Georgia Warren-Myers

The value of sustainability in real estate: a review from a valuation perspective

Purpose - The purpose of this paper is to synthesise the plethora of research that has been conducted into the relationship between sustainability and market value in real estate, by critically analysing the research and the applicability of sustainability and value research in valuation practice. Design/methodology/approach - The research on the relationship between sustainability and market value in real estate is examined from the perspective of its usefulness to the valuation profession in providing guidance, information and evidence to be used in valuation practice. Findings - Existing research conducted into the relationship between sustainability and market value has not provided the valuation profession with evidence which would allow the incorporation of normative theories on the value of sustainability in valuation practice. This review highlights the lack of evidence, and the applicability of current research into sustainability and value to the valuation profession in providing guidance and information in valuing real estate incorporating sustainability. Practical implications - This paper highlights the limited applicability of research to date in regard to the relationship between sustainability and market value for the valuation profession. The lack of historical evidence, data or information on the quantifiable effects on market value of this new trend (sustainability), leaves the valuation profession uncertain as to the relationship between sustainability and market value. There is a probable risk of valuers interpreting strategic research incorrectly, and making inappropriate adjustments or comparisons because of their lack of knowledge and limited sustainability assessment skills. Although there is an evolving body of knowledge, there is a need for extensive analysis of unbiased, evidence-based research in individual and broader markets to provide guidance, evidence and knowledge of the implications of sustainability in the valuation of real estate. Originality/value - The examination of research investigating the relationship between sustainability and value from a valuation perspective provides an alternative insight into the applicability of current research in valuation practice. The increasing profile and role of sustainability in the real estate sector needs to be addressed in valuation practice; however, the variety of research to date needs to be interpreted by valuers in the correct context. This paper brings to light the applicability of sustainability and value research for the broader valuation profession, and the potential implications of misuse or misunderstanding of that research.

Investigating demand-side stakeholders’ ability to mainstream sustainability in residential property

Abstract Current sustainability approaches in the residential property sector for new home construction are deficient, yet crucial in reducing reliance on finite resources whilst providing better social outcomes. At present, efforts to improve dwelling sustainability are inhibited: as sustainability is considered an overly expensive additional extra; there is poor implementation of energy efficiency regulations; un-empowered consumers are unable to demand sustainability and consumers distrust the suppliers of sustainable initiatives. This research addresses an important issue to eliminate the “blame game” and transform the sustainability conversation, adoption and value in new home markets. It adopts an innovative demand-side approach to the residential property sector, in order to target large-scale standardised new home producers as the pivotal, demand-side player in mainstreaming sustainable solutions in new housing. By examining the sector from this new perspective, sustainability can be mainstreamed in the new housing property sector overcoming current inhibitors to sustainability adoption and implementation.

Sustainability – The Crucial Challenge for the Valuation Profession

Abstract Valuation has a pivotal role in increasing the level of sustainability in the built environment. To date, sustainability has received limited attention in valuation practice, and as a result the relationship between sustainability and market value has not been clearly defined. As a consequence, the commercial investment community are hesitant to invest in sustainability beyond best practice management techniques. Valuers’ lack of acknowledgement of sustainability in valuation practice and its changing role in property investment in the built environment, has had a potentially detrimental impact by limiting investment in sustainability in commercial property. Consequently, this lack of acknowledgment and incorporation of sustainability in practice has the potential to cause chaos within the market in the future. It was found that valuers, per se, are inexperienced and have limited knowledge of sustainability in commercial property. Due to differences between generations of valuers, this paper examines whether ‘younger’ valuers’1 knowledge of sustainability, as a concept, measurement and any possible relationship with market value is more extensive than senior valuers. Or whether senior valuers experiences in the market are more sensitive to the change sustainability is having in the commercial property market. A key issue for the profession concerning sustainability and its effect on the market is the limited channels for knowledge development. The implications of this research are the need for increased curriculum in university education, so knowledge dissemination across the profession can be achieved. The development of knowledge of sustainability and its relationship in commercial property will progress the incorporation of sustainability in valuation practice. As a consequence, this will increase the investment in sustainability in the commercial property market.

