Sydney’s CBD office market is not ready for Net Zero

With only six 100% electric buildings in operation, Sydney’s CBD office market is not ready for the impending widespread shift towards sustainable office requirements, new research from CBRE shows.

CBRE’s Office Sustainability Overview found, as of June 2024, only 3.2% of the CBD’s existing NABERS rated office stock is totally electric, based on publicly available NABERS disclosure data.

CBRE’s NSW Office Research Lead Thomas Biglands said, “Significant progress will be required for the Sydney CBD to meet the growing demand for highly sustainable office space going forward. While Prime office stock in Sydney’s CBD has an average NABERS rating of 5.3 stars, the average rating for Secondary office properties is only 4.5 stars and very few properties have fully electrified their energy usage.”

CBRE’s research shows current demand for ESG certified office space is mixed. In the past 18-months, to June 2024, only 11% of CBRE’s office tenant enquiries for Sydney’s CBD mentioned environmental sustainability criteria in their briefs to market.

Mr Biglands said the research highlighted a trend of larger tenants being more likely to mention environmental sustainability in their brief to market. More than 50% of occupiers looking for more than 5,000 sqm of space mentioned ESG criteria in their brief to market, whereas only 6% of occupiers looking for less than 1,000 sqm did the same.

Data from CBRE’s APAC Occupier Survey shows 82% of occupiers would prefer moving into a green building but 43% of respondents indicated they are not willing to pay a premium for the space.

CBRE’s Head of ESG Su-Fern Tan said the research showed two main challenges were emerging for the Sydney CBD office market.

“We know occupiers are thinking about the sustainability credentials of their office space but there are two gaps here. The first is the challenge for larger occupiers having ambitious sustainability demands that aren't being met in the established real estate available to them. The second gap highlights the different needs in the Prime and Secondary office markets. More needs to be done so sustainability becomes standard practice in the Secondary office market - just like it has in the Prime market,” Ms Tan said.

Ms Tan said there will also be challenges for the Prime office market as occupiers seek to achieve top sustainability credentials.

“In the Prime office market, we are seeing a growing demand for properties with additional sustainability credentials, outside the NABERS rating system. The most common of these is Green Star, which looks at a holistic set of criteria because even though achieving Net Zero is crucial, sustainable buildings are about so much more.

“At the moment, no office space in Sydney’s CBD has a Green Star rating of at least 5, is electrified, uses low emissions refrigerants, and has a NABERS energy rating of at least 5.5 stars. There is considerable work to be done.”

CBRE’s NSW Head of Tenant Representation, Office Occupier, Tristan Gannan said tenants were increasingly seeking to occupy buildings that support their environmental targets.

“For all tenants, the electrification of office buildings is an important step towards meeting their environmental goals. As demand for more sustainable office spaces grows, it’s clear that the real estate market must evolve to support Net Zero objectives. However, with only six fully electrified buildings in Sydney’s CBD, there's still a significant gap to bridge between tenant aspirations and the available buildings.”

The greatest demand for highly credentialed sustainable space comes from a range of industries including professional services, tech & IT, media and entertainment, engineering and construction, telecommunications, finance and banking, as well as government.