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Sustainability and property valuation: a risk-based approach


Meins, Erika; Wallbaum, Holger; Hardziewski, Regina; Feige, Annika (2010). Sustainability and property valuation: a risk-based approach. Building Research & Information, 38(3):280-300.

Abstract

The proportion of sustainable property in the total building stock remains small. One reason is that the financial added value resulting from sustainability is not sufficiently taken into account in property valuation due to the tendency of valuations to lag behind market trends. This article presents the development of a new approach that attempts to provide the quantitative information necessary to integrate those aspects of sustainability relating to value into valuations and thereby contribute to reducing the valuation lag. The CCRS Economic Sustainability Indicator ESI measures the risk of property to lose and the opportunity to gain value due to future developments like climate change or rising energy prices. Five groups of value-related sustainability features were identified: flexibility and polyvalence, energy and water dependency, accessibility and mobility, security, health and comfort. By minimizing the risk of loss in value through future developments, those sustainability features contribute to the property value. Their effects on property value were quantified by risk modelling. As an indicator for future-oriented property risk, ESI is integrated in the discount rate of Discounted Cash Flow (DCF ) valuations. The approach has been tested for plausibility and practicability on more than 200 properties.

Abstract

The proportion of sustainable property in the total building stock remains small. One reason is that the financial added value resulting from sustainability is not sufficiently taken into account in property valuation due to the tendency of valuations to lag behind market trends. This article presents the development of a new approach that attempts to provide the quantitative information necessary to integrate those aspects of sustainability relating to value into valuations and thereby contribute to reducing the valuation lag. The CCRS Economic Sustainability Indicator ESI measures the risk of property to lose and the opportunity to gain value due to future developments like climate change or rising energy prices. Five groups of value-related sustainability features were identified: flexibility and polyvalence, energy and water dependency, accessibility and mobility, security, health and comfort. By minimizing the risk of loss in value through future developments, those sustainability features contribute to the property value. Their effects on property value were quantified by risk modelling. As an indicator for future-oriented property risk, ESI is integrated in the discount rate of Discounted Cash Flow (DCF ) valuations. The approach has been tested for plausibility and practicability on more than 200 properties.

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21 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Center for Corporate Responsibility and Sustainability
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2010
Deposited On:18 Feb 2011 14:19
Last Modified:12 Jul 2017 10:21
Publisher:Taylor & Francis
ISSN:0961-3218
Publisher DOI:https://doi.org/10.1080/09613211003693879
Official URL:http://www.informaworld.com/journals
Related URLs:http://www.ccrs.uzh.ch (Author)

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