AUTHOR: Dominique Amber Ruiter BSc STUDENT NUMBER: 10451471
EDUCATIONAL PROGRAM: Urban and Regional Planning 2017 - 2018 EDUCATIONAL INSTITUATION: University of Amsterdam
SUPERVISOR: Prof. Dr. Maria Kaika SECOND READER: Dr. Herman Kok
PRIVATE E-MAIL: dominique.ruiter@hotmail.com
SUSTAINABILITY IN
COMMERCIAL REAL ESTATE
THE MEANING OF THE CONCEPT
THROUGH THE EYES OF REAL ESTATE EVALUATORS
MASTER THESIS
AUTHOR: Dominique Amber Ruiter BSc STUDENT NUMBER: 10451471
EDUCATIONAL PROGRAM: Urban and Regional Planning 2017 - 2018 EDUCATIONAL INSTITUATION: University of Amsterdam
Sustainability in commercial real estate
TABLE OF CONTENT
AIMS AND OBJECTIVES ... 4
RESEARCH QUESTION ... 4
SUB QUESTIONS ... 4
CASE: SAVILLS NEDERLAND ... 5
DUTCH OFFICE SECTOR ... 6
VALUATION PROCESS ... 7
THEORETICAL FRAMEWORK ... 9
THE FIRST ATTEMPTS TO DEFINE SUSTAINABILITY ... 9
CORPORATE SOCIAL RESPONSIBILITY ... 12
FIVE DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY ... 13
VICIOUS CIRCLE OF BLAME ... 15
SUSTAINABILITY ASSESSMENT ... 17
METHODOLOGICAL FRAMEWORK ... 21
RESEARCH APPROACH ... 21
CASE STUDY ... 21
DATA COLLECTION METHODS ... 21
DATA ANALYSIS ... 23
RELIABILITY AND VALIDITY ... 23
RISK ASSESSMENT AND ETHICS... 23
RESULTS ... 24
SUSTAINABILITY IN COMMERCIAL REAL ESTATE ... 24
TENDING TOWARDS THE DESCRIPTION OF A GREEN BUILDING ... 25
FIRST ATTEMPTS TO DESCRIBE A SUSTAINABLE BUILDING ... 26
DIMENSIONS OF SUSTAINABILITY ACCORDING TO RICS ... 27
KNOWLEDGE AND UNDERSTANDING AMONG REAL ESTATE EVALUATORS ... 33
WE FOLLOW THE MARKET ... 33
MAIN MOTIVES BY DETERMINING THE MEANING OF SUSTAINABILITY ... 34
CONCLUSION... 36
STANDPOINTS REGARDING THE CONCEPT ... 36
MAIN MOTIVATIONS FOR INDULGING INTO THE SENSE-MAKING OF SUSTAINABILITY ... 36
KNOWLEDGE-BASE AND UNDERSTANDING ... 36
LIMITATIONS ... 37
RECOMMENDATIONS ... 37
REFERENCES ... 38
APPENDIX A - INTERVIEW QUESTIONS ... 42
APPENDIX B - MEETING ING ... 46
Sustainability in commercial real estate
INTRODUCTION
In recent years, the awareness of the term ‘sustainability’ has increased enormously since issues of climate change and global warming have entered the mainstream media. It has developed into a social topic that is widely discussed in the public eye (Lorenz & Lützkendorf, 2008). Research shows that savings of approximately thirty percent in energy use and greenhouse gas emissions are possible for the commercial building stock (Turner & Frankel, 2008). Also, the real estate sector is responsible for more than twenty percent of the world’s carbon emissions as well as other environmental impacts, including waste production, pollution, use of water and consumption of other natural resources (World Economic Forum, 2016). This implies that commercial office buildings have a significant impact on the environment and that they offer a large potential to abate climate change (Reichardt, 2016). “Sustainability is one of the game changers impacting today’s business value in the real estate investment sector” (GRESB, 2015). As awareness grows among the thought that sustainability is becoming increasingly important and is directly impacting business operations and buildings, the commercial real estate sector is poised to become an important pillar of broader urban resilience-building efforts (GRESB, 2005).
