Investor survey: The value relevance of sustainability
March 4, 2022
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How does the increasing importance of sustainability impact acquisition activities and the management of existing properties? In 2021, Wüest Partner conducted a survey of 237 Swiss real estate investors on behalf of Senn Resources AG. One of the things the survey enabled was the identification of value-relevant sustainability factors and their influence on the market value of properties.
Investors typically define the term sustainability primarily in terms of location and accessibility and only secondarily in terms of the criteria outlined below. The complexity of this concept is compounded when considering the quality of outdoor spaces and amenities, with the subjective perception and attractiveness of spaces in terms of social and societal sustainability being positively influenced or negatively affected by buildings from a socio-spatial perspective.
Sustainability criteria for existing properties
When acquiring existing properties, their potential for future optimization is considered as more relevant than the ecological footprint and current condition of the property at that time. A property’s potential for optimization is influenced by factors such as life cycle costs, as well as the potential for the conversion and optimization of energy consumption and heat generation with regard to the federal government’s Energy Strategy 2050 and the portfolio’s CO2 reduction path. Buildings that are particularly energy efficient are more attractive to investors. Energy and consumption monitoring, as well as the repair of individual building components are all considered as part of upcoming refurbishment cycles.
Sustainability criteria for new buildings and projects
Unlike existing properties, attention to gray energy during construction is gradually increasing among investors when acquiring new construction projects, although both relevance and corresponding willingness to pay remains low.
Overall, building ecology, the gray energy of materials and construction methods with regard to an efficient circular economy, is a factor that is only just beginning to be considered more frequently. In order to achieve target certification or own portfolio objectives, individual “first-movers” among investors are beginning to address these issues and minimize the gray energy of project acquisitions, in addition to energy consumption during operation.
Willingness to Pay for Sustainability – Quo Vadis?
The willingness to pay for low greenhouse gas emissions during construction is still modest in comparison with the willingness to pay for low CO2 emissions during operation. The topics of life cycle and circular economy are still primarily understood in terms of flexibility of use and conversion potential, in order to avoid stranded assets. This is particularly so for commercial properties, therefore, the willingness to pay for higher flexibility of use and convertibility is also greater.
The principles of the circular economy, such as lean building technology, the accessibility of individual components and the system separation of structure and technology, or the selective deconstructability of components with different service lives, are only gradually being taken into account in new construction projects on the basis of targets for material and system selection. Investors expect further research in these areas to be done by universities and the building materials industry. Therefore, willingness to pay for the themes of the circular economy, recyclability and reusability of materials is still restricted. This could be explained by the fact that planning in this area is currently still very complex, as well as the traditional construction industry continuing to operate at low cost, with no internalization of external costs having taken place to date.
With trends towards greater sustainability continuing to strengthen and extend to include the consideration of the entire building, the implementation of targets for a portfolio are likely to prove prudent in the long term. Wüest Partner and durable offer a wide range of consulting services and tools in this context.