Don t leave money on the floor.

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1 Insulation A4/16 AW2116 Issue 1 Jun 2016 The Real Value of Space IN COMMERCIAL REAL ESTATE THE IMPACT OF DIFFERING INSULATION SPECIFICATIONS ON THE ROI ASSOCIATED WITH INTERNAL FLOOR AREA Don t leave money on the floor. Low Energy Low Carbon Buildings

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3 Contents Page Introduction 4 Executive Summary 4 Analysis 5 Background 5 Approach 5 Findings 6 Concrete Wall Construction Incorporating Kingspan Kooltherm K12 Framing Board 6 Concrete Wall Construction Incorporating Kingspan Kooltherm K17 Insulated Plasterboard 7 Conclusion 8 Case Studies 9 Alexandria NSW, Retail Park 9 North Ryde NSW, Business Park / Office 10 Baulkham Hills NSW, Office / Laboratory 11 Appendix A 12 Wall Build-up Comparative Analysis Data Inputs 12 Appendix B 13 External Wall Construction Build ups Specification & Cost 13 3

4 Introduction Executive Summary The usable space within a building is a fundamental metric in understanding the valuation, thus the investment potential, of real estate. Property with greater internal floor area commands a higher rental return in addition to a higher overall financial value and could, therefore, give rise to a greater Return on Investment (ROI). The width of external walls incorporating Kingspan Kooltherm wall insulation solutions is thinner than conventional solutions incorporating glasswool fibre batts facilitating internal space gains without having to increase the overall designed footprint of a building. With the aim of quantifying the financial benefits that result from insulating the external walls of new non residential buildings using Kingspan Kooltherm wall insulation solutions, Kingspan Insulation commissioned Currie & Brown Australia, in collaboration with Sweett Group UK, to investigate the Real Value of Space in Commercial Real Estate. The study also found that because Kingspan Kooltherm K17 Insulated Plasterboard was cheaper than conventional steel stud-and-track wall systems incorporating 90 mm glasswool fibre batts, every m 2 of additional space created with this system produced a net gain in value. A lower thermal conductivity can result in thinner insulation. A thinner insulation can result in thinner external wall construction. A thinner external wall construction can result in greater internal floor area. A greater internal floor area can result in a greater Return on Investment (ROI). To this end, Currie & Brown Australia and Sweett Group UK developed a research program to, firstly, analyse the thickness differentials of various insulation systems and evaluate their impacts on a development in terms of both costs and returns and, secondly, analyse three indicative case study buildings in order to illustrate the outcomes of the analysis. Concrete external wall constructions were examined. Two Kingspan Kooltherm build ups were compared against conventional steel stud-and-track build-ups incorporating 90 mm glasswool fibre batts, and the differential in both thickness and cost were taken into account in the analyses. The findings show that, despite the requirement for a CapEx uplift of $18.03 per m 2 for the wall build-up incorporating Kingspan Kooltherm K12 Framing Board, the additional cost of specifying the solution, in lieu of the comparative glasswool solution, can provide a positive ROI*: l 72% of the building scenarios analysed showed a positive ROI; l A positive ROI was found for all scenarios with rental rates of $400 per m 2 or greater, across all yield rates, the highest of which was 856%; l All three case study buildings showed a positive ROI up to 85%. *The overall return on the additional CapEx investment required for the use of Kingspan Kooltherm wall insulation solutions versus comparative insulation solutions. 4

