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Sustainability and property valuation: Systematisation of existing approaches and recommendations for future action

David Lorenz (Lorenz Property Advisors – Chartered Surveyors, Gaggenau, Germany)
Thomas Lützkendorf (School of Economics and Business Engineering, Karlsruhe Institute of Technology (KIT), Karlsruhe, Germany)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 27 September 2011

Abstract

Purpose

The aims of this paper are to: provide a systematic overview of various publications and international research efforts undertaken to integrate sustainability considerations into the property valuation process; summarize the key results of these publications and research efforts; highlight the role of key valuation‐input variables in considering sustainability issues when applying traditional methods of valuing income‐producing properties; briefly present and comment on a broader concept of property value and the resulting implications for property valuation practice; and provide recommendations for change in the everyday practice of individual valuation professionals and for the future operation of professional organisations and valuation‐standard‐setting bodies.

Design/methodology/approach

This paper builds on the authors' previous contributions to the discussion on sustainability and valuation, presents advances on these previous works and condenses the more theoretical issues debated earlier into concrete recommendations for future action. Starting from a literature review of the different strands of research relating to the new discipline of sustainable property investment, 31 publications and ten research projects that investigate in detail the topic of sustainability and property valuation are identified and the current stage of discussion is briefly commented on. On this basis, a systematisation of existing approaches for the integration of sustainability issues into the valuation process is presented, followed by further explanations of practical valuation issues such as identifying the key “adjustment screws” or valuation input parameters of traditional valuation methods. Finally, the underlying concept of property value is discussed and a “value map” is presented which conceptualises the relationships between different components of value as well as other value‐influencing forces.

Findings

Changes are required in the processes of gathering, processing and presenting property‐related information, as well as in the methods for determining individual valuation‐input parameters and for explicitly stating formerly implicit assumptions and qualitative judgement. This includes but is not limited to the extension of the scope and informational content of standard valuation reports to include sensitivity analyses, risk documentation and a separate section on sustainability. The required changes should be supported by actions that could be undertaken by the professional and valuation‐standard‐setting bodies and organisations within the valuation world. These actions include: embracing and improved marketing of the qualitative nature of the valuation service; the development of educational material and formal guidelines; the provision of dedicated market research to assist valuation practitioners operating in different market segments, geographic regions and local sub‐markets; and adjusting and further developing existing valuation standards to enable and support individual practitioners in offering a two‐tier valuation service to clients.

Originality/value

This paper proposes that valuation professionals and their professional bodies are confronted with a new reality of changing value perceptions and systems among market participants, and offers practical recommendations on how to cope with this situation.

Keywords

Citation

Lorenz, D. and Lützkendorf, T. (2011), "Sustainability and property valuation: Systematisation of existing approaches and recommendations for future action", Journal of Property Investment & Finance, Vol. 29 No. 6, pp. 644-676. https://doi.org/10.1108/14635781111171797

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited