Sustainability in commercial property valuation: From theory to implementation

Abstract

Market demand and regulatory developments have accelerated requirements for the explicit and measurable assessment of sustainability within commercial property valuations. This necessitates an informed and practical approach. Political and, in some cases, market appetite continues to evolve on sustainability, of which climate change remains the most prominent issue. Measurement of sustainable objectives is typically through environmental, social and governance (ESG) frameworks, which have reached a mature stage in many markets. This maturity of approach, however, interfaces with the reality of economic uncertainty, geopolitical concerns and increased costs. Market stakeholders are increasingly looking at ESG in the context of overall asset performance and demand factors,1 potentially over a longer time horizon. Reporting of ESG frameworks was initially at a company level.2 To better understand company performance and justify capital investment requirements, however, there has been an increased demand to understand the ESG impact in respect of the individual assets held. Commercial property may form a significant part of these assets, and valuation is an important measure. This paper analyses how professionals and standard setters have gone about meeting new asset level valuation requirements, discusses some of the challenges faced, and gives a contemporary view of how commercial property valuation can practically consider sustainability in investigation and reporting. This article is also included in The Business & Management Collection which can be accessed at https:// hstalks.com/business/.