5 Analysis Background This study analyses the financial value of the additional internal floor area gained through the use of thinner wall insulation solutions in new non residential buildings, without compromising the overall designed footprint. To establish the extent of this financial benefit on a given building, a typical concrete external wall construction was examined. For each scenario, a comparison was made between two build ups that differed by insulation specification. The construction width and cost for each build up were used as direct inputs into the analysis. The subsequent outputs from the analysis were evaluated to determine the CapEx investment cost of the additional space and, in terms of rental income and yield, the capitalised market value of the additional space. The ROI was thus calculated by dividing the former by the latter. To demonstrate the findings against typical buildings and typical cost information, further analysis was performed by applying the analysis methodology to three indicative case study buildings around Sydney and outer-sydney locations. Approach To quantify the financial benefits associated with greater internal floor area, Currie & Brown Australia, in collaboration with Sweett Group UK, used an approach that comprised the following five stages. Stage 1: Wall Build up Selection Concrete external wall construction was identified as the construction typically used in the new non residential buildings types to be analysed. For each construction, two build ups were selected: one incorporating a Kingspan Kooltherm wall insulation solution; and the other a conventional steel stud-and-track wall lining system incorporating 90 mm glasswool fibre batts. Both build ups were designed to achieve a Total R-value of at least R T 2.3 for Deemed-to- Satisfy compliance with Section J of the National Construction Code (NCC) for Climate Zones 4, 5 and 6, including a R0.5 concession for concrete walls (wall density 220 kg/m 2 ). Stage 3: Differential Thickness and Cost Analysis Thickness differentials between wall build-ups were calculated and comparative construction costs (per lineal metre) were determined for each. The inputs used for this comparison were the cost of the various wall build-ups per m 2, the m 2 of wall per lineal metre, the additional space created, and cost of floor and ceiling fit-out for the additional space created. Refer to Appendix A for further details of the data inputs used to generate the analysis. Stage 4: Net Value of Space and ROI Analysis The data from Stage 3 were then applied to various building scenarios with a range of annual rental rates per m 2 and yield rates to conduct financial analysis in relation to the generic net value (or cost) of space and ROI. Refer to Appendix A for further details of the data inputs used to generate the financial analysis. Stage 5: Application of Findings via Case Study Buildings Three typical non residential building case studies were analysed to demonstrate the findings. Average rents and yields were applied based on a survey, conducted by Currie & Brown Australia, of actual historical data of similar building types in each location. Refer to the Case Studies section of this document for further details of each case study building, shown with one external wall construction incorporating a Kingspan Kooltherm wall insulation solution. Stage 2: Wall Build up Cost Analysis The cost breakdown and elemental rates for each build up were ascertained. The analysis of the cost differential between each build up for each construction included a deep review of cost differences e.g. materials, labour, sundries. Primary research was conducted to supplement rate references ascertained from Rawlinsons Australian Construction Handbook

6 Findings Concrete Wall Construction Incorporating Kingspan Kooltherm K12 Framing Board Width & Cost: Wall Build ups Concrete (150 mm) Concrete (150 mm) Furring Channel (28 mm) Steel stud frame (92 mm) R2.0 glasswool batt (90 mm) Plasterboard lining (13 mm) Plasterboard lining (13 mm) Kingspan Kooltherm K12 Framing Board (30 mm) Build up width: 226 mm Build up cost: $ / m 2 Build up width: 255 mm Build up cost: $83.25 / m 2 Figure 1: Build up Incorporating Kingspan Kooltherm K12 Framing Board. Figure 2: Build up Incorporating Glasswool Fibre Batt. Despite a CapEx uplift of $18.03 per m 2, the overall width of the build up incorporating Kingspan Kooltherm K12 Framing Board is 29 mm thinner than that incorporating glasswool fibre batts. Refer to Appendix B, Tables B 2 and B 3 for further details of the cost breakdown and elemental rates for each build up. ROI % Yield ROI (%) $0 5.0% Yield 7.5% Yield 10.0% Yield 12.5% Yield $100 $200 $300 $400 $500 $600 $700 $800 Rent per m 2 Figure 3: ROI for Building Scenarios to which the Kingspan Kooltherm K12 Framing Board Build up was Applied. For all building scenarios attracting annual rental incomes of $400 per m 2 and above, across all yields, the additional CapEx investment in Kingspan Kooltherm K12 Framing Board provides a positive ROI the greatest of which being 856% at 2.5% yield, with a lettable floor area of $750 per m 2. 6

