Non-green buildings will be worth less in two years

04 February 2010

The value of unsustainable buildings set to fall as a result of RICS Red Book changes, according to Envos industry round table

The findings, from a roundtable organised by environmental management and compliance consultancy Envos echoed conclusions from a report by Kingston University which stated that sustainable buildings could see their rental yield reduced by up to 3 percent and value by up to 16 percent as a result of RICS changes.
The RICS Red Book changes due in April will link property values to the sustainability of buildings helping to create a two-tier property market. Envos believes the changes are also likely to take less than two years to impact on the market once the principle becomes common currency.
The panellists agreed that initiatives such as the Carbon Reduction Commitment Energy Efficiency scheme (CRC) would start to feed through to property rental values and valuations by quantifying the cost of carbon. This provides one method of helping assess the impact of sustainability on valuation.
The findings come as three of the largest European institutional investors, Dutch pension management firms APG and PGGM and the Universities Superannuation Scheme in the UK, announced that they have set up a global benchmark of the greenest listed property management companies to improve poor reporting levels in the sector, after finding that only one in five (19 percent) property managers could report verified numbers on the energy consumption of their buildings.
The roundtable was held by Envos ahead of the launch of its new service, the Envos Sustainable Property Assessment (SPA) which provides advice to valuers and investors to determine whether a property will bring a good return.
Envos’ team of specialist environmental and energy consultants survey the building and examine energy usage, energy efficiency, effectiveness of insulation and potential investment needed in the fabric and fixtures of the building. The firm then measures all of these criteria against the requirements of current and forthcoming environmental legislation.
The resulting Envos SPA report can be used either as a negotiating tool by buyers to agree a price or by investors to assess their existing portfolio taking into account the running costs and investment needed in a property to ensure it is compliant with increasingly stringent environmental legislation.
Wade Barker, managing director of Envos states: “We are already talking to a few key clients about the Envos SPA ahead of the launch today and the feedback has been very positive, in fact we’ve already started to conduct the first surveys. The breadth of environmental legislation now being introduced and the impact this has on properties and property owners is significant and will only get more intense. Buildings account for almost half of the energy used in the UK so they are naturally a target for Government legislation. Ensuring a property is compliant and cost and energy efficient is therefore a key element in any investment decision. We hope the Envos SPA will help simplify this process for valuers and their clients.”
Jim Green, Technical Director for Envos states: “The likely net effect of sustainability on a building's value will vary widely depending upon its type, location and individual circumstances. Kingston University's Sustainable Property Appraisal project in 2006 suggested a range of case studies showing an increase of 3 percent for a sustainable office in a prime business park to a decrease of 6.9 percent for an unsustainable unit in a secondary out of town retail park. Since 2006, the understanding of sustainable valuation has increased considerably, resulting in RICS Valuation Paper 13 issued on 15 September 2009 which will make this methodology mandatory from the issue of the new Red Book in April 2010. Attitudes and valuations are hardening - the gulf between sustainable and unsustainable properties is likely to widen and variations of +/- 5/10 percent can be expected."
Buildings that are valued similarly today will have a different value in the medium term because of sustainability. Access to information that helps determine which building is going to benefit and which building is going to suffer will be invaluable.