DO ENVIRONMENTAL RENOVATION WORKS AND CREATE VALUE FOR OFFICE BUILDINGS ?

Ingrid Nappi-Choulet and Mike Benchimol

ERES from European Real Estate Society (ERES)

Abstract: The office sector currently faces an important issue when it comes to sustainable development. Indeed, the environmental legal framework has evolved and there is a widening gap between the new ñ and thus green ñ buildings and the existing ones. Since new buildings represent only 1% to 2% of the total stock, the main issue lies in the renovation of those existing buildings, in order to make them comply with the law, obtain a green label and retain their attractiveness both for investors and users. Hence, a legitimate question for the investors on the return on investment of renovation works that aim at improving the environmental performance of office buildings. Whereas the costs are easily identifiable, the impact of those works on valuation and its parameters ñ rent, expenses, capitalisation rate, discount rate ñ are much more difficult to determine. In other words, is there a ìgreen valueî, and how much is it? We aim at providing the evolution of some parameters that will be part of the DCF valuation of the asset through the viewpoint of real estate professionals in order to assess the financial relevance of environmental renovation works from the investor point of view.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2010-01-01
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