Incorporating Sustainability in Commercial Property Appraisal. Evidence from the UK

ShaljeanThis paper reports on the development of an appraisal model designed to incorporate sustainability into calculations of property worth. Whilst some investment media, for example equities, have found effective ways of incorporating sustainability into their investment strategies, property investment has been slow to make this change. This is partly due to the difficulty inherent in identifying sustainability within the existing commercial building stock and its impact on property worth. The Sustainable Property Appraisal Project was established to begin to resolve this problem. A series of criteria relevant to both sustainability and property worth have been identified. These are incorporated into the calculation of worth model familiar to the property investment community. The impact of performance under each criteria is then translated into an impact on property worth through changes in the allowances made for risk, rental growth, depreciation or cashflow. A range of buildings have been inspected and their performance under these sustainability criteria explored. Their subsequent appraisal is carried out on two bases – a standard appraisal and a sustainability appraisal. The difference between the two results suggests the extent to which mis-pricing of property assets could be taking place as the market fails to take account of sustainability. The results of these appraisals are explored and conclusions drawn as to the implications these have for property investors and occupiers.