7 Concrete Wall Construction Incorporating Kingspan Kooltherm K17 Insulated Plasterboard Width & Cost: Wall Build ups Concrete (150 mm) Concrete (150 mm) Steel stud frame (92 mm) R2.0 glasswool batt (90 mm) Kingspan Kooltherm K17 Insulated Plasterboard (55 mm) Plasterboard lining (13 mm) Build up width: 213 mm Build up cost: $60.75 / m 2 Build up width: 255 mm Build up cost: $83.25 / m 2 Figure 4: Build up Incorporating Kingspan Kooltherm K17 Insulated Plasterboard. Figure 5: Build up Incorporating Glasswool Fibre Batt. The concrete wall build-up incorporating Kingspan Kooltherm K17 Insulated Plasterboard was found to be cheaper and 42 mm thinner than that incorporating glasswool fibre batts. Refer to Appendix B, Tables B-5 and B 6 for further details of the cost breakdown and elemental rates for each build up. Net Value of Space Because the build-up incorporating Kingspan Kooltherm K17 Insulated Plasterboard was found to be cheaper, there was no additional CapEx required to employ the system, making the theoretical ROI effectively infinite. Instead, the below chart (Figure 6) reveals the net value of space per lineal metre gained when using Kingspan Kooltherm K17 Insulated Plasterboard. Net Value of Space per Lineal m $1400 $1200 $1000 $800 $600 $400 $ % Yield 5.0% Yield 7.5% Yield 10.0% Yield 12.5% Yield $0 $0 $100 $200 $300 $400 $500 $600 $700 $800 Rent per m 2 Figure 6: Net Value of Space for Buildings to which the Kingspan Kooltherm K17 Insulated Plasterboard Build up was Applied. For all levels of annual rental incomes, across all yields, Kingspan Kooltherm K17 Insulated Plasterboard is demonstrated to generate greater value by creating additional space. At a rental rate of $750 per m 2, and a yield of 2.5%, the build-up generates its highest gain of $1,323 additional value per lineal metre. 7

8 Conclusion It is clear from the findings of Currie & Brown Australia / Sweett Group UK that Kingspan Kooltherm wall insulation solutions should be considered the insulation of choice, for new non residential buildings, where ROI and additional space is a consideration for property developers, owners and investors. On the whole, the capitalised market value of the additional space resulting from the specification of Kingspan Kooltherm K12 Framing Board is greater than the CapEx cost of the additional space. Out of the 75 building comparison scenarios that were analysed, 72% showed a positive ROI, irrespective of the CapEx uplift when compared against conventional steel studand-track wall lining systems incorporating 90 mm glasswool fibre batts. The offsetting of the CapEx cost of the additional space by the market value of that additional space, is further illustrated by the findings for the case study buildings. For instance, with the specification of Kingspan Kooltherm K12 Framing Board, the office / laboratory development in Baulkham Hills resulted in a ROI of 85%. Premium performing insulation materials (i.e. those with a lower thermal conductivity), on the other hand, can provide some relief, since a lower thermal conductivity can result in thinner insulation. A thinner insulation can result in thinner external wall construction. A thinner external wall construction can result in greater internal floor area. A greater internal floor area can result in a greater ROI. Kingspan Kooltherm wall insulation solutions should be considered the insulation of choice, for new non residential buildings, where ROI and additional space is a consideration for property developers, owners and investors. Meanwhile, the specification of Kingspan Kooltherm K17 Insulated Plasterboard demonstrated an infinite ROI due to its cost advantage, with no additional CapEx required. Every m 2 of additional space created with this system produced a net gain in value when compared against conventional steel stud-and-track wall lining systems incorporating 90 mm glasswool fibre batts. In the Baulkham Hills office / laboratory case study, for example, the application of Kingspan Kooltherm K17 Insulated Plasterboard would have created extra space worth $31,403 at average rents and yields, with a further saving in capital costs of $7,436, resulting in a total net benefit of $38,749. As policy and legislation continue to target those activities that consume vast amounts of energy and contribute most to CO ² emissions, buildings in particular are being subjected to increasingly stringent energy performance standards, which may include onerous requirements for the building envelope. This can lead to a subsequent increase in the wall insulation thickness required to achieve the specified thermal performance, and therefore a corresponding decrease in marketable internal floor area. Poorer performing insulation materials (i.e. those with a higher thermal conductivity), can exacerbate the nuisance of diminishing indoor space, particularly in buildings limited by a fixed footprint. Over time, this can erode the financial value, thus investment potential, of a building. 8

9 Case Studies Alexandria NSW, Retail Park The case study is a typical new build retail park centre located on the southern outskirts of Sydney. The development comprises of a single building split into five separated retail spaces that could be prospectively let individually. Each unit is fit-out to shell only. The development is on an existing site and as a result it includes the demolition of existing buildings and re-landscaping, but does not require re-routing of services. Description Value External wall construction type Concrete wall (150 mm) Wall build up Kingspan Kooltherm K12 Framing Board Development cost ~$10 million Lettable floor area 5,550 m 2 Projected annual rental value $287 / m 2 / year External wall area 1,850 m 2 Floor area to wall area ratio 3.0 Additional floor area m 2 Additional capex for Kingspan Kooltherm K12 Framing Board $40,330 Additional cost as % of total development cost 0.4% Additional annual rental income $3,080 / year Current market yield for Capitalised value of space $64,131 Value created $23,801 Return on additional CapEx 59% Table 1: Details of the Alexandria, Retail Park Case Study Building with a Concrete Wall Construction Incorporating Kingspan Kooltherm K12 Framing Board. 9

