huge amount of risk in embarking on this process. And I think between Andrew and myself, we did talk through the fact that given we are two organisations and we're joint venturing on this project, it's the perfect project to trial something like this on because we share the risk between the two organisations. We also share the cost. So, I think that was, you know, one of the initial hurdles was, 'Look, how do we actually just go about this?'
AT:
I really love this sort of aspect of joint venture partnerships because we challenge each other into challenging the norm, right? The idea that Green Star is a tool that we've used consistently in the built environment, but then expanding our thoughts and ideas around what about the space between the buildings? That's also important. A Frasers property in Australia also used the Green Star community tools in our residential developments. And so I've had experience in working with those projects and knew the nuances of how and how it wouldn't apply in the industrial context. But then that was really the approach that it took when we were thinking of it in a residential context. But when we decided to embark on this, we said we need to reframe this tool for industrial. And what that meant for us to do was to engage with the Green Building Council of Australia to say the tool is great, the approach is fantastic, but these little bits and pieces, they don't suit us.
The distances that they were describing was on a human scale, but not on an industrial scale. The ability for us to tap into rebate or incentive programs doesn't relate to a household it relates to a business. And so one of the challenges that we really dedicated a lot of our time on was how do we reframe this intention that the Green Star Communities tool is trying to get out of this and put it into a context of industrial? And that took a lot of work. And that was the biggest challenge that we had to convince ourselves internally to say, ‘Yes, we think we can really do this now’. We think that the outcomes that Green Star is trying to promote with the Communities tool can be achieved in industrial tool. And then, you know, that's all the thought exercises and the work that we need to recalibrate the tool and then came after that the costs.
How much would it require us to redo some work that we did in the past to revisit? Such as adding new lenses on work that was previously done. So the great thing about The YARDS as a project, in the absence of the Green Star Communities tool, there was already a lot of great design initiatives put in place, and that's where Tamara came and said, you know, there's a lot of good stuff here already. Can we sort of put additional lenses into it and then see if we can get this certification? And it turned out, yes, it was really complementary. Every building at The YARDS estate was already going for a Green Star Design and As-Built rating. And with that, a lot of the hard work around the building components was done. It's now the space between the buildings and there was a lot of stuff in there already that we were working towards or wanted to program in. And it was the convincing to the people who, you know, held all the purse strings. They didn't really need too much convincing at the end of the day because I feel like they saw the value in us with The YARDS estate redefining what industrial logistics occupation in Australia looks like. And they weren't afraid to take the risks that were associated with it because like what Tamara was saying, with two entities coming together, the risk is shared, but also the reward is also shared as well.
TW:
I think we had, I think we had a lot of support really, didn't we Andrew? In the beginning, we had a lot of support and I think some of the project managers were saying to us this looks great, right? And I think for them as well, it was almost a pat on the back for the innovative design that they came up with in terms of the estate. And I think that they were a little bit concerned, I guess, about the additional time it would take to undertake this. And we said don't worry, we'll give extra resources and make sure that we staff this properly. The costs were an issue. And they kept on blowing out because the consultant fees kept on piling up and every time we made a change to something, we had to go and get it signed off and ticked off, et cetera. But each time we went back to the project team to get more budget, they were very, very supportive. I think there was a number of times where we were sort of going into this meeting thinking they're going to put a stop to it now, but no one did. They were all very interested and really pleased that we were making progress with this.
AT:
And I think to a testament to our delivery team and the development team, we presented two options. We presented a 5 Star option, which is cheaper and easier to get, or a 6 Star option, which was more leading and innovative, but at the same time more expensive. And without even a discussion really they said we're just going to do the 6 Star.
TW:
Well, I think also because both organisations, particularly Frasers, understood the value of a 6 Star rating in the market. And a lot of users out in the market don't necessarily understand the substance behind a rating and why it would be allocated 5 or 6, but everybody knows that 6 is the maximum that you can get. And so, you know, we thought, we're just going to shoot the lights out and go for 6 because the market will see that we are best of breed in in this space.
