Sustainability, an important factor in real estate valuation assessments?
RICS, the world’s leading professional body for valuers, has released an update of global standards, the so-called Red Book. The RICS standards are used by investors, mortgage lenders, portfolio managers and the public sector across the world to make valuations consistent. The new version of the Red Book, now available for public consultation, highlights the increasing importance of sustainability. It encourages valuers to consider Energy Efficiency as a factor that may influence real estate value.
In this new edition, sustainability is defined and, for the first time, professionals are strongly advised to collect and record sustainability data. Stopping short of making such analysis obligatory, it does represent an enhanced standard for good practice. This update highlights the link between valuation and energy efficiency, determining substantial outgoing, running cost and the level of recovery from the occupier as factors that are important to include in valuation assessments.
“The Red Book has a global reach and so, in making standards mandatory, the RICS must balance the aspirations to drive forward the inclusion of sustainability considerations with what is practical across all regions, including some areas where market are less sensitised that Western Europe. But the Board are delighted with this new iteration and are revising the accompanying guidance to further assist in making markets more transparent in connection with sustainability!”
Sarah Sayce, Current member of the RICS Global Valuation Professional Board
Formal valuations underpin many investment and financing decisions and thus, this update could be an important step in structurally connecting sustainability and finance. To further evaluate and define the correlation between sustainability and finance, Bax & Company collaborates with RICS and other organisations in the REVALUE project. The main objectives of REVALUE are to develop evidence of the value of Energy Efficiency in residential real estate in different markets, and to develop enhanced practical guidance for valuers on how to value Energy Efficiency.
The REVALUE project
Rolf Bastiaanssen, REVALUE project coordinator, welcomes these changes. “In several markets we can see that investors and lenders are becoming more sensitive to this issue, with evidence of both green premiums and brown discounts in pricing. For commercial investors, this tendency is typically linked to an expectation of future change of standards in quality, either through investor preferences, or through possible energy efficiency standards and regulations. For public sector bodies and owner-occupiers, sustainability is becoming a decision-making factor and “the right thing to do”. We welcome that RICS acknowledges these trends and strengthens the role of sustainability in its standards. Moreover, these changes in the standards may further increase the visibility of sustainability in valuation reports, something that may help to accelerate the process. We are looking forward to work together with RICS on developing guidance to support valuers in assessing impact of sustainability. We expect new guidance to be available early 2018.”
Later this week, we will be at the Sustainable Energy Week (EUSEW) in Brussels to further discuss this topic and present more exiting insights from the REVALUE project, join us! (Thursday 22, 9:00-12:00 CEST, Residence Palace)