Valuing Sustainability in Australia: Implications for the Valuation Profession

Abstract There is an urgent need for sustainability to be incorporated into the valuation process in order to ascertain and accurately reflect the relationship between sustainability and market value, and increase large-scale sustainability investment in property. This predicament has been recognised and increasing emphasis from industry, valuation bodies and academia is being placed on valuers to incorporate sustainability into the valuation process. However, it is questionable whether valuers are adequately equipped with the knowledge and skills to incorporate sustainability into valuation practice. This research investigates valuers’ incorporation of sustainability in valuation practice and their knowledge of sustainability. It is anticipated that with the increasing need to report on sustainability, valuers’ knowledge levels will need to develop. Warren-Myers (2010) found valuers at the time (in 2008) were inadequately skilled to incorporate sustainability into value assessments. The fundamental process of valuation practice is a complex relationship between art and science, and the building of strategic knowledge to develop the heuristics and judgement required in valuation takes time. This research endeavours to track valuers’ sustainability knowledge development in Australia over time and will, consequently, lead valuers’ to be more th orough in their comparative analysis and assessment of sustainability factors in property. The identification of a clearer relationship between sustainability and market value should result. The research method utilises a mixed-mode approach, using surveys built of open and closed questions that investigate valuers’ perceptions of their own knowledge, their actions in practice, and tests their knowledge of sustainability. This paper presents the findings from the first phase of this research project. The research found valuers in Australia are reporting on sustainability in valuation reports, and providing advice to clients on sustainability. However, it has also found that valuers are reliant on sustainability assessment tools, about which they have only limited knowledge. Compared to previous research where valuers were reluctant to address sustainability in valuation practice, this research has found a demonstrable change in the profession. However, there is cause for concern considering the level of knowledge and understanding valuers are displaying. Long-term, their lack of knowledge may cause more issues with the misapplication or judgements made in valuation regarding the relationship between sustainability and value. This research stresses the implications for the profession, should valuers be reporting and advising on concepts of which they have limited understanding, and should they be adapting or making judgements about sustainability in the valuation process, which ultimately affects the reporting of market value. This research highlights the urgent need for professional development in the property industry and, in particular, for valuers to develop their knowledge, understanding, assessment capabilities and judgement of sustainability in valuation practice.

Sustainability evolution in the Australian property market: Examining valuers’ comprehension, knowledge and value

Purpose n n n n nThe relationship between sustainability and value in property has been a major area of investigation over the past decade. However, in spite of the extant literature and research, the connections made by valuers in practice of the value relationship are still unresolved. The purpose of this paper is to investigate, in the Australian context, valuers’ perception of the relationship between sustainability and value; and their experience and knowledge of sustainability in valuation practice. n n n n nDesign/methodology/approach n n n n nThe research investigates valuers’ perception and knowledge of sustainability and its inclusion in valuation practice in Australia. The approach uses a longitudinal survey of valuers from 2007 to 2015 tracking valuers’ knowledge, understanding, inclusion of sustainability reporting and the perceptions of the relationship between sustainability and market value. n n n n nFindings n n n n nThis paper presents findings from a longitudinal survey that has been conducted in Australia since 2007, identifying changes between 2007, the height of the property market and sustainability engagement prior to the global financial crisis, and the subsequent years to 2015. The growth of sustainability in the property market is significant, however, valuers’ knowledge and reporting on sustainability is not demonstrating the same level of development. As a result, this is inhibiting valuers reporting on sustainability and has implications for practice and treatment of market values. n n n n nPractical implications n n n n nThis research highlights the need to examine how to assist valuers to more rapidly develop knowledge and experience to reflect the implications of change in practice. Current approaches being developed in the UK and Europe, like the introduction of RenoValue professional development programs and guidance documents, to assist valuers to develop their knowledge needs to be implemented in the Australian environment as current approaches are inadequate, and steps need to be taken in order to assist their development of knowledge and experience as the market demonstrates growth and acceptance of sustainability. This research identifies the need to re-examine how professional development is undertaken and knowledge developed by those practicing in the profession in Australia. n n n n nOriginality/value n n n n nThis longitudinal survey is the only research that has spanned a substantial period of time attempting to ascertain valuers’ perception of the relationship between sustainability and value; and attempts to track the knowledge development of valuers in the context of sustainability. The findings identify how the market is developing and adhering to a product model development theory, however, also identifies more fundamental issues and implications for valuation praxis, in the development of knowledge and ability of valuers to adapt to change and reflect these valuations.