Consequently, sustainable real estate has become a mainstream phenomenon. Real estate investors are working on making their portfolios more “green” or are exploring the benefits of sustainability because this is, however, an unknown territory. They often act under pressure from values and norms in society to limit their involvement regarding greenhouse gas emissions. If businesses enjoy a great reputation among large audiences, they are often sensitive to their image to operate in an environmentally friendly manner (CPB, PBL & SCP, 2014). Investing in sustainable space can be an important step in achieving objectives of corporate sustainability (Reichardt, 2016). Following, real estate investors are looking for advice on the future (or long term) value of a building, taking into account sustainability features such as climate resilience and well-being (RICS, 2017).
Investors are going to real estate evaluators for advice. Real estate evaluators have a pivotal role in the commercial real estate market, because they are being consulted about their opinions, judgement and assumptions about the effect of sustainability on market values. The way they treat sustainability has ramifications for the entire real estate industry (Warren-Myers, 2012). The fast pace in which sustainability influences the value of commercial real estate is the reason for the revision of the Royal Institute of Chartered Surveyors (RICS) guidelines concerning sustainability. The RICS is the most well-known institution that promotes and maintains the highest profession qualifications and standards of land, real estate, infrastructure and construction. It contains the largest group of qualified real estate evaluators in the world (RICS.org, 2018). Despite the increased awareness in the real estate valuation sector about the term sustainability, there is a lack of knowledge and no broad agreement as to what constitutes a sustainable building (Reichardt, 2016, Ahn et al., 2013, Runde & Thoyre, 2010, NVM, 2011, Voinov & Farley, 2006). More than twenty years ago, Campell (1996) stated: “In the battle of big public ideas, sustainability has won; the task of the coming years is simply to work out the details and to narrow the gap between its theory and practice.” Recently real estate evaluators
Sustainability in commercial real estate have been identified as a primary barrier, preventing the identification of the relationship between sustainability and market value (Warren‐Myers, 2012).
AIMS AND OBJECTIVES
This research aims to find out how real estate evaluators define the sustainability concept when determining the value of commercial real estate in the Netherlands and gain better understanding of the phenomenon in this specific work field. In order to respond adequately to changes in the market, real estate evaluators must continuously strive to increase their knowledge in the area of sustainability. It is important for an evaluator to be aware of the sustainability concept and to be able to reflect this in the advice he/she gives. “The most effective way to deal with an evolving market influence, especially one that is changing rapidly, is to understand the concepts that drive it” (Runde & Toyre, 2010). However, a clear and concrete vision for real estate evaluators in the valuation of sustainable real estate is currently lacking in the real estate market, since the market for sustainable property is still in a developing stage. There is a lot of uncertainty about how, in practice, sustainability should be a part of the valuation process when the concept is unclear in almost every aspect (Reichardt, 2016). Because the concept is still unclear, it is important to conduct complementary research.
This research therefor focuses on providing a clear starting point for integrating the concept sustainability in the valuation process with regards to commercial real estate. The aim of this research is to contribute to the knowledge formation about the concept sustainability with as ultimate goal, the future integration of sustainability in the valuation process. The valuation profession can become part of a vision for the future, by shaping the real estate market into a sustainable asset. This research will hopefully provide a basis for further research regarding integration of the sustainability concept into practice.
Research question
How is the concept sustainability defined by different real estate evaluators when valuing commercial real estate in the Netherlands?
Sub questions
1. What are the standpoints of the real estate evaluators regarding the concept sustainability? 2. What are the main motivations among real estate evaluators to indulge themselves into the
meaning of sustainability?
3. How do real estate evaluators feel about their knowledge and understanding regarding the recommended dimensions of sustainability by RICS?
Sustainability in commercial real estate
CASE: SAVILLS NEDERLAND
The research will be conducted at the global real estate service provider Savills Nederland. The company is located at the Zuidas in Amsterdam, The Netherlands. They are part of an international network of more than 600 offices and associates throughout the Americas, the UK, continental Europa, Asia Pacific, Africa and the Middle East. The company is listed on the London Stock Exchange. Savills is a RICS regulated organization and has committed itself to the behavioural and ethical rules of the Royal Institution of Chartered Surveyors. This means integrity is one of their most important values.
Employees working at Savills offer thorough understanding of specialized real estate sectors. They offer expertise on all major areas in the residential, office, industrial and retail property segments, leisure and health care objects, agricultural sector, project development for mixed use and hotels. Savills is the fifth largest agent in the world in terms of global sales and the fifth largest European agent in European sales. The company also has been named the number one employer in the real estate industry and the best business super brand in the real estate sector by the Center for Brand Analysis (Savills.nl).