SFT:
That sounds amazing. It looks like you, you both had very supportive teams behind you, but it also is testament to how a really great partnership can work and really push boundaries. Tamara, how does this align with the strategies that Aware and Altis have for their portfolios? And how much value do you see this adding to The YARDS?
TW:
Look, Aware Real Estate is a wholly owned subsidiary of Aware Super and Aware Super provide investment superannuation services for their members. And our members are key workers, people that use property and that require amenity, and I think Aware is very, very focused on providing amenity. We have another part of our business, which is a key worker housing platform, which is a variation on a build-to-rent platform, which Aware Real Estate is very focused on. And that's around providing amenity and housing and a living experience for residents and their members. And so I think this is a natural extension to that. It's around providing amenity and social outcomes for the users of our site, the site from a joint venture with Frasers. We are also looking at this rating tool for another property that we're undertaking a development on, an industrial estate.
And so I think it's, for us, it's really sort of set the benchmark I guess, of the sorts of products and the sorts of estates that we would like to deliver into the market. I think the value of it? Jury's out as to whether the actual rating provides the value or the amenity provides the value. I think for us, it's going to be very hard to split those. But I think the value for us is the fact that we can provide the amenity, we can achieve some of these social outcomes and at the same time we can be rewarded for that provision by a 6 Star Communities rating, which we're really pleased with.
SFT:
Yes. It's nice to hear that even though the site isn't operational yet, you obviously can see value in what you've done because you are planning to do the same thing at another site.
TW:
Yeah, absolutely. I mean, I think, industrial property has changed a lot. Andrew's better placed to speak to this than what I am, but industrial property has changed. It's not about just workers coming to work and standing in your shed and then going home. People are looking for an experience, people are looking to be able to have some amenity in the places in which they work. So providing amenity like exercise paths and bike paths and placemaking areas where people can gather, it's just common sense that it's going to improve the workability and the livability of our tenants and the community around us. So, I'd like to think that the Communities rating is putting a framework around that amenity provision.
SFT:
Yes. And I love the concept that equality of access to sustainability has just been increased, right? Why afford only white-collar office workers access to that? So this is such a wonderful project. Andrew, from Frasers' perspective, do you think that this rating will be a major tenant draw card, and do you expect to see a payback from a rental perspective?
AT:
It's hard to say because there's a lot of competing criteria that you can assess that will draw a tenant into your space. One of the reasons this whole process was undertaken was because we wanted to reduce as many barriers as we can for a tenant to come into our spaces. And if we can craft a space where a company's workers want to work in a place like this, that gives an incentive for the company to then want to lease a space but also maintain their lease. So the idea is that with the Green Star Communities rating, there's a high degree of curation after the buildings are completed. And with that curation of forming a community, we believe that we can not only secure the tenants, but also re-lease to them again, because the value of those companies who have seen the working practices of their staff getting value out of it.
And so they might want to re-lease it as a space because they see that there's enduring value and benefits beyond what they would traditionally see in another location. And that's kind of what we believe. We want to create a place where people want to come to work at that place. And if one of those aspects is the ability to congregate outside of the lunchroom, but outside in nature, we can provide that for them. And that's a point of difference that we want to make. And truly, I want to see this spread throughout all of the industrial estates, not just 'us' Frasers or Altis, the idea that we have scattered new amenities across these estates allows people to connect to one another. Like down the road from where we are, there's another Altis estate down there as well. They can use our amenities. Like it's not just for us. And this is the idea that we need to reframe around industrial estates. It's not for the people necessarily who are working there. It's also for the surrounding communities that work and live in surrounding areas. And I think that's the value that this is really going to see payback is that people want to be in a place like this, so they're going to continue to re-lease in a place like this.
TW:
The difference between a 5 Star and a 6 Star in this Communities rating tool is actually around the ongoing management of this once it's tenanted. And so the value, just confirming Andy's point, the value of this is actually the asset management, the community management function that will present itself when the asset's fully tenanted. To be able to provide the tenants and the community the real value and extract that value from this amenity and this rating tool ongoing. So I think that's really where the value's going to present itself.
