Valuing sustainability in real estate: a case study of the United Arab Emirates

DOIhttps://doi.org/10.1108/JPIF-04-2020-0040
Published date12 February 2021
Date12 February 2021
Pages335-361
Subject MatterProperty management & built environment,Real estate & property,Property valuation & finance
AuthorTess Lambourne
Valuing sustainability in real
estate: a case study of the United
Arab Emirates
Tess Lambourne
Centre for Development, Environment and Policy CeDEP, SOAS,
University of London, London, UK
Abstract
Purpose The purpose of this paper is to determine if there is an impact of sustainability on the market in
terms of a green premium or a brown discount on the price of commercial and residential real estate. It also
seeks to identify the incentives and barriers for sustainable developments perceived by real estate
professionals.
Design/methodology/approach The paper investigates the impact of sustainability features on the
valuation of buildings in the United Arab Emirates (UAE). The study uses a qualitative structured
questionnaire to determine the views of certified real estate valuers and advisors on this subject.
Findings The results suggest a green premium of at least 1% in the UAE, coming from both supply-side and
demand-side, and in commercial and residential sectors. Key barriers for the recognition of green building value
include availability of reliable market data, lack of relevant technical skills and apparent client disinterest.
Initiatives that would encourage green buildings include financial incentives for key stakeholders, raising and
enforcing building standards, and higher energy prices. This paper identifies policy measures that local
authorities may consider in transforming to a more sustainable economy. It is expected that such changes
would convey to the real estate industry and affiliated stakeholders the financial benefits to be gained from
investing in green buildings.
Researchlimitations/implications The UAE is not a transparent environment in terms of building prices
and rents, and it can be challenging even for experienced professionals to determine whether an observed
higher value can truly be considered a green premium. The second issue is that the results may be affected by a
voluntary response bias, whereby recipients who are interested in sustainability are more likely to have
responded to the survey.
Practical implications This paper identifies policy measures that local authorities may consider in
transforming to a more sustainable economy. It is expected that such changes would convey to the real estate
industry and affiliated stakeholders the financial benefits to be gained from investing in green buildings.
Originality/value Most research exploring the value of green buildings originates from developed
economies and its applicability to the Middle East is questionable due to its differing origins and unusual
development path. This article offers new insights into an under-researched market.
Keywords Real estate sustainability, Property valuation, Green building, Green premium, Brown discount,
United Arab Emirates, Middle East
Paper type Research paper
1. Background
1.1 Introduction
The real estate sector has a significant impact on the global environment. Many people spend
most of their lives inside buildings, which are estimated to account for over 33% of final
energy use worldwide (IPCC, 2014). New construction also has significant environmental
effects, being responsible for more than a third of global resource consumption, including
fresh water (United Nations Environment Programme, 2011). This can vary from country to
country and between regions and is dependent upon climate, topography and building style.
Valuing
sustainability
in real estate
335
This study was undertaken for the degree of Masters of Science in Sustainable Development at
University of London. The author thanks CBRE Middle East for contributing to this study. All
statements of opinion reflect the views of the author and do not necessarily reflect the opinion of CBRE
Middle East or its associated companies.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 18 April 2020
Revised 25 December 2020
Accepted 31 December 2020
Journal of Property Investment &
Finance
Vol. 40 No. 4, 2022
pp. 335-361
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-04-2020-0040
In the Northern Hemisphere, much of the energy consumption is based on winter heating,
particularly in Europe where many of the existing studies on property and sustainability
have been carried out. However, in the Middle East, the energy consumption can be just as
significant but based on cooling. This paper looks at the importance and impact of building
suitability initiatives on the price of property in the United Arab Emirates (UAE).
In the UAE, buildings use almost 90% of total electricity (Dubey and Krarti, 2017).
Residential properties are responsible for over 55% of national power consumption, half of
which is used for air-conditioning alone (Asif, 2016). This makes the building sector a natural
target for policies seeking to reduce resource use and decrease greenhouse gas emissions.
1.2 Green buildings and sustainable buildings
In most literature on green buildings and sustainable buildings, these terms are used
interchangeably; a convention continued in this article. Yet, technically, they are slightly
different:
Sustainabilityis a broad concept that refers to a buildings ability over the long term not to impact
on the environment. Sustainable buildings are not just about the environment, but take into account
all three pillars of sustainability: planet, people, and profit.
Green, on the other hand, is a concept that is solely focused on the environment. Green buildings
tend to concentrate upon environmental matters such as energy efficiency.
As noted, a Greenbuilding is one that has been designed and built to have a less negative
overall impact on the environment (Berardi, 2013). So, although not strictly the same as
sustainablebuildings, a term which encompasses a greater set of financial, social and
cultural considerations (Awadh, 2017), for simplicity the terms are used interchangeably
herein. Green buildings have a reduced impact on the natural environment by: (1) efficiently
using energy, water, and other resources; and (2) reducing waste, pollution and
environmental degradation. The sustainable considerations span a buildings life cycle:
from location, functional design, sourcing materials and construction; to its ongoing use and
maintenance and eventually, its deconstruction.
The earliest attempts to reduce the building sectors harmful effects on the natural world
began in the 1970s following the oil crisis, but a global movement towards a sustainable
building industry began to develop more formally in the 1990s. Since that time, researchers
have investigated whether buildings designed and constructed to reduce their environmental
impact, green buildings, are a sound financial investment. Consequently, there is now
convincing evidence that green buildings deliver a range of financial and other less tangible
benefits to many real estate stakeholders (World Economic Forum, 2016).
In Europe and America, there is significant evidence that the battleto ensure the green
construction of new buildings has been won (French, 2020). Ranking schemes of the
greenness of commercial buildings such as the Building Research Establishment
Environmental Assessment Meth od (BREEAM) [1] (principally UK and Europe) or
Leadership in Energy and Environmental Design (LEEDS) [2] (principally USA and
Europe) have led to occupiers of new building to expect a minimum ranking (Awadh, 2017)so
all developers build to the highest standard as they know that if they fail to do so, then their
property is unlikely to let or sell. It is an example of the market regulating itself. In those
markets, the battle to provide new efficient buildings has largely been won (French, 2019), the
principal challenge of the next decade will be the retrofitting of older buildings to make them
more sustainable and energy efficient.
New buildings that have been built in accordance with LEED or BREEAM generally have
a prevalence of sustainability features. Indeed, it is often suggested (French and Antill, 2018)
that sustainability has simply become another normal specification for a new property.
JPIF
40,4
336

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