10 Case Studies North Ryde NSW, Business Park / Office This case study encompasses two new build four-storey office blocks located north of Sydney. Both blocks are fit out to a Cat A specification. Description Value External wall construction type Concrete wall (150 mm) Wall build up Kingspan Kooltherm K12 Framing Board Development cost ~$29 million Lettable floor area 10,300 m 2 Projected annual rental value $375 / m 2 / year External wall area 4,985 m 2 Floor area to wall area ratio 2.06 Additional floor area m 2 Additional capex for Kingspan Kooltherm K12 Framing Board $114,611 Additional cost as % of total development cost 0.4% Additional annual rental income $14,285 / year Current market yield for % Capitalised value of space $194,812 Value created $79,571 Return on additional CapEx 69% Table 2: Details of the North Ryde, Business Park / Office Case Study with a Concrete Wall Construction Incorporating Kingspan Kooltherm K12 Framing Board. 10

11 Baulkham Hills NSW, Office / Laboratory This case study is a small single-storey office space and laboratory space development where the floor area is split into 75% office / 25% laboratory. The office space will be fit-out to Cat-A specification with the laboratory space as shell only. Description Value External wall construction type Concrete wall (150 mm) Wall build up Kingspan Kooltherm K12 Framing Board Development cost ~$3.6 million Lettable floor area 610 m 2 Projected annual rental value $383 / m 2 / year External wall area 500 m 2 Floor area to wall area ratio 1.42 Additional floor area 4.15 m 2 Additional capex Kingspan Kooltherm K12 Framing Board $11,711 Additional cost as % of total development cost 0.33% Additional annual rental income $1,590 / year Current market yield for Capitalised value of space $21,683 Value created $9,973 Return on additional CapEx 85% Table 3: Details of the Baulkham Hills, Laboratory / Small Office Case Study with a Concrete Wall Construction Incorporating Kingspan Kooltherm K12 Framing Board. 11

12 Appendix A Wall Build-up Comparative Analysis Data Inputs The data inputs that have been used to conduct the comparative analysis have each been researched and decided on by the relevant building professionals at Currie & Brown Australia and Sweett Group UK. Cost data associated with Kingspan products, as well as wall construction build-up thicknesses, was supplied by Kingspan Insulation Pty Ltd. Description Value External Concrete Wall Construction Build-up Width & Cost Kingspan Kooltherm K12 Framing Board $ / m mm Kingspan Kooltherm K17 Insulated Plasterboard $60.75 / m mm R2.0 Glasswool Fibre Batt 90 mm $83.25 / m mm Building Form Floor to floor height 4.0 m Building Financials Fit-out rate $650 / m 2 Table A 1: Base Data Assumptions Used For Analysis. Specification R2.0 Glasswool Fibre Batt 90 mm Kingspan Kooltherm K12 Framing Board Kingspan Kooltherm K17 Insulated Plasterboard * Assumes a floor to floor height of 4 m ** Applied at $650 / m 2 Floor to Floor Cost ($ per Lineal m)* $ Floor space created (m 2 per lineal m) Additional Fitout ($ per m 2 Floor Area)** Overall cost (per Lineal m) $ $18.85 $ $90.97 $ $27.30 $ $62.70 Table A 2: Data Inputs Used To Calculate Cost Analysis of Differential Thicknesses. Variation ($ per Lineal m) Description Value Annual rental value $50 - $750 / m 2 in increments of $50 Yield rate 2.5%, 5.0%, 7.5%, 10.0%, 12.5% Table A 3: Data Inputs Used To Run the Financial Analysis. 12

