Partner Article

Sustainability will come of age in 2014

The term ‘silent revolution’ may be fairly applied to the changes we have seen regarding the valuation of property in relation to sustainable standards.

The last Royal Institution of Chartered Surveyors’ (RICS) Guidance Note, which sets the industry standard for valuation in relation to sustainability and commercial property valuation, was written in 2009 but matters have advanced so quickly it has already been re-written (Sustainability and commercial property valuation, 2nd edition http://goo.gl/cN19LJ).

Sustainability, in relation to the valuation of commercial property, encompasses a wide range of physical, social, environmental and economic factors. The valuer needs to be aware of all and it can be challenging. The environmental risks alone are listed as; flooding, energy efficiency, climate, design, configuration, accessibility, legislation, management and fiscal considerations.

But what does this mean in practice, particularly in the North East of England?

When acquiring a property, an occupier or investor compares that property against the prices of the other properties available and their attributes. There are many questions to ask, such as which is the most ‘competitive’ building for the occupier and which will result in the lowest operating costs.

The quality of building is thus very important. Currently, this is often ignored but it is clear that a building with high energy costs should be considered less competitive than a building that is energy efficient.

There are two important factors at work. First, government legislation that will prevent the sale or letting of buildings with an energy rating of less than ‘E’ and, secondly, the price of energy, which is escalating and will continue to do so in the foreseeable future.

So the basis of value is changing. It is no longer the simplistic criteria of “location, location, location” but a much more sophisticated approach to ensure that the sensitivities demanded by the market place are recognised and applied properly.

Next year, we will see some structural changes in the North East market place driven in part by strategic matters. These will include the impact of the proposed Combined Authority, the result of our bid for European Funding, the proposed North East Urban Fund and the emerging North East Economic Strategy. In addition, further changes are anticipated as we see more local policies for the delivery of development through the three new City Regions of Newcastle/Gateshead, Sunderland/South Tyneside and Teesside.

But while delivery of economic change and property development will become the focus in 2014, we face the usual challenges in the region. The existing building stock is inferior – even some of the most recently developed buildings – and will not meet the sustainability demands of the future, whether from Europe, the UK government, or through simple financial demands.

As a chartered surveyor who advises on acquiring properties, I would expect to be asked what the overall operating costs of a building are as part of the acquisition assessment. With the advent of the new RICS Guidance Note, my role will next year take a step change and while differentiation of the quality and sustainability of the building is not yet showing through valuation, I expect this to change quickly in 2014.

This was posted in Bdaily's Members' News section by JK Property Consultants .