Creating another tier in the Property Market with Sustainable Property

Location, Location and... Sustainability???

This article was first published in FM World, the fortnightly magazine for the British Institute of Facilities Management. Visit www.fm-world.co.uk"
Adapted from http://www.fm-world.co.uk/news/fm-industry-news/two-tier-property-market-on-the-way/

A two-tier property market based on energy performance could be less than two years away, an environmental management and compliance firm has said.  Sustainable buildings could see their rental yield reduced by up to 3 per cent and value by up to 16 per cent as a result of changes by the Royal Institution of Chartered Surveyors (RICS) to its Red Book.  The current National Greenhouse Energy Reporting Scheme (NGERS), future Mandatory Disclosure of Commercial Office Efficiency (MDCOE) changes due this year and the potential Carbon Pollution Reduction Scheme (CPRS) next year will create a closer link between property values to the sustainability of buildings. The environmental performance will command increased value as the price of managing a building is set to rise even further. 

The comments come after a roundtable organised by consultancy Envos and mirror those from a report by Kingston University in the UK.  Panellists agreed that any initiative 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, Envos said.  Jim Green, technical director for Envos, said 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 per cent for a sustainable office in a prime business park to a decrease of 6.9 per cent for an unsustainable unit in a secondary out of town retail park."

With Australia's harch conditions the difference between Sustainable and Unsustainable property, prices may increase even further. 

The government regulation in these areas has been designed to inform markets of a buildings office efficiency with the aim of using market forces to compel sustainability measures onto existing building owners who have inefficient buildings and practices.  It should be noted that present and future designs and construction of new (or for that matter, refurbished) building stock is tracking well above any government requirement with many new highly Green rated buildings purchased or leased with shorter vacancy periods.  This has inturn created a mini price boom among new or refurbished Sustainable Properties, one that we are more than likely to see among existing buildings once the new regulation is passed. 

Smart property owners have seen these developments and are adapting to the markets needs before the new regulations arrive.  Property owners waiting for the regulations will find out that there is insufficient time to change and then be unable to compete with similar buildings that have Green credentials.  Intelligent property owners have also identified the lag time between now and when the regulations are passed.  The changes will need to be completed by a suitably qualified person who will then take time researching, planning, implementing and then reporting on the Green transformation before anyone see's results. 

In the near future sustainable property will prove to be more competitive in rental markets (from price points to shorter vacancy periods), higher sale value with slower depreciation and will have a reduced obsolescence due to the higher quality and more efficient technologies implemented.  Outdated and underutilized buildings will see their lifecycle, prices and rents stagnate or drop to compete with these buildings, leading to lower return on investments for shareholders. 

It is just a matter of time, are you going to be riding the sustainability boom? 

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