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An analysis of low carbon design and its effects on the value of a property including valuation approaches

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Abstract

Purpose: It is now generally accepted that sustainable features add value to a property. Therefore organisations such as the RICS are encouraging its members to reflect this in valuations. Valuers also have to be responsive to the growing trends by organisations in embracing socially responsible investment. While it is appreciated that the determination of market value of an investment has to be firmly based on market evidence, the calculation of worth on the other hand can be quite subjective. The purpose of this paper is to evaluate the appropriateness of current valuation approaches and practice in integrating the non financial sustainable benefits of low carbon design (LCD) properties into calculation of worth. Methodology/Approach: Traditionally, the calculation of worth has been mostly based on economic analyses using financially based techniques and therefore only focused on the potential future financial return of a property. These techniques do not integrate the likely intangible benefits of LCD properties, such as social and environmental advantages. A questionnaire based survey emailed to over three hundred property practitioners, tenants and owners of commercial properties and in-depth interviews with a select number of participants were used to confirm current practices. Results/Conclusions/Recommendations: The results of the study show that there is widespread recognition and appreciation that LCD properties add value and this is reflected in practitioners? methods to calculate worth, where the majority include sustainability issues. In terms of the valuation practice, the majority of practitioners do reflect sustainability issues in valuations to calculate worth. However, the inappropriate approaches are used in that intangible benefits are reflected by making adjustments to financial based methods. Methods such as analytic hierarchy process (AHP), which quantitatively evaluate, in a systematic and logical manner, subjective value laden attributes, are hardly recognised let alone used.

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