RENOVALUE Integrating Energy Efficiency & Sustainability Factors in Valuation Practices

Athens 07 March 2019 2nd Roundtable on Energy Efficiency Financing Tools in Greece Yannis Daskalakis, MRICS

Co-funded by the Intelligent Energy Europe

programme of the European Union

The content of this document does not reflect the official opinion of the European Union.

Responsibility for the information and views expressed lies entirely with the author(s).

Renovalue: Scope

Create higher quality valuation reports

Save time and costs through improved knowledge about appropriate information

sources

Prevent errors and avoid mispricing of assets

Extend consulting competencies

Improve competitiveness and exploit new business opportunities

Renovalue: Presentations / Seminars

1st Stage: Pilot Phase | Training Seminar to certified property valuers

Athens: 12 October 2015

Thessaloniki: 17 December 2015

Cyprus: 18 March 2016

2nd Stage: Training Sessions (in collaboration w/ Hellenic Valuation Institute)

Thessaloniki: 26 November 2016

Athens: 17 December 2016

Herakleion: 4 March 2017

3rd Stage: CPD Event (in collaboration w/ RICS Hellas)

Athens: 12 February 2019

Valuation: an integral part of the property life cycle

Source: RenoValue Market Insight Report, June 2015, p. 11

Valuation professionals’ critical role

Valuations are carried out in almost any phase of the property life

cycle.

Valuers are the independent axis around which property information

flows.

Valuers act as information managers in often highly non-transparent

property markets.

Arguments used in negotiations between transaction parties are

usually based on advice given by valuers acting on both sides.

Valuers do not ‘make the market’ but their advice and the nature and

scope of their services influence property market outcomes.

Climate change Flooding

Extreme weather

Droughts

Environmental

risks

Air, water and

soil pollution

Resource

scarcity Energy carriers,

land, water,

materials

+ Consumers’ increasing environmental consciousness

and changing value-systems

A changing (market) environment?

Extreme weather & risks: map of natural disasters (2014)

Source: Munich Re, 2015, NatCatSERVICE, http://www.munichre.com/en/reinsurance/business/non-life/natcatservice/index.html

Costs of natural disasters (in US$ bn)

Source: Munich Re, 2014, TOPICS GEO, Natural catastrophes 2013 – Analyses, assessments, positions, p. 59

Various sustainability related guidance, guidelines and requirements for

valuation professionals

Guidance overview

Title

Description

Valu

ation

Info

rmation

Paper

(VIP

) 13

Info

rmation

Paper

(IP

) 22

Susta

inabili

ty &

the v

alu

ation o

f

com

merc

ial

pro

pert

y

EV

S 2

012

(Info

rmation

paper

on

susta

inabili

ty

and v

alu

ation)

Imm

oW

ert

V

NU

WE

L

RIC

S G

uid

ance

Note

RIC

S V

alu

ation

– P

rofe

ssio

nal

Sta

ndard

s

Publisher RICS RICS RICS

Oceania TEGoVA BMVBS CCSR RICS RICS

Year of Publication 2009 2011 2011 2012 2011 2011 2013 2014

Application: Property

type

Commercial

Property

Residential

Property

Commercial

Property All All All

Commercial

Property All

Application: country /

region Global UK Australia Europe Germany

Germany,

Austria,

Switzerland

Global Global

Coverage of

sustainability issues broad broad

broad

(but focus

on energy)

broad Energetic

quality

broad

(detailed

listing of

issues)

broad

(detailed

listing of

issues)

broad

Degree of compulsion /

bindingness informative informative informative informative mandatory informative

recommended

good practice mandatory

Character: generic

requirements / detailed

recommendations

generic generic detailed generic - detailed detailed generic

Recommendations for

valuation reports - - X - - X X X

Recommendations on

the extension of the

data collection process

- X X - - X X X

Lack of data as a potential additional risk factor

Challenges for valuation professionals’ clients (i.e.

the real estate industry): “In undertaking their investigations, the valuer should also ask their clients to provide data (e.g. on energy performance). If clients are unable (or unwilling) to provide data, then this should be treated as a potential additional risk factor.”

Sustainable building features linking through

to value estimates?