13 Appendix B External Wall Construction Build ups Specification & Cost Concrete Wall Construction Build up Specifications The external concrete wall construction and corresponding build up specifications used in the analysis are defined by Kingspan Insulation Pty Ltd. The calculated Total R-values for all build ups achieve a minimum R T 3.2 and are calculated in accordance with AS/NZS Build up Cost Breakdown & Elemental Rates Cost data for the components comprising the build ups has been researched and determined by the relevant building professionals at Currie & Brown Australia, namely Quantity Surveyors, referencing Rawlinsons Australian Construction Handbook 2015 as a publicly available source of information for many of the wall elements. Primary research was conducted where additional information was required. Cost information associated with Kingspan products was supplied by Kingspan Insulation Pty Ltd. Concrete Wall Construction Incorporating Kingspan Kooltherm K12 Framing Board Concrete Wall (150 mm) Kingspan Kooltherm K12 R2.0 Glasswool Fibre Batt 90 mm Framing Board Heat Flow In R T 2.4 R T 2.3 Heat Flow Out R T 2.5 R T 2.3 The R-values shown are Total R-values for the building element as required by the Energy Provisions of the Building Code of Australia and are calculated in accordance with AS/NZS The contribution of the product Total R-values depends on installation and environmental conditions. Table B 1: Concrete Wall Construction Thermal Performance. Layer Build up Component Kingspan Kooltherm K12 Framing Board Thickness (mm) 1 Concrete wall Furring channel clip - n/a 3 Steel stud framing n/a 92 4 Insulation Foil tape Negligible n/a 6 Furring channel 28 n/a 7 Plasterboard lining Full wall build up Table B 2: Concrete Wall Construction Build up Specification. R2.0 Glasswool Fibre Batt Thickness (mm) Wall Build up Cost ($ / m 2 ) Layer Description Kingspan Kooltherm K12 Framing Board Glasswool Fibre Batt 1 Furring channel clip n/a 2 Steel stud framing (92 mm) n/a 37.40* 3 Insulation * 4 Foil tape (48 mm wide) 1.62 n/a 5 Furring channel (28 mm) 19.20* n/a 6 Plasterboard lining (13 mm) 29.00* 29.00* 1 6 Full wall build up * Source: Rawlinsons Australian Construction Handbook Table B 3: Concrete Wall Construction Build up Cost Breakdown & Elemental Rates for Supply-and-Install. 13

14 Appendix B Concrete Wall Construction Incorporating Kingspan Kooltherm K17 Insulated Plasterboard Concrete Wall (150 mm) Kingspan Kooltherm K17 Insulated Plasterboard Heat Flow In R T 2.6 R T 2.3 Heat Flow Out R T 2.6 R T 2.3 R2.0 Glasswool Fibre Batt 90 mm The R-values shown are Total R-values for the building element as required by the Energy Provisions of the Building Code of Australia and are calculated in accordance with AS/NZS The contribution of the product Total R-values depends on installation and environmental conditions. Table B 4: Concrete Wall Construction Thermal Performance. Layer Build up Component Kingspan Kooltherm K17 Insulated Plasterboard Thickness (mm) 1 Concrete wall Steel stud framing n/a 92 3 Daub adhesive 8 n/a 4 Insulation 55* 90 5 Plasterboard lining n/a* 13 Full wall build up * Includes 10 mm plasterboard pre-bonded to the insulation board. Table B 5: Concrete Wall Construction Build up Specification. R2.0 Glasswool Fibre Batt Thickness (mm) Wall Build up Cost ($ / m 2 ) Layer Description Kingspan Kooltherm K17 Insulated Glasswool Fibre Batt Plasterboard 1 Steel stud framing (92 mm) n/a 37.40* 2 Insulation * 3 Plasterboard lining (13 mm) n/a 29.00* 1 3 Full wall build up * Source: Rawlinsons Australian Construction Handbook Table B 6: Concrete Wall Construction Build up Cost Breakdown & Elemental Rates for Supply-and-Install. 14

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16 Contact Details General Enquiries Tel: Kingspan Insulation Pty Ltd Pty. Ltd. reserves the right to amend product specifications without prior notice. The information, technical details and fixing instructions etc. included in this literature are given in good faith and apply to uses described. Recommendations for use should be verified as to the suitability and compliance with actual requirements, specifications and any applicable laws and regulations. For other applications or conditions of use, Kingspan Insulation Pty Ltd offers a Technical Advisory Service the advice of which should be sought for uses of Kingspan Insulation Pty Ltd products that are not specifically described herein. Please check that your copy of the literature is current by contacting us or visiting Kingspan Insulation Pty Ltd Pty Ltd Tel: info@kingspaninsulation.com.au Kingspan, Kooltherm and the Lion Device are Registered Trademarks of the Kingspan Group plc in Australia and other countries. All rights reserved. Kingspan Insulation Pty Ltd Pty Ltd