Research Proposal – Drivers of Energy-Efficiency Retrofit Adoption in Commercial Property

Introduction and Background

The built environment is one of Australia’s most significant and least tractable sources of greenhouse gas emissions. Commercial buildings account for a substantial share of national electricity consumption, and the Australian Bureau of Statistics reports that stationary energy use remains among the largest contributors to the country’s emissions profile (ABS 2022). As governments, investors and tenants converge on net-zero commitments, the existing stock of offices, retail centres and mixed-use assets has become the central decarbonisation challenge, because the majority of the buildings that will be operating in 2050 have already been constructed. Modelling by the ClimateWorks Centre (2023) indicates that deep energy-efficiency retrofits of existing commercial assets are indispensable to any credible pathway to net zero, yet the rate at which owners actually commission such upgrades continues to lag the technical and economic potential.

Australia is unusual in possessing a mature measurement infrastructure for building performance. The National Australian Built Environment Rating System (NABERS) provides a widely trusted energy rating that allows owners and tenants to benchmark performance on a comparable star scale (NABERS 2023), and the Commercial Building Disclosure scheme administered by the Department of Climate Change, Energy, the Environment and Water requires the disclosure of energy efficiency information for larger office spaces at the point of sale or lease (DCCEEW 2023). The Green Building Council of Australia (2022) has meanwhile set out an industry roadmap toward a carbon positive built environment. Despite this comparatively strong policy architecture, a persistent gap remains between the retrofits that are cost-effective and those that are actually undertaken, a phenomenon long described in the energy economics literature as the energy-efficiency gap (Jaffe & Stavins 1994).

This proposal sets out a program of research, submitted for confirmation of candidature at an Australian university, that investigates why commercial property owners and managers adopt, delay or decline energy-efficiency retrofits. It situates the question within established theories of technology adoption and within the specifically Australian regulatory and market context, and it proposes a mixed-methods design to test and explain the drivers of adoption.

Problem Statement

The core problem is not a shortage of proven retrofit technologies but the uneven and often sluggish behaviour of the decision-makers who could deploy them. A well-documented barrier is the split-incentive, or principal-agent, problem: where an owner pays for a capital upgrade but a tenant on a net lease captures the resulting reduction in energy bills, the party best placed to invest has little financial reason to do so. Split incentives interact with information asymmetries, capital constraints, short holding periods and organisational inertia to produce systematic under-investment. While the existence of these barriers is well established, far less is known about their relative weight in the contemporary Australian market, or about how emerging regulatory pressure and tenant demand for green space are reshaping owners’ decisions. Without this evidence, industry bodies such as the Property Council of Australia (2022) and government agencies risk designing incentives that address the wrong constraints.

Research Aim and Questions

The aim of the proposed study is to identify and explain the drivers of energy-efficiency retrofit adoption among owners and managers of commercial property in Australia, and to assess how the split-incentive structure moderates the effect of those drivers on adoption. Three research questions follow:

1. Which economic, regulatory and organisational factors most strongly predict the intention of Australian commercial property owners and managers to commission energy-efficiency retrofits?
2. To what extent does exposure to split-incentive lease structures moderate the relationship between these drivers and adoption intention?
3. How do owners and managers themselves account for their retrofit decisions, and how do these accounts explain the patterns observed in the quantitative data and in secondary NABERS ratings?

Literature Review

Technology adoption theory

Research on why organisations take up new technologies offers several complementary lenses. The Technology Acceptance Model holds that adoption is driven principally by perceived usefulness and perceived ease of use (Davis 1989), a framing that translates in the retrofit context into perceptions of financial payback and of implementation complexity. Rogers’ (2003) diffusion of innovations theory broadens the account by emphasising the relative advantage, compatibility, trialability and observability of an innovation, together with the characteristics of adopter categories ranging from innovators to laggards. Applied to commercial property, these frameworks suggest that retrofit uptake will depend not only on objective returns but on how clearly those returns are perceived, how compatible upgrades are with existing operations, and how visible the results are to peers in a relatively tight professional market.

