Insulat ion

Low Energy – Low Carbon Buildings

The Real Value of SpaceIN COMMERCIAL REAL ESTATE – THE IMPACT OF DIFFERING INSULATION SPECIFICATIONS ON THE ROI ASSOCIATED WITH INTERNAL FLOOR AREA

www.kingspaninsulation.com.au/realvalueofspace

Issue 1 Jun 2016

A4/16 AW2116

Don’t leave money on the floor.

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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

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Executive SummaryThe 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’.

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 m2 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 m2 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.”

Introduction

“ 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)”.

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 m2 of additional space created with this system produced a net gain in value.

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Analysis

Background

Approach

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.

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 SelectionConcrete 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 RT2.3 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/m2).

Stage 2: Wall Build–up Cost AnalysisThe 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 2015.

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 m2, the m2 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 AnalysisThe data from Stage 3 were then applied to various building scenarios with a range of annual rental rates per m2 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 BuildingsThree 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.

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Findings

Width & Cost: Wall Build–ups

Concrete Wall Construction Incorporating Kingspan Kooltherm® K12 Framing Board

Build–up width: 226 mm

Build–up cost: $101.28 / m2

Build–up width: 255 mm

Build–up cost: $83.25 / m2

Figure 1: Build–up Incorporating Kingspan Kooltherm® K12 Framing Board.

Despite a CapEx uplift of $18.03 per m2, 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

Kingspan Kooltherm® K12 Framing Board(30 mm)

Concrete (150 mm)

Furring Channel (28 mm)

Plasterboard lining (13 mm)

R2.0 glasswool batt (90 mm)

Concrete (150 mm)

Steel stud frame (92 mm)

Plasterboard lining (13 mm)

Figure 2: Build–up Incorporating Glasswool Fibre Batt.

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 m2 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 m2.

2.5% Yield

5.0% Yield

7.5% Yield

10.0% Yield

$100 $200 $300 $400 $500 $600 $700 $800

Rent per m2

RO

I (%

)

800

600

400

200

0

–100$0

12.5% Yield

900

700

500

300

100

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Width & Cost: Wall Build–ups

Concrete Wall Construction Incorporating Kingspan Kooltherm® K17 Insulated Plasterboard

Build–up width: 213 mm

Build–up cost: $60.75 / m2

Build–up width: 255 mm

Build–up cost: $83.25 / m2

Figure 4: Build–up Incorporating Kingspan Kooltherm® K17 Insulated Plasterboard.

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 SpaceBecause 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.

Kingspan Kooltherm® K17 Insulated Plasterboard(55 mm)

Concrete (150 mm)

R2.0 glasswool batt (90 mm)

Concrete (150 mm)

Steel stud frame (92 mm)

Plasterboard lining (13 mm)

Figure 5: Build–up Incorporating Glasswool Fibre Batt.

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 m2, and a yield of 2.5%, the build-up generates its highest gain of $1,323 additional value per lineal metre.

2.5% Yield

5.0% Yield

7.5% Yield10.0% Yield

$100 $200 $300 $400 $500 $600 $700 $800

Rent per m2

Net

Val

ue o

f Spa

ce p

er L

inea

l m

$1200

$800

$400

$0$0

12.5% Yield

$1400

$1000

$600

$200

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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 stud-and-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%.

Meanwhile, the specification of Kingspan Kooltherm® K17 Insulated Plasterboard demonstrated an infinite ROI due to its cost advantage, with no additional CapEx required. Every m2 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 CO² 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.

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”.

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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 BoardDevelopment cost ~$10 millionLettable floor area 5,550 m2

Projected annual rental value $287 / m2 / yearExternal wall area 1,850 m2

Floor area to wall area ratio 3.0Additional floor area 10.73 m2

Additional capex for Kingspan Kooltherm® K12 Framing Board $40,330Additional cost as % of total development cost 0.4%Additional annual rental income $3,080 / yearCurrent market yield for development @4.8%Capitalised value of space $64,131 Value created $23,801Return 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.

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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.

Case Studies

North Ryde NSW, Business Park / Office

Description Value

External wall construction type Concrete wall (150 mm)Wall build–up Kingspan Kooltherm® K12 Framing BoardDevelopment cost ~$29 millionLettable floor area 10,300 m2 Projected annual rental value $375 / m2 / yearExternal wall area 4,985 m2

Floor area to wall area ratio 2.06 Additional floor area 38.05 m2

Additional capex for Kingspan Kooltherm® K12 Framing Board $114,611Additional cost as % of total development cost 0.4% Additional annual rental income $14,285 / year Current market yield for development @7.36 % Capitalised value of space $194,812Value created $79,571Return 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.

