Copyright: David Lawson - first published Property Week November 2005
Gazeley Pioneers Green Warehouses
Green development is too expensive and too difficult. Local authorities and a few holier-than-thou companies grab headlines with ‘eco-friendly’ libraries and ‘carbon neutral’ offices but in the real world, tenants focus on rents while investors cower from non-standard buildings. Take the humble warehouse, for instance. Who would spend more than £650,000 and two years figuring how to save the planet from what is essentially four walls and a tin roof? Surely not veteran shed builder John Duggan. After all, he heads Gazeley, a subsidiary of Wall Mart, heir to the ‘pile-high, sell-cheap’ mantra of Tesco founder Jack ‘Slasher’ Cohen. Yet Duggan must wear a small smile nowadays whenever an agent spouts the old prejudices. All that money and research paid off when Gazeley’s first EcoTemplate building was let to Woolworths early this year. Now Legal & General has bought the 450,000 sq ft for £44m on a juicy initial yield of around 5.5%. It also won a major commendation at this year’s Business Commitment to the Environment Awards.
Occupiers remain sceptical of green buildings, however, and refuse to pay extra rent. So why bother to build them? Firstly, new regulations are coming thick and fast which will force everyone to adjust. Meanwhile, investors are swinging from indifference to zeal. ABN Amro is the latest to announce it will boycott companies that fail to meet ‘socially responsible’ standards. Veterans achieve their longevity by seeing such trends early. Duggan was confident enough to roll out the results of Gazeley’s research at G Park, Bedford, long before Woolworth came into the frame. A second green shed has been completed at Magna Park, Gazeley’s flagship centre at Lutterworth.
The same principles will apply to a 500,000 sq ft (46,451 sq m) JV with B&Q Properties announced recently for the Towers Business Park site in Staffordshire, and will be rolled out across the whole international portfolio. Remarkably, Gazeley is not seeking to defend this early breakthrough against competitors. The research is freely available to anybody who wants to copy this new approach. They include a battery of innovations at G Park which cut water usage by 45%, reduce Co2 emissions and harvest 6% of energy from natural resources.
The Magna Park building, aptly names Hydro, will cut more than 1m litres of water consumption a year. Wind and solar generation could reduce energy use by 5%. As water authorities warn of shortages, oil prices soar and gas suppliers indicate charges will continue to escalate, even the smallest tenants are expected to take more notice, particularly when energy labelling comes in next year.
They may remain reluctant to pay more but a green image could prove decisive in beating the opposition to a letting. Neil Ashworth, director of distribution at Woolworths says: ‘The fact that this new unit reflects our logistics requirement and also underpins our policy of being a socially responsible retailer has made the decision to locate at G Park Bedford all the more easy.’
Can developers absorb the extra costs? Gazeley says that should not be a major problem. It is paying only 50p a sq ft on top of standard build costs for significant environmental improvements covering:
Full details from http://www.gazeley.com/
New Building Regulations Will force Green Development
Ignore all the fuss about interest rates, oil prices and economic prospects. Property development will explode in the first few months of 2006. Every time big legal changes are made, developers rush to take advantage of existing rules. And changes don’t come much bigger than new building regulations planned for next April. Every development over 1,000 sq metres must meet new standards. The trouble is, no-one really knows what those standards will be. Page upon page of information scrolls by on the Office of the Deputy Prime Minister web site yet it all means nothing until details are approved by parliament.
That won’t happen until early in the New Year – a mere three months before the new rules take effect. So what happens to projects already being planned? ‘You can only take a best guess,’ says Stuart Holt, managing director of Building Standards, an authorised building control consultancy. The information is pure gobbledegook for the average builder or developer. ‘Written by scientists for scientists,’ says Holt. And it still has huge blank areas which can be the key to whether schemes are approved.
He forecasts a surge of activity as developers rush to get started under the existing rules – or at least get building plans approved. Many will be left stranded in confusion, however. What happens to business parks which are built in phases? Do new buildings have to meet different standards? House builders also face this conundrum as they tend to phase development on large schemes. Even small-scale activity could be caught up in this web of confusion. A minor extension could trigger demand for major renovation of the rest of the building to match stricter levels of energy efficiency.
Empty space that meets the relevant section of the building regulations, commonly referred to as Part L, will trigger new standards once services such as water, heating and lighting are updated. Take an average office building in multiple occupation. Landlords would normally refurbish sections as tenants leave. From next April it might be impossible to renovate a single floor, as the new rules could trigger examination of the whole building. A wave of new investors pouring money into shops could be surprised by extra costs when a modest renovation turns into a wholesale refit.
