Winning In The Long Run-A Quantified Approach To The Uncertainty Of Sustainable Financial Value On Real Estate

This paper presents the methodology and first intermediate results of a RICS Education Trust supported research project, aligned with the international university research programme s-i-r-e Sustainable Investment in Real Estate. The paper aims to contribute to responsible real estate investment decisions under uncertainty by identifying the potential impact of sustainability characteristics on financial performance. A methodology is presented for analysing financial data against their fundamental economic data and their complementary sustainability data. Based on selected office and retail properties from portfolios in several European countries, intermediate results of an empirical study are discussed, giving indication of quantifyable evidence for those sustainability characteristics linked to financial performance. Due to the lack of standardised building certification in mainland Europe, this work concentrates on the assessment of the measurable underlying sustainability criteria. The methodology builds on other research (like Ellison and Sayce 2006; Eicholtz et al 2009; Fuerst and McAllister 2008 and 2010), the sustainability rating tool BREEAM produced by Building Research Establishment and the benchmarking system ISPI produced by IPD/IPF and the Green Rating Initiative (inter alia Bureau Veritas). Alternative sets of systainability criteria are tested in order to consider different preconditions and perceptions across Europe. Economic fundamentals and the uncertainty inherent in sustainability issues are taken into account based on a multi-factor regression model and a real options approach (Bernet 2007). This analysis is accounting for the flexibility of property investors regarding the uncertainty of evolving changes in builiding legislation, quality standards and energy prices.