Real Estate partner Mark Lyons chats with LaSalle Investment Management Head of Asset Management (Australia), Simon Howard, about the opportunities and challenges of the green leasing trend; the repositioning of 222 Exhibition Street, Melbourne; and the Valley Metro redevelopment.

ML In 2015, LaSalle acquired the 28 storey office asset at 222 Exhibition Street in Melbourne with a view to repositioning the building as a core trophy asset. This has been done by securing long term leases for the majority of the space to WeWork and government agencies and by transforming the ground floor area into a retail hub. How important was it to reposition this building and does the final product differ from your original vision?

SH 222 Exhibition Street has always been fundamentally a good office building in a great location at the eastern end of the CBD. The building has a good-sized central core floorplate that provides for excellent natural light and views from all levels of the building. It also benefits from a substantial outdoor area and substantial parking. Not many people would know but this Denton Corker Marshall designing building won the RAIA Victorian Chapter Merit Award for outstanding architecture in 1989 when it was completed. However, when we purchased the asset it was suffering from a lack of street presence and generally presented poorly due to the heavy podium facade elements and dated finishes. Further, whilst the building plant and services were relatively new it wasn't operating as efficiently as it should and as a result its NABERS rating suffered. Therefore, when we acquired this building the intention had always been to reposition this building and return it to its former glory.

With these fundamentals in mind, our repositioning strategy focused on two keys areas: improving the operation of the building plant and enhancing the building's aesthetic/presentation. Both strategies would prove to be equally as accretive to our investment performance.

The first key area involved monitoring and fine tuning the existing operation of plant to enhance the NABERS rating of the building and drive efficiencies in the operational costs of the building. This was achieved in part through the engagement of specialist consultants to monitor the operation of the building, the introduction of a predictive maintenance building management system (Bueno), and the upgrade of the lifts which included the introduction of the latest destination control technology. These upgrades saw us reduce our energy usage, improve reliability and resulted in the building achieving significant cost savings and gains in the building NABERS rating. This was critical to attracting government and large corporate tenants who are particularly focussed on the sustainability credentials of the buildings they occupy.

The second key area involved enhancing the existing presentation of the building, both internally and externally, to provide a more modern offering that was more in keeping with what commercial users expected in today's market and, more importantly, to improve the amenity of the builder to enhance the tenant experience. This involved the installation of a new facade around the podium which enhanced the building's street presence and address. We also opened up the existing ground floor lobby and created a large activated light filled space that makes a fantastic first impression. The reconfiguration of the ground floor lobby opened up a range of retail leasing opportunities which meant tenants had a range of food options on their doorstep. The new lobby and podium works were complemented by a new and expanded end of trip facility and bicycle parking area which is a must-have for tenants.

The final product reflects the intent we had for the building when we acquired it and has played a key role for us in securing more than 25,000m² of tenants over the past three years.

ML The mixed-use redevelopment of the Valley Metro shopping centre is a significant project for LaSalle. What do you see as its key challenges and opportunities?

SH Fortitude Valley has undergone a period of rapid transformation over the last 10 to 15 years, from an entertainment precinct to a mixed use precinct catering to visitors and commercial and residential occupants. Valley Metro is at the absolute heart of this rejuvenation given its central location above the train station. It's really the last piece of the puzzle for Fortitude Valley which has developed into a significant and vibrant fringe market for Brisbane.

Presently, Valley Metro Shopping Centre operates as a transit centre which largely operates Monday to Friday and is at its busiest during lunch. Therefore, the opportunity for this development is to provide a truly mixed use outcome that caters to both the day and night economies of Fortitude Valley thus turning it into a 24 hour a day, seven day a week offering to coincide with the significant footfall from the station. We are endeavouring to do this by refurbishing the existing centre to provide more leisure opportunities, including the introduction of a cinema and casual dining whilst enhancing the existing supermarket and convenience offering. Further, the existing 9,000m² Transport House is undergoing a significant refurbishment with new facade, on-floor amenities and end of trip facilities. There are also DAs for an additional office and residential tower.

There is good support for this project amongst the key stakeholders. However, one of the key challenges associated with this project is its location above a train station. This challenge is two-fold. Firstly, there is the requirement to keep the centre operational throughout the refurbishment works given the Valley is one of the busiest stations in Brisbane.

Secondly, there are the complications of building above an operational railway line which makes the landing of structure problematic. Given the development is such a significant transformation, the other key challenge is being able to articulate the vision coherently so that our tenants and customers can share in that vision and have the confidence to commit to it.

ML LaSalle is currently running a trial of green leasing for the 309 Queen Street office tower in Brisbane. What do you see as the principal benefits and challenges around this growing real estate trend?

SH The key benefit of green leasing is to align both landlord and tenant to drive improved environmental outcomes at the assets which they own and occupy. In order to maximise these outcomes, it's critical both tenant and landlord work in partnership.

Apart from the obvious environmental benefits involving the reduction in greenhouse gases, reducing the consumption of fossil fuels, redirecting waste away from landfill and generally improving the environment and world which we live in, there can be direct benefits to both landlord and tenant in reduced operating costs, improved indoor environmental air quality, and general well-being of building occupants.

The biggest challenges associated with implementing green leases is striking the balance between being too prescriptive, which raises tenant concerns around business impacts making them less likely to adopt the green lease, and not being prescriptive enough, making it difficult to effectively drive operational and environmental efficiencies. This is particularly true when applying to both large and small tenants who may be at different stages or have different views about environmental sustainability.