Property Investing In The Commercial Sector Construction Essay

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The proposed research is focused on property investing in the commercial sector, with a particular emphasis on the potential increase in value of sustainable buildings, i.e properties which are not only producing financial return for investors, but are also beneficial to its occupiers and the environment. Defined as the 'triple bottom line' -profit-people-planet of property investing (Boyd and Kimmet, 2005), it suggests three measures of success: economic profitability and prosperity, social fairness and environmental health. However, it has been difficult to prove, over the years, that this success is achievable and that there is a link between sustainable characteristics of a property and its value on the market. (Sayce and Sundberg, 2009).

Although in the current economic climate, the only concern for investors is not surprisingly financial viability, the signs of recovery are already at the door step demanding a wake-up call for smart investing focused on environmental and social issues, which actually may result in higher premium values and better market performance. The strict regulations for energy use, regulatory compliance and incentives, occupiers demand for better cost effective environment and growth potential may be considered as indicators that less efficient buildings may suffer decrease in value and why green buildings may be a more preferable option for an investment portfolio. But only a small number of studies explore the subject based on both- analysis of transaction values and theoretical studies for value change.

Aims

The research overall aim is to establish if there is an observable link between sustainability and property prices in current property market, related to the triple bottom line approach. The aim will be achieved by the following objectives:

To define sustainable buildings and their position as assets on the market

To carry out a literature review in order to critically evaluate the theory of quantifying the relationship between sustainability and property prices

An analysis of investors motivation to determine the drivers of green investments

Analyse quantitative data from recent market transactions in order to track the performance of green buildings on the market

Stakeholder Map/Concept Map

The concept map attached in Appendix 1 of the research proposal has been designed to support the aim and objectives of the research, by outlining the main participants in it, using a more visual approach on the map design to target larger audience.

Literature Review

Sustainability is seen as a triple headed concept back in 1987 (Bruntland Commission Report 1987) and since then governments and institutions all over the world are trying to raise awareness of the benefits of sustainability by means of policy structures. The main issue behind this concept is "buildings represent 25-40% of total energy use, 30% of raw material use, 30-40% of global greenhouse gas emissions and for 30 to 40% of solid waste generation. In addition, in OECD countries, people spend almost 90% of their life inside buildings" (OECD, 2003 and UNEP, 2006). The response of the commercial industry has still not reached satisfactory levels probably because of the fact that there is little evidence of the link between sustainability and realistic profits. (Sayce et al 2007).

However, the main argument is why investing in sustainability if it is only beneficial for the environment and communities and there is no clear evidence on fulfilling investor's fiduciary obligation to make better profit out of it. Theoretically few authors addressed this issue by means of scenario simulations to estimate the return on investment of such buildings (Boyd 2006, Bubny 2009, Kats 2009). All authors highlights that the results of their researches should be treated with caution, due to the limited data available on the subject.

The relationship between environmentally friendly buildings and better financial performance has been also explored by identifying the influences on the value of green buildings using the triple bottom line approach (Boyd 2006, Chaiwatanaton 2006). Boyd produced a table of influences on the value of green buildings which lead to positive impact of the value but points out that the more capital involved the lower initial return on capital is justified. Chaiwatanaton details similar positive impact on value as well as Ellison and Sayce (2006); Lorenz and Lutzkendorf (2008); Bienert et al. (2008), but don't establish the link between sustainability and better financial performance. Therefore these studies were criticised as theoretical only mainly due to the lack of market data on sales of such buildings. (Reed & Wilsinson 2007, Mayers et al 2007). The fact that all the studies were commenced before the recession hit the market in 2008, suggests that they do not take into account its detrimental effect on market value. Inevitably reaching the bottom in the three cycles -business, property and credit (Richard Barras,2007), the investors were becoming less and less concerned on environmental issues but on how to sustain their assets.