Potential co-benefits and adverse side-effects of main mitigation measures in the building

sector

Source: IPCC, 2014, Climate Change 2014: Mitigation of Climate Change, Contribution of Working Group III to the Fifth

Assessment Report of the Intergovernmental Panel on Climate Change, Technical Summary, p. 61

Market evidence – an overview, Part I

Study/Authors Country Property Type Sustainable CredentialsObserved

impact on +/- Magnitude

Australian Department of

the Environment, Water,

Heritage and the Arts, 2008

Australia Residential HomesEnergy Efficiency Rating, EER, (0 to 10 stars in

0.5 star increment)Selling Price +

1.23 % – 1.91 % for each 0.5

EER star

Brounen and Kok, 2010The

NetherlandsResidential Homes Energy Performance Certificate (Class A, B, C) Selling Price + 2.8 %

Total return +0.015% per 1% decline in

energy consumption

Rental price +0.08 per 1% decline in

energy consumption

Market Value +0.45 per 1% decline in

energy consumption

Primary energy value below 250 kWh/m²a 0.38 €/m²

Primary energy value below 175 kWh/m²a 0.50 €/m²

LEED Selling Price + 16.4%

Energy Star Selling Price + 10.6%

Deng and Quigley, 2012 Singapore Residential Flats Green Mark Selling Price + 4% - 6%

Selling Price + 11.1 %

Rental Price + 5.9 %

Selling Price + 13%

Rental Price + 6.6 %

Feige et al., 2012 Switzerland Residential Flats Economic Sustainability Indicator (ESI) Rental Price +

15% for resources use /

11% for health and comfort /

11% for security

LEED + 8%

Energy Star + 3%

Selling Price + 31 % - 35 %

Rental Price + 6%

Cajias and Piazolo, 2013 Germany Residential Buildings Energy consumption / EPC category

Office BuildingsOccupancy

Rates

Fuerst and McAllister, 2008 USA Office Buildings LEED, Energy Star

Fuerst and McAllister, 2010 USA

Residential multi-

family housesRental Price +

Eichholtz, Kok and Quigley,

2010USA Office Buildings

LEED

Energy Star

Office BuildingsUSADas and Wiley, 2014

Germany

(Darmstadt)

City of Darmstadt, Rental

Index, 2010

Market evidence – an overview, Part II

Study/Authors Country Property Type Sustainable CredentialsObserved

impact on +/- Magnitude

Fuerst, van de Wetering and

Wyatt, 2013UK Office Buildings Energy Performance Certificate (Class A, B, C) Rental Price + 11%

USA Selling Price + 3 % - 9.6 %

(Portland /

Seattle)

Selling /

Marketing Time- 18 days

Selling Price + 9%

Rental Price + 3%

Selling Price + 12%

Rental Price + 5%

McGrath, 2013 USA Office Buildings LEED and Energy Star Cap Rates - 0.364 %

Müri, Rappl and Bröhl, 2011 Switzerland Residential Flats Noise exposure Rental price - 0.19% per decibel

Net Operating

Income (NOI)+ 2.7 % - 8.2 %

Rental Price + 4.8 % - 5.2 %

Occupancy

Rates+ 0.2 % - 1.3 %

Market Value + 6.7 % - 10.6 %

Income

Returns / Cap

Rates

- 0.4 % - 1.5 %

NABERS 5 stars

Green star

Office BuildingsAustraliaKok, Newell and MacFarlane,

2011

Griffin et. al, 2009 Residential HomesBuilt Green, Earth Advantage, Energy Star, or

LEED

Pivo and Fischer, 2010 USA Office BuildingsEnergy Star, close distance to transit, location

in redevelopment areas

Market evidence – an overview, Part III

Study/Authors Country Property Type Sustainable CredentialsObserved

impact on +/- Magnitude

Market Value

(office, retail)+

0.9 % for each unit

increase in Walk Score

Market Value

(apartment)+

0.1 % for each unit

increase in Walk Score

Net Operating

Income (office,

retail)

+0.7 % for each unit

increase in Walk Score

Income

Returns / Cap

Rates

-0.007 % for each unit

increase in Walk Score

Residential Homes Selling Price + 7%

Residential Flats Selling Price + 3.5 %

Salvi et. al, 2010 Switzerland Residential Flats MINERGIE Label Rental Price + 6%

Germany

(Nienburg)

Rental Price + 7 % - 17 %

Occupancy

Rates+ 10 % - 18 %

Wüest und Partner, 2011 Switzerland Residential Homes MINERGIE Label Selling Price + 4.9%

Yoshida and Sugiura, 2010 Japan (Tokyo)Large resi-dential con-

dominiumsTokyo Green Labeling System Selling Price - 6 % - 11 %

Wiley, Benefield and

Johnson, 2008USA Office Buildings LEED, Energy Star

Wameling, 2010 Residential HomesPrimary energy demand per m² and year

(kWh/m²a)Selling Price +

Ca. 1,40 €/m² per reduced

kWh/m²a

Pivo and Fischer, 2011 USA

Office, retail,

industrial and

apartment properties

Walkability (distance to educational, retail,

food, recreational and entertain-ment

destinations), measured as a Walk Score from

0 to 100

Salvi et. al, 2008 Switzerland MINERGIE Label

Value impact of one-letter or equivalent improvement in EPC rating

across a selection of EU property markets

Source: Bio Intelligence Service, Ronan Lyons and IEEP, 2013, Energy performance certificates in buildings and their impact on transaction prices and rents in selected EU countries, Final report prepared for European Commission (DG Energy), p. 15

