Valuing sustainability in real estate: a case study of the United Arab Emirates

Abstract

Purpose

The purpose of this paper is to determine if there is an impact of sustainability on the market in terms of a green premium or a brown discount on the price of commercial and residential real estate. It also seeks to identify the incentives and barriers for sustainable developments perceived by real estate professionals.

Design/methodology/approach

The paper investigates the impact of sustainability features on the valuation of buildings in the United Arab Emirates (UAE). The study uses a qualitative structured questionnaire to determine the views of certified real estate valuers and advisors on this subject.

Findings

The results suggest a green premium of at least 1% in the UAE, coming from both supply-side and demand-side, and in commercial and residential sectors. Key barriers for the recognition of green building value include availability of reliable market data, lack of relevant technical skills and apparent client disinterest. Initiatives that would encourage green buildings include financial incentives for key stakeholders, raising and enforcing building standards, and higher energy prices. This paper identifies policy measures that local authorities may consider in transforming to a more sustainable economy. It is expected that such changes would convey to the real estate industry and affiliated stakeholders the financial benefits to be gained from investing in green buildings.

Research limitations/implications

The UAE is not a transparent environment in terms of building prices and rents, and it can be challenging even for experienced professionals to determine whether an observed higher value can truly be considered a green premium. The second issue is that the results may be affected by a “voluntary response bias”, whereby recipients who are interested in sustainability are more likely to have responded to the survey.

Practical implications

This paper identifies policy measures that local authorities may consider in transforming to a more sustainable economy. It is expected that such changes would convey to the real estate industry and affiliated stakeholders the financial benefits to be gained from investing in green buildings.

Originality/value

Most research exploring the value of green buildings originates from developed economies and its applicability to the Middle East is questionable due to its differing origins and unusual development path. This article offers new insights into an under-researched market.

Citation

Lambourne, T. (2022), "Valuing sustainability in real estate: a case study of the United Arab Emirates", Journal of Property Investment & Finance, Vol. 40 No. 4, pp. 335-361. https://doi.org/10.1108/JPIF-04-2020-0040