Developing an indicator-based sustainability assessment framework for office appraisal

Abstract

Sustainable development is the key solution to mitigate the impact of the 21st century’s major challenges such as the depletion of our natural resources, emissions that accelerate climate change together with the large waste generation. One of the largest contributor to the aforementioned issues is the existing building stock, in particular the office sector. Upgrading the sustainability performance of the existing building stock is not only in the interest of regulators or society. Real estate professionals are interested in the sustainability performance of their property, portfolio or occupied property. Due to the complexity, it is not feasible for market participants to verify the sustainability performance of a property. As a consequence, voluntary certification schemes have emerged to provide an objective evaluation. However, at the same time, appraisers are paradoxically expected to provide an objective estimation/opinion on the potential added value of sustainability while their duty according to governances is to derive the market value by analysing available data. The inability of current valuation practices for incorporating a thorough sustainability assessment resulted in decision-makers to focus solely on energy-related costs and justify their investment decisions based on energy-related benefits. For this reason, many investment decisions are believed to be profitable for users instead of owners. However, previous research has shown that property owners of sustainable offices might achieve positive effects in relation to an enhanced image, corporate social responsibility, less risky profile for investors and improved marketability. In the effort to shed light on these far-reaching tentacles of sustainability, this thesis sets forth the base for developing an indicator-based sustainability assessment framework for the appraisal of offices. The proposed framework integrates sustainability and the value it holds for various stakeholders by conceptualizing the relationship between sustainability indicators and different value systems as well as the economic parameters that are adjustable by an appraiser in the income capitalization method. In this way, an appraiser is able to provide an objective estimation of the possible added value of sustainability. Starting from an extensive literature review of different certification schemes, a pre-selection of sustainability indicators was made. Through conducting 8 semi-structured interviews with sustainability experts, the first selection of indicators could be determined together with their goals, measurement and criteria. It is remarkable that according to the participants, actively monitoring the consumption and other management-related indicators are defining the sustainability performance of an office as well, next to the physical characteristics. The online survey was distributed among sustainability experts with a questionnaire designed with the constant sum method and were requested to allocate points over the indicators as well as the categories to determine the relevance. Ultimately, the selection resulted in a set of 34 indicators. Combining the findings from the interviews, data from the survey and the literature review resulted in a framework which was discussed in an expert interview with an appraiser. The findings of the expert interview indicate that there is still a huge gap between practice and theory. The nature of the current valuation techniques hampers the integration of sustainability by focussing mainly on the rental agreement. In order to integrate sustainability aspects into the appraisal, a shift from only looking at the rental agreement to looking at the current use and the fitness for use would be needed. Future research could focus on validating and expanding the linkage between the sustainability indicators and the economic adjustable parameters and reducing the subjectivity of input for the indicators.