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Assessing green value: A key to investment in sustainable buildings

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Sustainable buildings entail additional costs, but do not always generate additional incomes for investors. Massive investments in sustainable buildings, especially in retrofitting the building stock, will not be implemented as long investors cannot count on the “green value” of a property, i.e. the additional net value generated by the environmental performance of a property. Assessing green value is essential in order for sustainable buildings to become a sustainable business model; yet property appraisers have not yet taken it into account in estimating the value of properties.

Green value raises three major questions, which we address in this paper. 

  • The first question is theoretical: how is green value generated, and how can it be taken into account in the property value? Corporate investments in real estate are based on financial approaches, which do not take into account green value. In spite of the lack of historical data on European markets, we analyse the structural factors which will create green value in the upcoming years, and how they impact financial models.
  • The second question we address is: how is this taken into account by major market actors? Major market actors anticipate the current market and societal trends and adapt their practices faster than property appraisers who are bound to look backwards. This leads to new management indicators and labels among investment managers in major commercial buildings . In the French institutional housing sector, we show concrete financial models integrating green value.
  • The third question we address is practical: how can green value be effectively guaranteed? This requires real estate professionals to master three dimensions: the intrinsic quality of buildings, the performance of their management and operation, and the quality of their use. We show how this can be done, thus enabling to secure green value and to take it fully into account in the appraisal of properties and in investment decisions.