How retrofits add value – case study

Source: Bendewald, M., Hutchinson, H., Muldavin, S.

and Torbert, R., (2014), How to calculate and

present deep retrofit value – a guide for owner

occupants, Rocky Mountain Institute, Boulder,

Colorado, p. 81

Case study: Switzerland

Δια

φο

ροπ

οίη

ση Μ

ισθ

ωτι

κώ

ν Α

ξιώ

ν

(Μει

κτά

Ενο

ίκια

)

Source: Salvi, et. al, 2010, Der Minergie-Boom unter der Lupe, Center for

Corporate Responsibility and Sustainability, Universität Zürich

From

“green premiums”

to

“brown discounts”

Rental price differences for MINERGIE-labeled flats in Switzerland

A changing business climate:

Related market trends and drivers

Socially responsible

investment practices Image/reputation driven

approaches

Value-driven approaches

Responsible /

sustainable

property investment

strategies

Sustainability reporting

obligations

Corporate Social

Responsibility

(CSR)

policies

Impact chains: from building performance to investment performance

and corporate success

Single Building / Portfolio level

Corporate level

Physical property characteristics

Performance / Quality characteristics

ESG decision-parameters Economic decision-parameters

"Soft“ economic success factors "Hard“ economic success factors

Site

and

Lo

catio

n

"First order“ conditions & factors not related to the building itself

"Second order“ external conditions & factors

Bu

ildin

g-/P

ort

folio

-indu

ced

con

trib

utio

n t

o co

rpor

ate

succ

ess

Co

rpo

rate

re

qui

rem

ent

s

reg

ardi

ng

bui

ldin

g /

por

tfolio

pe

rfor

man

ce

Corporate Vision, Culture and philosophy

Investment strategy

"Soft“ corporate success factors "Hard“ corporate success factors

Point of

decision

making

Indirect financial benefits:

Impact of sustainability features on productivity and health

Πηγή: WGBC, 2013, The Business Case for Green Building, World Green Building Council, p. 67

Sustainability as a credit risk assessment criteria

Example: TEGoVA‘s European

Property and Market Rating

Market transition towards Nearly Zero-Energy buildings through

improved financing conditions?

Higher mortage loan amounts?

Favourable interest rates? =

X Lower mortage loan amounts?

Unfavourable interest rates? =

Key areas of extended information requirements for valuation professionals:

what you need to look out for

Energetic

quality/

Energy

performance

CO2-Emissions

Global Warming

potential

(GWP)

Water

consumption

(potable

water)

Flexibility

and

adaptability

User comfort /

satisfaction

Indoor air

quality

Impacts

and risks to

local

environment

Accessibility

The characteristics of the energy status of a property can be linked to

various parameters that affect its value.

Marketability / lettability

Marketing Speed

Level Of operating Costs

Achievable rent level

Reductions / discounts due to modernization / refurbishment backlog

Additional Income / revenue due to supply of surplus energy to third Parties

Technical Life span of a building

Useful economic life span of building

Degree of obsolescence / depreciation rates

Image

Taxes, subsidies, speed of achieving planning permit

CO2 Taxes (Tokyo)

Energetic quality linking through to valuation input parameters

DCF methodology ‘commands’ the assessment of sustainability issues

today!

Environmental /

health impact

Marketability

Depreciation

Other property

risks (not considered in

the modelling of the

property cash flow)

1 2 3 87654 109

10

Risk Premium

(Sustainable Building)

Risk Premium

(Conventional Building)

Risk free rate

Conventional

Building

Sustainable

Building

Discount Rate

Cash-Flow PeriodsSource: Lorenz, D. and v. Woedtke, W., 2008

Berkhout office building – The Netherlands

Regular building

Sustainable building

Source: Research Quarterly July 2010: http://www.lente-akkoord.nl/wp-content/uploads/2009/05/De-meerwaarde-van-Duurzaam-vastgoed.pdf

Current market Barriers to large-scale uptake of Energy Efficiency and

Renewable Energy in Building in EU

Renovalue Project Outcome

Common Themes:

(Data, Data, Data…)

1. Lack of a publicly available central database of Energy

Performance Certificates (EPCs)

2. Lack of property operational cost data

3. Lack of internationally recognized public building rating certificates

4. Lack of adequate property transaction data

5. Inadequate data quality (EPCs for example were generally

considered an unreliable source of information)

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