Nearly 70% of NABERS-rated office buildings may see their energy rating fall over the coming year as the ratings system adjusts its ratings algorithms to reflect the increasing percentage of renewable energy in the national grid.

The change to the NABERS Energy rating methodology will impact buildings where a large portion of the building energy consumption is from natural gas.

It will come into effect in July next year, with Knight Frank warning owners of buildings that are significantly reliant on gas to review their options well ahead of the change and take steps towards electrification.

A Knight Frank analysis found 68% - or 851 – of NABERS-rated office buildings currently use gas, and therefore may be impacted the NABERS Energy rating changes.

Knight Frank Director ESG David Bulock said 96 of these buildings – or 11% - have a rated area of 10,000sq m or more and consume more than 50% of energy on site as gas, representing 2.1 million square metres in rated office space.

“This highlights that there still remain a number of larger assets where electrification remains an opportunity and the challenge still exists in these buildings, - especially in the cold climate markets of Victoria and ACT, for the removal - or reduction – of gas,” he said.

According to Knight Frank’s figures, commercial property buildings in Australia’s colder states will be the hardest hit by the NABERS Energy rating change due to the higher percentage of gas use, except for Tasmania, which doesn’t have a lot of gas infrastructure.

The Australian Capital Territory is expected to have the highest amount - 92% - of NABERS-rated office buildings impacted by the energy rating change, followed by Victoria (90%), South Australia (89%) and New South Wales (72%).

The Northern Territory is expected to be the least affected, with only 5% of NABERS-rated properties reliant on gas.

Knight Frank Head of ESG Jenine Cranston said under the upcoming NABERS Energy rating changes, buildings maintaining significant gas consumption will deliver lower energy rating outcomes than buildings which use little or no gas.

“If your building is still using gas, it may receive a reduced NABERS Energy rating when rated after 1 July 2025,” she said.

“For a building using gas for heating, the reduction in the NABERS Energy rating is likely to be around 0.5 stars from 2025 and 1 star from 2030. If a building uses gas only for domestic hot water, the impact will normally be minimal.

“If a building using a significant amount of gas is only just achieving a particular rating now, its rating will almost certainly drop after the algorithm adjustment in 2025, assuming other factors remain constant.

“Unfortunately for building owners, a reduction in energy rating may also lead to a value reduction for the asset, with ESG-credentialed assets the most in demand amongst buyers.”

Ms Cranston said it was likely the changes would affect both old and new buildings.

“Only five years ago new buildings didn’t have to be electrified, so we expect there will be a wide range of buildings across a wide size range that will be impacted,” she said.

“ESG is a fast-moving space, and it can be hard for property owners to understand and keep up with the complexities, so our best advice is to seek expert help.

“These changes are looming, so now is the time to be acting if you have a building using significant gas, to see how the changes will impact you and what measures you can put in place to counteract the changes. 

“The best thing to do to futureproof your property in terms of ESG is to put an electrification plan in place and start taking steps towards achieving electrification of your building.”

Ms Cranston said only having electrification plans in place for buildings – without steps having been taking to achieve it - won’t be taken into account in the new NABERS Energy ratings next year, as they are conducted on historical performance – that is, over the past 12 months.

“The office sector is faced with multiple challenges to electrification including declining values, energy transition costs, evolving technology and growing refurbishment costs. 

“However, the opportunities to reduce carbon emissions and evolve with the changing NABERS algorithm must be met head on.

“Our ESG team is working with a number of owners to assess and act on degasifying their asset – often as part a NABERS improvement plan.”

Knight Frank’s has a 10-step process to decarbonising building, which includes the following:

Knight Frank’s sustainability reporting platform, Verdig, is also a useful tool to help track energy and carbon emissions metrics to assist owners on their Net Zero journey. 

Verdig is a full data management solution that comes with support from Knight Frank’s ESG specialists.

It is an easy to use, convenient storage of energy, water and waste data, with proven capability to manage data risk and perform at scale.

Verdig includes user-friendly reports, with the software producing audit-ready data suitable for mandatory sustainability reporting.