Principal-agent and split-incentive theory

The second stream concerns the misalignment of costs and benefits. Jaffe and Stavins (1994) formalised the energy-efficiency gap as the divergence between the level of efficiency that is cost-effective and the level actually achieved, attributing much of it to market failures including principal-agent problems. In commercial leasing, the classic case arises under net leases, where tenants meet energy costs and therefore capture any savings, while owners bear the capital outlay. The result is a structural disincentive that a whole-of-building economic appraisal would not, on its own, predict. This body of work motivates treating the split-incentive not as a simple barrier but as a moderator that weakens the translation of otherwise favourable economics into action.

Green premium evidence

A third stream examines whether the market rewards efficient buildings through higher rents, occupancy or asset values, the so-called green premium. International studies have found measurable premiums associated with environmental certification (Eichholtz, Kok & Quigley 2013). Crucially for this proposal, Australian evidence points in the same direction: Newell, MacFarlane and Walker (2014) identified rental and value premiums associated with higher energy ratings in the Australian office market. A credible green premium partly offsets the split-incentive problem by giving owners a value-based, rather than purely bill-based, reason to invest.

Synthesis and gap

Taken together, the literature explains adoption as a function of perceived economic benefit, regulatory pressure, organisational capacity and environmental commitment, conditioned by the lease structure that determines who captures the gains. What is missing is an integrated, contemporary and specifically Australian test that estimates the relative influence of these drivers, models the moderating role of split incentives, and triangulates self-reported intention against realised performance captured in NABERS ratings. The proposed study addresses this gap.

Conceptual Framework

Figure 1 presents the conceptual model that integrates the three literature streams. Economic, regulatory and organisational drivers are hypothesised to raise adoption intention, which in turn predicts realised retrofit adoption; the strength of these paths is moderated by the degree of split-incentive exposure across an owner’s portfolio.

The model yields four testable propositions: that economic drivers (H1), regulatory drivers (H2) and organisational drivers (H3) are each positively associated with adoption intention, and that split-incentive exposure (H4) negatively moderates the strength of these associations. Adoption intention is, in turn, expected to predict subsequent retrofit activity and measurable improvement in NABERS Energy ratings.

Methodology

Research design

The study adopts a sequential explanatory mixed-methods design. A quantitative survey establishes the relative strength of the hypothesised drivers and the moderating effect of split incentives; qualitative interviews then explain and contextualise the statistical patterns; and secondary analysis of NABERS ratings provides an objective behavioural anchor against which self-reported intention can be validated. This triangulation strengthens both internal and ecological validity.

Sampling and survey

The target population comprises owners, asset managers and facilities managers responsible for commercial buildings in Australia, sampled through industry membership lists and professional networks. The study seeks approximately 220 usable survey responses, a target justified on two grounds. First, the hypothesised structural model estimates roughly 22 free parameters, and at the commonly cited ratio of ten observations per parameter (Kline 2016) a minimum of 10 x 22 = 220 responses is indicated. Second, assuming a conservative response rate of 22 per cent, the sampling frame must contain at least 220 / 0.22 = 1,000 eligible contacts, which is achievable through the relevant industry channels. The instrument will be administered online and piloted with a small group of practitioners before full distribution.

Interviews

Following preliminary analysis of the survey, 15 semi-structured interviews will be conducted with a purposive sub-sample selected to span owner types, asset classes and levels of retrofit activity. Interviews will probe the reasoning behind recent decisions, the perceived influence of regulation such as the Commercial Building Disclosure scheme, and the practical operation of split incentives in lease negotiations.

Secondary NABERS data

Publicly reported and, where permission allows, portfolio-level NABERS Energy ratings will be compiled for a subset of respondents’ buildings, enabling comparison of stated intention with realised rating trajectories over time (NABERS 2023). This component addresses the well-known risk that self-reported environmental intention overstates actual behaviour.

Measures

Constructs will be operationalised using multi-item scales adapted from the adoption literature and measured predominantly on seven-point Likert scales. As shown in Table 1, each construct is assigned a defined role in the model together with an indicative item or objective measure.

Analysis plan

Survey data will be analysed using structural equation modelling, which allows simultaneous estimation of the measurement and structural components and formal testing of the moderating hypothesis through a latent interaction term (Kline 2016). Model fit will be assessed against conventional indices. Interview data will be analysed thematically following the six-phase approach of Braun and Clarke (2006), with coding conducted independently and cross-checked to enhance reliability. The secondary NABERS data will be examined through descriptive and correlational analysis and integrated at the interpretation stage, so that the qualitative and rating evidence jointly explain the quantitative findings.