The economic value of low-energy housing

Abstract This paper explores a new perspective towards understanding barriers to ascertaining the economic value of low-energy housing. It examines why the economic value of low-energy housing is less transparent in active markets; this is investigated from the valuation principle perspectives of embodied energy and operational energy in residential dwellings. The focus is placed on the composition of energy consumption associated with the housing product life cycle. Low operational energy of a dwelling is linked to consumer preference by the inter-temporal value estimate of expected benefits. However, “low” embodied energy housing is an ecological construct and does not appear to be directly linked to short-term market value or an expected (intuitive) economic motive. This “gap/disconnect”, alongside some practical “barriers” in the market economy, has created a challenge in deriving the economic value of low-energy housing. The barrier to economic value of low-energy housing is methodological and by adopting a life cycle approach to assessing and measuring energy in a house that incorporates embodied energy and operational energy, greater clarity can be achieved which may lead to a better informed market, enhancing transparency and allowing consumer choice to direct and value the broader benefits of low-energy housing.

Real Estate Valuation and Valuing Sustainability: A Case Study of Australia

Abstract Interest in and implementation of sustainability in the real estate market reached its heights prior to the Global Financial Crisis in Australia. Post-2008, sustainability has been on the backburner as funds and REITS struggle to maintain financial viability and control of their debt. This has seen a rationalization of sustainability within the commercial real estate sector, but has also allowed other stakeholders in the market to catch up and ascertain the different opportunities sustainability provides in terms of value in the real estate market. This paper examines the development of sustainability in the Australian commercial real estate market from the valuers’ perspective. The value of sustainability in commercial real estate is still relatively uncertain, primarily because valuers are uncertain of the influence and impact sustainability has on real estate market values. However, market maturation and development will assist valuers’ understanding and development of heuristics, which will in time allow for reflection of sustainability in valuation practice. The paper is part of a larger research project that is tracking valuers’ development of knowledge over time in order to ascertain the levels of consideration in heuristic-based valuation practice. This paper reports on valuers’ perceptions of the market changes in sustainability adoption and value in the Australian real estate market from 2007 to 2011.

Is Sustainability in the Commercial Property Industry Just Best Practice Management

The commercial property market has been witnessing significant change over the past decade with continued importance being placed on sustainability by governments, occupiers and owners both globally and locally. However, exactly what owners and owners in property are actually undertaking in the guise of sustainability needs to be questioned. This research investigates key owners of property portfolios in Australia and New Zealand and examines what they perceive sustainability to mean to their commercial property portfolios.

Climate Change Risk Awareness in the Property Sector: Australia

Worldwide between 2000 and 2014 disaster impacts triggered

The challenges of identifying and examining links between sustainability and value : evidence from Australia and New Zealand

US2.3 trillion in damage with less than 30% insured (Munich RE, 2015), this affected 2.9 billion people and killed 1.2 million people between 2000 and 2012 (UNISDR, 2013). The property sector is not immune to risks associated with natural disasters or extreme weather events. Climate change and the implications of increased extreme weather events, severe temperature durations and sea level rise have a detrimental, immediate and significant impact on property. Property is not only a component of providing shelter to all inhabitants of Australia or a workplace; property is major industry sector within Australia, currently employing more than the mining and resources sector (PCA, 2015). Consequently, increasing catastrophic events as a result of Climate Change will have a substantial impact on the property sector financially, physically and socially. Furthermore sea level rise will affect many Australian cities, in particular Victoria is highly exposed with between 31,000 – 48,000 residential buildings, 1,500 – 2,000 commercial properties and 600 – 1,000 light industrial properties and major infrastructure like 3,500km of roads and 125km of rail at risk of inundation from sea level rise (Department of the Environment, 2011). The financial cost implications for property is only going to escalate, as populations grow, a larger percentage of property - residential, commercial, infrastructure situated in cities will be at risk and the incidence of events will exacerbate the economic and social impact. Property owners need to put in place mitigation and adaption strategies now in order to cope physically, financially and socially with the changes to come, however, at present the industry is currently unaware of the extent of the risks posed to property. Consequently, the development of a value based risk assessment tool is required to enable property owners, occupiers and professional the ability to understand the risks posed by Climate Change and the subsequent effects on property in the Australian environment. This paper reports on the development of a risk assessment tool in the Australian environment.