Sustainability and property valuation: a risk-based approach

Abstract

The proportion of sustainable property in the total building stock remains small. One reason is that the financial added value resulting from sustainability is not sufficiently taken into account in property valuation due to the tendency of valuations to lag behind market trends. This article presents the development of a new approach that attempts to provide the quantitative information necessary to integrate those aspects of sustainability relating to value into valuations and thereby contribute to reducing the valuation lag. The CCRS Economic Sustainability Indicator ESI measures the risk of property to lose and the opportunity to gain value due to future developments like climate change or rising energy prices. Five groups of value-related sustainability features were identified: flexibility and polyvalence, energy and water dependency, accessibility and mobility, security, health and comfort. By minimizing the risk of loss in value through future developments, those sustainability features contribute to the property value. Their effects on property value were quantified by risk modelling. As an indicator for future-oriented property risk, ESI is integrated in the discount rate of Discounted Cash Flow (DCF ) valuations. The approach has been tested for plausibility and practicability on more than 200 properties. Sustainability and property valuation: a risk-based approach AbstractThe proportion of sustainable property in the total building stock remains small. One reason is that the financial added value resulting from sustainability is not sufficiently taken into account in property valuation due to the tendency of valuations to lag behind market trends. This article presents the development of a new approach that attempts to provide the quantitative information necessary to integrate those aspects of sustainability relating to value into valuations and thereby contribute to reducing the valuation lag. The CCRS Economic Sustainability Indicator ESI measures the risk of property to lose and the opportunity to gain value due to future developments like climate change or rising energy prices. Five groups of value-related sustainability features were identified: flexibility and polyvalence, energy and water dependency, accessibility and mobility, security, health and comfort. By minimizing the risk of loss in value through future developments, those sustainability features contribute to the property value. Their effects on property value were quantified by risk modelling. As an indicator for future-oriented property risk, ESI is integrated in the discount rate of Discounted Cash Flow (DCF ) valuations. The approach has been tested for plausibility and practicability on more than 200 properties.

Carbon regulation and pathways for institutional transition in market-led housing systems: A case study of English housebuilders and zero carbon housing policy

“…¥! Concerns over time-lag for new market trends to reflect consumer preferences (Meins et al, 2010;Kriese and Scholz, 2012). ¥!…”

“…Uncertainty over whether increased costs for low carbon solutions can be recouped via higher market values (Meins et al, 2010;Zero Carbon Hub, 2010). ¥!…”

“…Many of these challenges are linked to concerns over certainty, institutional capacity and market responsiveness. Whilst on the one hand there are real concerns over the mainstream implementation, regulatory compliance and long term performance and maintenance of these largely untested technologies in new buildings (DCLG, 2006a; Power, 2008;Greenwood, 2010;McLeod et al, 2012) on the other, there is unease over the time it might take for changing consumer preferences to be reflected in price signals (Parag and Darby, 2009) and whether lenders and valuers will incorporate environmental premiums in property valuation techniques (Lorenz and Lutzkendorf, 2008;Meins et al, 2010;NHBC Foundation, 2012). Whilst there is no clear position in the literature on real consumer demand for zero carbon homes, industry thinking tends to argue for a more consumer-centric policy framework for encouraging consumers to value and pursue energy efficient homes.…”

Sustainability and Risk: Towards a Risk-Based Sustainability Rating for Real Estate Investments

“…The criteria are derived according to the definition of sustainability from an investment point of view as presented in the previous chapter. The selection and operationalization encompassed the following steps (as described in Meins et al, 2010 andMeins et al, 2012) and is used here for Swiss apartment buildings.…”

Smart and Sustainable Offices (SSO): Presentación de un enfoque holístico para implementar la próxima generación de oficinas

“…This could be attributed to low average energy prices, in addition, to a very limited consideration of carbon emissions in cost calculations. For example, discounted cash flow analysis (DCF) and non-calculation on the impact of wellbeing during a building's use-phase and its office users' behaviour (10).…”