Ethical Considerations

The research involves human participants and will not proceed until approval is obtained from the university Human Research Ethics Committee, consistent with the National Statement on Ethical Conduct in Human Research (NHMRC 2018). Participation will be voluntary and based on informed consent, and respondents may withdraw without penalty. Commercially sensitive information about individual assets will be de-identified, portfolio data will be aggregated where necessary to prevent re-identification, and all records will be stored securely in accordance with the university’s data management policy. Because participants are approached in a professional capacity, risks are low, but care will be taken to avoid any perception of commercial pressure or conflict of interest.

Project Timeline

The research is planned over 15 months. Table 2 sets out the phases, principal activities and indicative timing, with deliberate overlap between data collection and analysis to make efficient use of the candidature period.

Significance

The study offers value to both policy and industry. For policymakers and agencies such as the DCCEEW, evidence on the relative weight of drivers and on the real-world operation of split incentives can inform the design of the Commercial Building Disclosure scheme and of targeted incentives, helping to direct scarce public resources toward the constraints that actually bind. For industry bodies including the Green Building Council of Australia and the Property Council of Australia, a clearer understanding of what moves owners to act supports the case for green leasing, portfolio decarbonisation strategies and the pursuit of NABERS improvements. Theoretically, the study extends technology-adoption models by embedding a moderating split-incentive mechanism and by validating intention against objective performance data, an integration rarely attempted in the Australian setting.

Limitations

Several limitations are acknowledged. The reliance on self-reported intention, even when triangulated against NABERS ratings, cannot fully eliminate social-desirability bias. The cross-sectional survey limits causal inference, although the sequential design and the secondary data partly mitigate this. Sampling through industry networks may over-represent more engaged owners, so findings will be interpreted with attention to potential selection bias. Finally, the deliberate focus on the Australian regulatory context, while a strength, means that conclusions should be generalised to other jurisdictions with care.

Conclusion

Decarbonising Australia’s existing commercial building stock depends less on the availability of retrofit technology than on the decisions of the owners and managers who control that stock. By integrating technology-adoption theory with the principal-agent account of split incentives, and by testing the resulting model with survey, interview and NABERS evidence, the proposed research aims to explain why cost-effective retrofits are, or are not, undertaken. The findings are intended to be directly useful to the regulators, industry bodies and firms working toward a net-zero built environment, and to strengthen the evidence base on which Australian building-energy policy is built.

References

Australian Bureau of Statistics 2022, Energy Account, Australia, ABS, Canberra.

Braun, V. & Clarke, V. 2006, ‘Using thematic analysis in psychology’, Qualitative Research in Psychology, vol. 3, no. 2, pp. 77-101.

ClimateWorks Centre 2023, Decarbonisation Futures: pathways for the built environment, ClimateWorks Centre, Melbourne.

Davis, F.D. 1989, ‘Perceived usefulness, perceived ease of use, and user acceptance of information technology’, MIS Quarterly, vol. 13, no. 3, pp. 319-340.

Department of Climate Change, Energy, the Environment and Water 2023, Commercial Building Disclosure program: performance review, DCCEEW, Canberra.

Eichholtz, P., Kok, N. & Quigley, J.M. 2013, ‘The economics of green building’, Review of Economics and Statistics, vol. 95, no. 1, pp. 50-63.

Green Building Council of Australia 2022, A carbon positive roadmap for the built environment, GBCA, Sydney.

Jaffe, A.B. & Stavins, R.N. 1994, ‘The energy-efficiency gap: what does it mean?’, Energy Policy, vol. 22, no. 10, pp. 804-810.

Kline, R.B. 2016, Principles and practice of structural equation modeling, 4th edn, Guilford Press, New York.

National Australian Built Environment Rating System 2023, NABERS annual report 2022-23, NSW Department of Planning and Environment, Sydney.

National Health and Medical Research Council 2018, National Statement on Ethical Conduct in Human Research, NHMRC, Canberra.

Newell, G., MacFarlane, J. & Walker, R. 2014, ‘Assessing energy rating premiums in the performance of green office buildings in Australia’, Journal of Property Investment & Finance, vol. 32, no. 4, pp. 352-370.

Property Council of Australia 2022, The next normal: office markets and sustainability, Property Council of Australia, Sydney.

Rogers, E.M. 2003, Diffusion of Innovations, 5th edn, Free Press, New York.