Valuing Sustainability in the Market

There is a usual question that arises in any discussion about the sustainable design of buildings. Does it add value to add sustainability features? Is there any market signal that tenants or buyers of sustainable buildings are paying a premium for more efficient buildings? Two recent signals suggest that it does.

Residential Market: In a recent consultation paper the RICS points out that valuers follow the market and do not lead it, but that valuers have a duty to be knowledgeable about the market and to be able to understand the signals that are coming from it. The fact that the RICS has carried out this consultation at all is significant. The final paragraph of their conclusion states that:

7.3 Overall, it is considered likely that residential markets will, over time, become increasingly sensitised to sustainability considerations and as part of establishing market value and market rent, residential valuers should seek to keep abreast of trends and ensure that they collect appropriate and sufficient sustainability data when inspecting property to enable them to analyse these and apply them to any property valuation.

Among the sustainability considerations included are scores in Code for Sustainable Homes ratings, EPC’s and Building Regulations information. In the near future this will include the comparison between homes that have had the Green Deal applied to them and those that have not.

Commercial Market: The recent report by Berkeley University on Green office building in the US found that in a sample of 10,000 buildings the green offices commanded a premium of three percent for rental and a premium of sixteen percent for sales.

It is not surprising that the commercial market should lead the way since the commercial market is led by professionals whose job is to make a return on investment. The domestic market is led by a variety of concerns of which long term value is only one of many factors. But it is reassuring that the RICS is working to inform valuers and to provide them with better tools to do their jobs. Without this the market for sustainable buildings cannot grow. In situations where sellers of residential property in the Uk feel that the property they are selling is not being valued correctly they can now point to some comprehensive guidance that helps them to make their case.

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