Valuing green: how green buildings affect property values and getting the valuation method right

31 Dec 2008

In only a few short years, Green Star buildings have captured serious attention, now accounting for as much as 30% of the new building market. Such rapid shifts in market sentiment are difficult for professional valuers to incorporate into traditional models, which rely on tangible evidence from sales and/or leasing from multiple properties.
That evidence is coming, but with many Green Star buildings still under construction, the data base remains limited. In the interim, valuers will need use their expertise to assess the extent of the advantage Green Star buildings will enjoy.
Ignoring the likely impact of this advantage is not an option: this report has found Green Star buildings are already having a market impact. At the very least, non-Green Star buildings face accelerated value depreciation. To be able to make informed judgements with limited information, valuers will need to share knowledge in order to keep pace with the marketplace.
By surveying and interviewing industry leaders, this report aims to contribute to this knowledge sharing and pave the way for further exchange and learning. It is based on an extensive literature search, case studies of eight recently completed Green Star buildings and interviews with some 50 of Australian property owners, valuers and developers, responsible for some 30% of total property fund assets within Australia, with a combined value of $85 billion.
The majority of investors indicated that they would pay more for a Green Star building. The improved marketability of Green Star buildings is their main current competitive advantage: they are easier to sell and lease, which reduces vacancy times and hence income losses. While some tenants are willing to pay the rental cost of achieving Green Star, a rental premium is not yet proven in all cases. Corporate and government demand for improved lifecycle economic and environmental performance are key drivers of green, but these tenants can negotiate green as a bonus for long rentals with predetermined review patterns, rather than paying an up front direct premium.

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