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Baulkham Hills NSW, Office / Laboratory

Description Value

External wall construction type Concrete wall (150 mm)Wall build–up Kingspan Kooltherm® K12 Framing BoardDevelopment cost ~$3.6 millionLettable floor area 610 m2

Projected annual rental value $383 / m2 / yearExternal wall area 500 m2

Floor area to wall area ratio 1.42Additional floor area 4.15 m2

Additional capex Kingspan Kooltherm® K12 Framing Board $11,711Additional cost as % of total development cost 0.33%Additional annual rental income $1,590 / yearCurrent market yield for development @7.33%Capitalised value of space $21,683Value created $9,973Return 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.

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.

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Appendix A

Wall Build-up Comparative Analysis – Data InputsThe 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 $101.28 / m2

226 mm

Kingspan Kooltherm® K17 Insulated Plasterboard $60.75 / m2

213 mm

R2.0 Glasswool Fibre Batt 90 mm $83.25 / m2

255 mm

Building Form

Floor to floor height 4.0 m

Building Financials

Fit-out rate $650 / m2

Table A–1: Base Data Assumptions Used For Analysis.

Specification Floor to Floor Cost ($ per Lineal m)*

Floor space created (m2 per lineal m)

Additional Fit-out ($ per m2 Floor Area)**

Overall cost (per Lineal m)

Variation ($ per Lineal m)

R2.0 Glasswool Fibre Batt 90 mm

$333.00

Kingspan Kooltherm® K12 Framing Board

$405.12 0.029 $18.85 $423.97 $90.97

Kingspan Kooltherm® K17 Insulated Plasterboard

$243.00 0.042 $27.30 $270.30 -$62.70

* Assumes a floor to floor height of 4 m** Applied at $650 / m2

Description Value

Annual rental value $50 - $750 / m2 in increments of $50

Yield rate 2.5%, 5.0%, 7.5%, 10.0%, 12.5%

Table A–2: Data Inputs Used To Calculate Cost Analysis of Differential Thicknesses.

Table A–3: Data Inputs Used To Run the Financial Analysis.

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External Wall Construction Build–ups – Specification & CostConcrete Wall Construction Build–up SpecificationsThe 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 RT3.2 and are calculated in accordance with AS/NZS 4859.1.

Appendix B

Build–up Cost Breakdown & Elemental RatesCost 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 (150 mm) Kingspan Kooltherm® K12 Framing Board

R2.0 Glasswool Fibre Batt 90 mm

Heat Flow In RT2.4 RT2.3

Heat Flow Out RT2.5 RT2.3

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 4859.1. The contribution of the product Total R-values depends on installation and environmental conditions.

Concrete Wall Construction Incorporating Kingspan Kooltherm® K12 Framing Board

Table B–1: Concrete Wall Construction Thermal Performance.

Layer Build–up Component Kingspan Kooltherm® K12 Framing Board Thickness (mm)

R2.0 Glasswool Fibre Batt Thickness (mm)

1 Concrete wall 150 150

2 Furring channel clip - n/a

3 Steel stud framing n/a 92

4 Insulation 30 90

5 Foil tape Negligible n/a

6 Furring channel 28 n/a

7 Plasterboard lining 13 13

Full wall build–up 226 255

Table B–2: Concrete Wall Construction Build–up Specification.

Wall Build–up Cost ($ / m2)

Layer Description Kingspan Kooltherm® K12 Framing Board Glasswool Fibre Batt

1 Furring channel clip 15.72 n/a

2 Steel stud framing (92 mm) n/a 37.40*

3 Insulation 35.74 16.85*

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 101.28 83.25

* Source: Rawlinsons Australian Construction Handbook 2015.

Table B–3: Concrete Wall Construction Build–up Cost Breakdown & Elemental Rates for Supply-and-Install.

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Appendix B

Concrete Wall (150 mm) Kingspan Kooltherm® K17 Insulated Plasterboard

R2.0 Glasswool Fibre Batt 90 mm

Heat Flow In RT2.6 RT2.3

Heat Flow Out RT2.6 RT2.3

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 4859.1. The contribution of the product Total R-values depends on installation and environmental conditions.

Concrete Wall Construction Incorporating Kingspan Kooltherm® K17 Insulated Plasterboard

Table B–4: Concrete Wall Construction Thermal Performance.

Layer Build–up Component Kingspan Kooltherm® K17 Insulated Plasterboard Thickness (mm)

R2.0 Glasswool Fibre Batt Thickness (mm)

1 Concrete wall 150 150

2 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 213 255

* Includes 10 mm plasterboard pre-bonded to the insulation board.

Table B–5: Concrete Wall Construction Build–up Specification.

Wall Build–up Cost ($ / m2)

Layer Description Kingspan Kooltherm® K17 Insulated Plasterboard

Glasswool Fibre Batt

1 Steel stud framing (92 mm) n/a 37.40*

2 Insulation 60.75 16.85*

3 Plasterboard lining (13 mm) n/a 29.00*

1–3 Full wall build–up 60.75 83.25

* Source: Rawlinsons Australian Construction Handbook 2015.

Table B–6: Concrete Wall Construction Build–up Cost Breakdown & Elemental Rates for Supply-and-Install.

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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 www.kingspaninsulation.com.au

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