The valuation of sustainability

Date03 July 2017
Publication Date03 July 2017
AuthorNick French
SubjectProperty management & built environment,Real estate & property,Property valuation & finance
The valuation of sustainability
If, at the date of valuation, the market does not differentiate sustainableand non-sustainable,
there will be no impact on value (
Sustainabilityis a funny thing. In the last 15 years, I dont think that there has been a
bigger buzzword for the property profession than the word sustainabilityparticularly
when discussing the value of buildings. Now dont get me wrong, I am not in the
Trump camp of suggesting that there is no such thing as global warming. I tend to think
that is if the majority of scientists around the world agree that the world is heating up,
then there is strong likelihood that the world is heating up.
The argument is about what is the influence of man on the process? Are our actions
on lowering the carbon footprint of humankind too late or not needed at all? That is an area
for debate.
But, I always found these arguments facile. Surely, the issue is that carbon fuels are finite
and, as yet, green fuels have not been developed sufficiently to replace them. So regardless
of the impact of the same on the environment, we should be developing strategies to use
these fuels less so they last longer. It is just common sense.
But, despite laudable corporate social responsibility statements from all the great and
the goodcompanies from around the world, has the need to make buildings more energy
efficient actually occurred? The answer with new builds, in the UK and other developed
markets, is a resounding yes. The answer with older, existing, stock is an equally
deafening no.
We won the green battle with new properties many years ago. All new buildings are
ranked as BREEAM[1] Excellent or very good. All new buildings are energy efficient and
rated as A or B on the Energy Performance Certificates (EPC) Certificates. I dont subscribe
to a view that with new builds that there is a green premiumor, conversely, a green
discount. The truth is that if everything is the same, then it is impossible to discern either.
Sustainability is now just a specification and to allocate a rent or capital premium to the
building makes as much sense as saying there is a premium for the building having
windows. Occupiers of these buildings want and are offered a homogenous product and
thus no developer will build a new non-sustainable building as it wont let and it wont sell.
And the impact on value is indiscernible.
The problem is with existing buildings with lower EPC ratings. How do we get those
retrofitted and improved? And what is the impact on value of a building being
energy inefficient.
I have always believed in the adage that markets sort themselves outand so I thought
with property retrofitting. If the cost savings are sufficient to compensate for the outlay over
a reasonable payback period, then the market will retrofit. This is, obviously, a play between
the cost of retrofitting falling (as it is done more and more and competition and economies of
scale creeps into the market) and the price of energy increasing (to make the savings of a
level that makes sense).
I thought that we had hit the tipping point in 2014, when energy prices were growing at
almost exponential rates. Oil prices were at an all-time high in dollars per barrel. Natural gas
was at numbers so high that the Norwegian and Russian economies were like bubbles filled
with their own product. And, at that time, I saw that the potential cost savings (at current
rates) far outstripped the cost of retrofitting. We were at that tipping point.
Journal of Property Investment &
Vol. 35 No. 4, 2017
pp. 354-355
© Emerald PublishingLimited
DOI 10.1108/JPIF-05-2017-0039

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