Energy performance important for value real estate

Short description: 
A new report from the Joint Research Center (JRC), an institution of the European Commission, mentions that energy efficiency is becoming increasingly important to determine the value of real estate. The determining factor is how well-known the governmental energy performance labels and certificates are. It seems to some time before they gain popularity among the general public.
Description: 
Energy efficiency,the value of buildings and the payment default risk
This report supports “de-risking” activities by evaluating existing literature about the impact of energy efficiency improvements on the value of buildings by increasing its actual value and through the impact on operational costs. The specific impacts of labels and certificates to create “green premium” and “brown discount” are analysed.
The report also looks at the impact of energy efficiency on the payment default risk. The analysis shows that higher energy efficiency is clearly linked to lower default risk, which should be reflected in financial products.
Main findings
As a rule of thumb an increase of 3-8% in the price of residential assets as a result of energy efficiency improvements, and an increase of around 3-5% in residential rents compared to similar properties can be observed. For commercial buildings, the premium seems to be higher, over 10%, and in some studies even over 20% of sales price increase compared to similar properties has been reported. Rental prices of commercial buildings have also been positively affected by 2-5%. Differences across regions and countries, as well as different property types (e.g. apartments vs. houses) are shown. A change over time is also seen, because the labels and schemes become more well-known and understood. It is shown that higher energy performance is becoming the norm, therefore higher values are associated with better performance in latter times.

Energy efficiency upgrades change the basic characteristics of the buildings affected and thus have an impact on other value drivers: comfort, safety, maintenance, etc. Not only the energy performance, but rather the connotated features can influence the value of a property. Current demand for housing and location are still the main drivers to a building’s appraisal value and for a tenant’s selection of housing, however energy performance is becoming increasingly important across all reviewed countries.
Quick guide
The current report is a stepping stone in the journey towards establishing more information, data and evidence, as well as to identify knowledge gaps in two critical aspects related to energy efficiency investments.
Firstly, it evaluates existing literature that discuss the impact of energy efficiency improvements on the value of buildings, the methodology that can be applied to quantify the increase or decrease of property value linked to the energy performance and sustainability components.
Secondly, it demonstrates the impact of energy efficiency on the payment default risk namely the link between energy efficiency investment and ability of borrowers to repay their loans.
Language: 
English
Topics: 
Buildings
Financing
Resource category: 
Guidelines/Methodology