Much of this uncertainty comes from the way new regulations will judge sustainability. They go much further than window sizes and insulation thickness, including the new EU directive to focus on CO2 generation. ‘It is no longer a simple case of ticking boxes,’ says Holt. Buildings will be given ratings for carbon emissions via a computer program. But that program has still not been finalised, so anything on the drawing board until then can only be a best guess.
This is the first time in 40 years as a building control expert Holt has seen guidance so lacking in detail. ‘Looking for answers is like trying to complete a jigsaw without all the pieces,’ he says. A lot of time will be spent in front of computers balancing CO2 figures. Given that the final equations and the software to calculate them have not been released yet, it will be ‘very perplexing’. This complex process will also cause problems on site. Tradesmen and property professionals who will have to put them into practice are not scientists and training will be needed, says Holt.
Some professionals will not be complaining, however. One of the great weaknesses of development is the chasm between architects and the engineers who have to ensure their ideas work. Too often drawings are produced out of thin air and then handed over, creating conflicts when problems mean a design is altered. Service engineers will have to become involved far earlier so architects know their plans meet new standards, says Holt. Landlords and investors will also be driven to involve environmental consultants far more, as they will need expert guidance through this fog of uncertainty. That could help improve the generally poor standard of building which blights parts of the industry.
Adnams: Tougher building regulations are often condemned for producing unimaginative buildings, while fears are growing that the drive for sustainability will make many schemes uneconomic. Adnams aims to challenge those prejudices with what it claims is the UK’s greenest warehouse. The brewer is desperate for more space to match expanding business and will double its storage at Southwold, Suffolk. But energy costs will remain stable as the new building, due for construction later this year, employs sustainable techniques which will halve costs per sq metre.
The 2,382 sq metre [25,630 sq ft] building designed by Aukett Fitzroy Robinson includes a ‘living’ sedum roof. The plants store rainwater for internal use, cut energy consumption and absorb CO2 from the air. Solar panels provide 80% of the hot water and waste is filtered through reed beds. It is the first commercial building in the UK to use vapour permeable lime, hemp and chalk blocks, which lock in CO2 and regulate internal temperature and humidity. Adnams’ sustainable buildings policy won a Queen’s Award for Enterprise this year.
Contamination Time-bombs Set to Explode
The furore over global warming overshadows another environmental problem which can be a more immediate issue to anyone from the biggest investor to the smallest occupier. Contamination has been literally buried away for more than a century, but stricter rules are revealing time bombs that could go off when least expected.
Obscure financial changes that go over the heads of most people have started the explosives ticking. Every listed company must now produce an annual operating and financial review [OFR] so investors can see at a glance any risk to financial performance. Contamination is increasingly seen as a potential risk as tougher EU regulations come into force and even the smallest private firms will be drawn into this net as accounting changes spread. Ignorance is no longer a defence. There are plenty of experts offering advice ranging from cheap on-line reports to in-depth site studies. And the temptation to keep quiet so money does not have to be kept in reserve to deal with suspected problems is no longer viable, says John Waters, European director of remediation at international environmental consultant ERM.
When problems are revealed in an OFR, directors will come under pressure to explain why they took no action. The public could be outraged if objectors to planning applications discover they were kept in the dark A post-Enron purge is also percolating across the world with provisions in the Sarbanes-Oxley Act [SOX] which require greater environmental risk management. US firms are carrying these demands into Europe, placing greater pressure on developers and suppliers.
Investors and lenders might expect to be covered by valuation reports, but there is evidence that these can be deeply flawed. Around 80% of professionals admit they are unaware or unsure about RICS guidance on contaminated land and environmental matters, according to a survey by Landmark, which specialises in mapping environmental threats. Two thirds of valuers merely add caveats to reports rather than demand deeper investigation. It is only a matter of time before a mass of reports will be challenged in the courts, says Richard Pawlyn, managing director of Landmark’s property and environment division.
As a chartered surveyor, he recognises that most fellow professionals are not qualified to comment on environmental factors. ‘But failure to report potential contamination can be considered a breach of duty of care,’ he says. On the other hand, judges could throw the blame back at lenders, who have a tendency to ask valuers to comment only informally on environmental risks.
Many developers are recognizing the problems and offering various types of remediation to satisfy regulators. But this can still lead to shocks. ERM cites one case where problems were not judged important until the land next door was sold. The new owner happened to be a competitor, and immediately began legal proceedings. Another ERM client took over a small industrial property in lieu of a bad debt and later found contamination. Now it is battling to prove this has come from a neighbour and legal costs have already exceeded the property value. Due diligence procedures have been changed to ensure it knows about such threats in future when taking on assets. This will send shudders through lenders, as strong covenants could suddenly dissolve into a morass of extra costs and falling values. Mergers and takeovers will also acquire a new level of risk.
