Drivers for the real estate investor

Drivers for the real estate investor

ENVIRONMENTAL SUSTAINABILITY −

June, 25 2009

ERES Conference, Stockholm

Authors: Helmut Schleich, University of RegensburgD. Sc. Anna-Liisa Lindholm, Helsinki University of TechnologyHeidi Falkenbach, Helsinki University of Technology

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The build environment has an important role in sustainability agenda

Property industry will face great changes due to newly evolving legislative requirements and changing market standards

The important role in climate change does not mean solely negative things. Previous research has reported many kind of benefits for the real estate sector’s players such as image benefits, decreased costs, happier and healthier employees etc.

But what are the drivers and benefits for the real estate investor?

There are lot of discussion about the benefits, but is there scientific evidence?

The sustainability agenda & real estate investors

11 Background

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The main idea is to break the vicious Circle by pinpointing the drivers and benefits of sustainable buildings for the real estate investor

The specific objectives are to identify the drivers and benefits of environmental sustainable buildings

for the real estate investor evaluate the significance of the drivers for the real estate investor identify the research gaps

Multidisclipinary literature review Focusing mainly on previous research actually showing the scientific

evidence, not just desribing about it Focusing also to the significance of the driver for the investor

Sustainability driver from investor´s perspective

22 Objectives

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Increased rental level

Decreased property

costs

Increased property

values

Decreased risks Image

benefits for the tenants

Government incentives

Image benefits for the investor

Image benefits for the

construction company

Legislation

National standards

Better financing

conditions

Environmental certificates

Vacancy rateBetter

insurance conditions

Healthier work environment

Increased job

satisfaction

How to classify the drivers?

What drivers are affecting to the real estate investor?

Do we have scientific evidence on the influence of these drivers?

Identifying the drivers

22 Objectives

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Legislation

Government incentives

Environmental and energy certificates

Financing

National standards

External drivers

Corporate level drivers

Property level drivers

Image

Development of a new categorisation framework

22 Objectives

Insurance conditions

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Focus is on the corporate level

Benefits discussed in literature, empirical evidence still very limited

Indicates image benefits

Authors were not able to find any evidence on other corporate level drivers

Image benefits

33 Corporate level sustainability driver

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Forms trough the benefits for the tenant (better image, healthier working environment, decreased maintenance costs etc.)

Tenants’ willigness to pay has been documented through questionnaire surveys

how does the financial crisis effect the willigness to pay?

Evidence of higher rent level still limited studies confirming the higher rental levels have been performed on U.S.

data, there is still a lack of evidence in Europe

Increase in rental level ranging between 2-17%

Increased rental income

44 Property level sustainability drivers

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Decreased costs


Stems from the decreased energy costs

Amount of comparative research still moderate, but incidates that the operating costs of certified buildings are lower compared to the non-certified buildings

again, evidence is gathered from the U.S. Markets

Reductions in operating expenses ranging between 6-30%

Literature emphasizes importance of green features in lease arrangments to support reductions in operating expenses

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Decreased risks


Literature identifies two sources that might lead to lower risks

Lower risk of future obsolescence

Lower risk of vacancy

Available research results are still very limited but indicate consistently lower vacancy rates for certified buildings

Size of effect varies markedly across studies

Decrease in vacancy rates ranging between 1-18%

Risk of future obsolescence evolves from sustainable buildings becoming mainstream and from stricter future legislation

Extent of the risk is hard to evaluate

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Increased property values


Forms through higher rental level, reduced costs and decreased risks of the investment

On the other hand, impact on construction costs has to be taken into account

Questionnaires by Sayce et al. (2007) indicate that the effect of investment yields has not yet actualised

Research consistently documents price premiums for certified properties, however quantity of studies is still limited and focused on U.S. Markets

the size of premium varies, premium ranging between 5-31%

Investors willigness to pay has been documented through questionnaire surveys

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Number of published academic journal articles is still low Most of research articles are industry studies and working papers

Most studies providing empirical evidence focus on U.S. market, use CoStar data and apply LEED/Energy Star as sustainability measurement

No empirical evidence from other markets

Other sustainability assessment methods than LEED have different requirements and emphases

Increasing model specification led to lower premiums in rent and price

Worthwhile future research Provision of empirical economic evidence in other markets than U.S.

Research on drivers on corporate and portfolio level

Summary & Future research

55 Conclusions

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66 The End

Thank you

D.Sc Anna-Liisa LindholmHelsinki University of TechnologyP.O.Box 1200, 02015 TKK Finland+358 50 320 [email protected]

M.Sc Heidi FalkenbachHelsinki University of TechnologyP.O.Box 1200, 02015 TKK Finland+358 40 735 1181 [email protected]

Helmut SchleichUniversity of RegensburgUniversitätsstrasse 31, 93053 Regensburg, Germany+49 941 943 [email protected]

Contact details:

Drivers for the real estate investor

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