SFT:
Yes. And that's such a crucial part of any development success, right? What happens after? How is it managed? How are you engaging the community? And it's so nice to know that this project's not only contributing to the community that works there, but the larger community, too. So yes, I love the idea, Andrew, of the ecosystem of Green Star communities just all connecting to each other and essentially forming great cities.
AT:
Yes, exactly right.
SFT:
I wanted to talk to you about the investment payback. Do investors have the same level of focus on sustainability initiatives in the industrial sector as they do in office? And do you think that enough strides are being made towards greening our industrial assets in Australia?
TW:
I think that, yes. Look, Aware Super are the investor into this asset or work through Aware Real Estate. And as I mentioned earlier, the social impact that this will make is very important. If you look at the costs associated with the project, the reality is that the amenity was already planned into this project. So the additional cost of undertaking the rating is actually in the scheme of things not overly material to the value of the development. So I think for us, the payback is going to be the provision of the social impact, as Andrew said, the stickiness of the tenants, the experience that we can provide, the community impact that it will have. I think that really is the payback. And I think we are starting to see investors and institutions actually try and value what that social impact is.
And it's not easy to actually value that. But I know there are organisations that are starting to put together models around how exactly do you value social impact? And I think it will be emerging, and I think it will grow. The appetite for investors to value social impact into their returns, I think is going to increase over time. Communities and the societies are demanding it, workers are demanding it, employees are demanding it. And members of super funds are demanding it. And so it's systemic that social impact will be valued. What that is, I don't know, I couldn't tell you at this point what the payback is going to be of this particular project in terms of the Communities rating, but we know it is going to be for the good for the betterment of our tenants and communities. And ultimately I think that will increase the asset's value.
AT:
Well, we are seeing increased scrutiny around investors on various ESG factors, and I think the investment space has played really well in the office environment. And as industrial now is emerging as a major asset class, investment grade asset class, naturally the same criteria and approach that was applied to office will also apply to industrial. Now, there are challenges associated with industrial, but that doesn't mean that there isn't going to be a same level of focus. There will be, and as organisations and investors grapple with what they deem as material for them, that will cascade down to us in what we deliver. And most prominently, we do believe that social value impact is emerging if not already emerged in the built environment. It's just, we don't know what that looks like in industrial yet. Like how do you measure that? And to Tamara's point, the idea that this whole estate is trying to develop for the future, like providing longevity of not only returns, but able to meet investor expectations, having a low impact, low carbon operation, that's the whole philosophy of The YARDS.
It's trying to create enduring places that deliver enduring value. But to your other part of your question, you know, are there enough strides being made in greening the industrial assets in Australia? There could be much more. Like we're not there yet. And when I say we're not there yet, and that relates to a whole bunch of other factors, you know, there's industrial assets. Primarily we play in a lot of like logistics and warehousing type of operations. And there's a big question around other sectors that are associated with that, which is transportation. So we can make the buildings and the parks as nice as possible, as low impact as possible, but we also can't avoid the fact that that industry contributes to maritime emissions, aviation emissions, transport emissions. And they're all large buckets of sectors that we need to address. And I think the investors have a really strong role to play in this, to help understand all of these gaps in the market around what they're addressing around ESG and to help coordinate it across their investment portfolio. That's kind of where the next sort of iteration of all of this is, is going beyond the building, going beyond the state, going beyond the sector to other sectors so that the whole economy can decarbonise. Or deliver social value or address biodiversity or whatever the topic is. That's where it's all moving towards, and we hope that this is our introduction into what that future can look like.
SFT:
Wonderful. Thank you so much for your time, Andrew and Tamara. The YARDS is such an exciting project and will be a real world leader in showcasing what's possible in the industrial sector from a sustainability perspective. Thanks for tuning into this latest episode of Talking Property with CBRE. If you like the show and want to check out more, visit cbre.com au/talking-property, or subscribe through Spotify and Apple Podcasts. Until next time.
