How do property investors view sustainability?
Dr Cath Jackson of the University of Sheffield and Dr Allison Orr of the University of Glasgow, have written a report exploring how the property industry has reacted to the growing prominence of sustainability within the sector.
Dr Jackson and Dr Orr had previously completed a RICS-funded study exploring the topic a decade ago, but the recent advancement of issues of sustainability has caused a need for further research into this area.
The report, entitled ‘Changing priorities in investor decision-making: the sustainability agenda’, was sponsored by the Royal Institution of Chartered Surveyors (RICS). A key area of the study examines whether people pay more for sustainable buildings with better energy ratings - a ‘green premium’ - both in terms of rent and property ownership.
The study found that the dominant sustainability rating system in the UK, BREEAM, has risen to be the 3rd most important attribute considered by investors when buying property. This is in stark contrast to its position of 7th a decade ago, reflecting the fact that sustainability strategies are now much more commonplace in the UK investment sector.
However, there can be conflict in the implementation of strategies and in asset management decisions, with financial factors often dominating purely sustainability-related motivations. Other drivers for investing in sustainability vary, but include internal green initiatives, reputational factors and external pressure.
The study concludes that no ‘green premia’ are felt to exist in the UK real estate sector, despite recent research suggesting that such premia exist in US markets, for example. It appears that in other countries higher values are paid for ‘green’ stock than can be justified by the cost savings resulting from the sustainability initiatives.
Dr Jackson and Dr Orr believe that in the UK, a lack of evidence for, or perception of, green premia is holding back future plans for greater implementation of sustainable policies.
The report indicates six key recommendations, including improvements in Energy Performance Certificate or EPC system, as Dr Jackson and Dr Orr believe that, currently, it is insufficiently sophisticated to deal with the complexities of the industrial sector. It is hoped that these recommendations can raise awareness and help increase the level of environmental sustainability strategies.
You can read the full report on the RICS website.
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