Apart from the empirical studies several live surveys were produced to raise awareness of sustainability amongst the key players on the market. (Jones Lang Lasalle 2008, Cusham and Wakefield 2009). The so called Circle of Blame was expressed in Jones Lang Lasalle report, which reviewed the respondent's attitude towards sustainability with particular focus on the occupiers' willingness to pay high premiums for better quality of premises and less costs. According to the survey around 70 % of the respondents stated that they are prepared to pay premium rental between 1 and 10 % for sustainable real estate. In theory, Boyd identifies occupiers demand for better and cost effective premises as one of the influences on the value of green buildings, but in his conclusions he argues that a change will not always have a positive impact on value.(Boyd, 2006). But again in the survey there is no clear transactional evidence in terms of numbers. However, since then the business has suffered enormous squeeze and key players on the market may have reconsidered their opinion. Occupiers' satisfaction is seen as influential on the value increase of green buildings, and supports the triple bottom line approach, but change in their behaviour due to external economic factors may result in negative impact on the value.

According to Cusham and Wakefield Tenant and Landlord report 2009, 70% of respondents are prepared to pay premium between 1 and 10 %, 42 % of the tenants interviewed were occupying sustainable buildings, compared to 34% for year 2008, resulting in 8 % increase on yearly basis. If these figures are seen as repetitive pattern, by 2020 all of the respondents will occupy sustainable buildings. The surveys are similar to theoretical studies, both based on probabilities with limited data on transactional evidence.

Research Method

For the purpose of this research, the following methodological processes will be commenced along with a Gantt Chart (Appendix) 2:

Analysis and synthesis of literature related to the subject area. (Boyd 2006, Sayce et al 2007) The research will be based on findings of a comprehensive search for theories related to the main aim-the link between sustainability and commercial property prices. A wide range of literature will be considered in order to meet the objectives of the research, including secondary data- publications, journals, surveys, conferences and research reports. The total number of papers and articles used for the research will be listed in the research paper and fully referenced.

Qualitative and Quantitative Data:

Qualitative Data: Questionnaires will be created and released throughout professionals in the investment property market, to collect different opinions, views and understanding of the subject area (Matthews and Ross 2010:140). Questionnaires will be available in user friendly format and released through internet, in compliance with Data Protection Act.

Structured interviews with key market players-occupiers, landlord and investors, as well as property professionals, willing to share data of transactional evidence. Primary research will be conducted in compliance with Data Protection legislation and all parties involved will be asked for permission for recording interviews and will be given 'stay ammoniums' option.

Target Group:

1) Occupiers of both green and conventional buildings

2) Landlords of both green and conventional buildings

3) Property Investment Professionals

3) Pension Funds

4) Private Investors

Quantitative data:

Collecting and assessing Market evidence from current and previous market transactions (Jones Lang Lasalle 2008, Cusham and Wakefield 2009).

Undertaking BREEAM Assessor training-the findings of the course and obtaining a BREEAM Assessor licence will support objective 1 of the research and will not only help to develop the research further, but will be beneficial for researcher professional development in the industry

Case Studies-Exploring 2 case studies in the subject area, with particular emphasis on "smart cities" in Europe and the position of such assets on the market

The research is focused on current market situation, therefore the data used will be only from recent secondary sources, published after year 2000, with an exception of citations from Brundland Commission report 1987.

Ethical Considerations of the research method

All participants in interviews and questionnaires will be asked for permission to either record or use the findings of the research

All collected data will be password protected and stored in a personal computer

Due to BREEAM data protection policy, information on BREEAM establishment will not be disclosed, but will be used only to support the researcher knowledge level of the subject area.

All sources will be fully referenced using Harvard referencing system.

Conclusion

In all studies so far, sustainability is seen as an opportunity for better market performance, related to the triple bottom line approach. All theories support the idea of an existing link between sustainability and property prices. However, none of these studies were conducted in the current economic climate, which has an enormous impact on property investments in general.

Therefore, by completing tasks outlined in the research method, the paper will seek to develop existing researches and try to establish search relation in the current property investment market by collecting empirical and transactional evidence. The findings of the research will be published in a research paper.

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