Surveyors who rely on traditional valuation methods or fail to recognize the need to look beyond site boundaries could be first in line when investors start looking for scapegoats. ‘Caveats offer little comfort in a court of law,’ says Pawlyn.
Waste Failings Could Lead to Jail
Environmental concerns are a load of rubbish, according to the harassed developer stumbling through the muddy chaos of a building site. ‘We are making things better, not ravaging the earth,’ he says, raising an arm to modern buildings replacing a jumble of old sheds on the eastern fringes of London. ‘And all this is a waste of time,’ he adds, raising a wad of new regulations that arrived in the post last week. The biting wind whips away one sheet but he can’t be bothered to retrieve it.
A project manager trailing behind stoops to wipe off mud and rank surface water before pocketing the battered sheet. That small gesture could keep his seething boss out of jail. The developer is using the right words in the wrong order. Loads of rubbish have become a key factor in what is actually a time of waste. Powerful new regulations are turning the by-product of even the smallest development into a potential offence as serious as if he had blagged a local bank to pay his contractors.
A bill to reform company law will make directors personally responsible for legal breaches by their firm and its suppliers. And one of the most common crimes is failing to deal with the waste from demolition and construction. Fly-tipping has flourished since the government insisted that hazardous waste must be separated and sent to special tips. It was a great idea with one fatal flaw: no-one saw fit to expand the number of special tips.
Outlets shrank from 250 to a mere 10 for the whole country. As if that was not enough, developers returned from summer holidays to find controls on another 200 categories of waste. Almost every construction site has been drawn into regulations adding new layers of red tape and costs. Temptation to turn a blind eye can be irresistible – and potentially disastrous. The relatively obscure Neighbourhoods and Environment Act came into force last month, raising the prospect of fines up to £50,000 and five years’ jail for fly-tipping.
For the moment, the threat is limited to cowboy contractors, but new laws on corporate responsibility could see their employers in the same dock within the couple of years it will take for any development planned today to be completed. Local councils are champing at the bit to use these new powers to stamp out a problem estimated to cost around £1m a year to clean up. And the Environment Agency is only to keen to use them as watchdogs, warning that it will make every effort to trace illegal tipping back to the source.
Even before the tougher rules came into force some big names which allowed site managers too much leeway were caught out. Now regulators have warned developers that ‘if a waste disposal contact looks to good to be true, it probably is.’ That won’t stop project managers taking short cuts, of course. Developers may even feel the risk is worthwhile when fines are likely to be derisory compared with potential savings. In any case, what lasting harm can a little builder’s rubble cause?
A lot more than you think. Asbestos is now widely accepted even by irritated developers as an insidious poison that deserves the strict controls introduced last year. But there is a widespread assumption that once inspectors give old buildings a clean bill, the problem can be ignored. Anywhere that changes have taken place over the last century are potentially dangerous, says specialist consultant STATS. It was common for asbestos-containing materials [ACM] to be used as fill material, and few records were kept on the exact location and extent.
This has resulted in the potential for ACM to be present anywhere on a site that has been subject to historical changes in development design, says STATS. It has even been brought in as hardcore. Old surveys showing lack of danger can’t be trusted because some were not rigorous enough to meet stricter standards now in force. And under the hazardous waste legislation which came into force in the summer, any site generating asbestos must register with the Environment Agency as a waste producer.
Fears that tougher regulations could lead to widespread blight are being eased, however. Advances in technology means a good deal of waste can be treated on site. Nor does every molecule of contamination need removal. Developers should weigh remediation costs against potential dangers by commissioning a risk analysis, says environmental consultant ERM. Otherwise, diving into remediation could be the equivalent of signing a blank cheque, and costs may end up more than benefits. Waste treatment is not just a problem for new buildings. Property and facilities managers have been drawn into the web by impending controls on disposal of electrical and computer equipment.
Refurbishment is bound to cost more. Even replacing computers will cause problems as new outlets need to be found for the million tonnes or so of waste that is dumped or incinerated every year.The government has twice extended its deadline for enforced recycling but this is unlikely to be extended again beyond next summer. The burden falls mainly on manufacturers and retailers, which will have to take back obsolete equipment. The British Recycling Consortium anticipates it will cost £8m to upgrade a network of local disposal centres. At a time when retailers are already under pressure, this could drive smaller ones to the wall, threatening small investors who have snapped up high street shops