The valuation team values the all types of commercial real estate. The standard types; offices, logistics, retail, industrial and residential but also for example holiday parks, petrol stations, ground and airports. The clientele consists from institutional and private investors, project developers, financiers to governments. Valuation reports comply with the guidelines of the Royal Institution of Chartered Surveyors (RICS), the International Valuation Standards and the regulations of the Dutch Register of Property Real estate evaluators.
Image 1: Office building of Savills Nederland located at the Zuidas, Amsterdam.
Sustainability in commercial real estate
DUTCH OFFICE SECTOR
Commercial real estate are buildings which have the intension to generate profit from capital gains and/or rental income. Investing in commercial real estate means buying and selling in business objects, residential houses and other buildings without own use as the ultimate goal. In case of a direct investment in real estate, if the object increases in value or the mortgage is repaid, equity is accrued. An optimal investment, is an investment with the lowest possible risk and the highest yield. The yield is mostly expressed as an annual percentage rate based on the current market value and tied to the risk associated with the investment. Generally, the investment with a high risk is accompanied with a high return. Therefore, an optimal profitable portfolio is achieved by analysing the risk-return profile. This means investors are trying to possess a well-diversified portfolio containing different locations, characteristics and types of objects.
A significant share of commercial real estate portfolios consists of offices. In 2017, offices were the largest investment category of the total investment volume in the Netherlands, namely 33 percent of 6.7 billion euros. In 2016, the stock of office space in the Netherlands covered around 48,9 million square meters (Cushman & Wakefield, 2017). The last years, there is a visible decline in available square meters because of the conversion of offices into retail- and residential space. There was a high vacancy rate in this segment as of the year 2000. In the period of 1998 until 2004, an abundance of office space was put on the market (almost 11 million square meters). In the aftermath of the euro crisis, the office supply became too large compared to the demand. Structural oversupply in the last few years, has put the rent of office buildings under heavy pressure. An attempt is made to maintain tenants and/or attract new tenants, by making substantial concessions, also called incentives. This can be for example a rent-free period, compensation for office fit out costs or landlord works. The vacancy rate is still higher than a healthy vacancy level of around 5 - 7 percent, due to among other things the increases of flexible workstations and working from home. (Kroot et al., 2017).
The Netherlands is attractive for business to locate, which is shown in the registered positive year due to the increased number of office jobs, decline in vacancy, growth of the average rental level and the large investment volume (Cushman & Wakefield, 2017). However, scarcity of high-quality office space at the most popular locations arises. Here, another type of vacancy is being addressed, namely qualitative vacancy: vacancy because the quality of the supply no longer corresponds with the demand (Kroot et al, 2017). This also has to do with a tremendous development in the terms of sustainability. “The increasing inclination of governments to legislate to mitigate where possible against climate change implications presents a changing regulatory framework within which valuations take place” (RICS, 2013). Minister Blok announced in November 2016 that office buildings should become more energy-efficient. The reason for this is the Paris Agreement. This agreement is binding, and the ultimate goal is that in 2100, the earth will not be heated more than 1.5 to 2 degrees Celsius compared to the pre-industrial era. As a result, office buildings with an energy label of D through G may no longer be used as of 1 January 2023. In 2030, all offices are required to have energy label A. In the
Sustainability in commercial real estate meantime, owners have to make their office buildings more efficient, with an exception for very small offices and monumental buildings.
In practice, an office with a label D, E or F can be adjusted without any structural alterations to obtain label C. Adjustments concerning installations are already sufficient most of the time. This new rule will save a considerable amount of energy per year. Office owners have to invest a total of 860 million euros in energy-saving measures which will have an energy payback time between 3 till 6.5 years, however highly depending on the building and the energy price (Rijksoverheid, 2016). It appears that preserving existing buildings while improving their energetic quality is favoured instead of constructing new buildings. This because it allows tracking trends in space use and identifying the building stocks impacts on the environment (Lützkendorf, 2010).
VALUATION PROCESS
Valuations play a major part in this development and are arguably more important for investment in real estate than any other major asset class since they play a crucial role in reporting to investors, monitoring portfolio strategy and undertaking transactions (RICS, 2017). A valuation is a professional estimation of the value of an object by a real estate evaluator at a given time. A real estate evaluator needs to be in a position to provide an objective and unbiased valuation and not have a connection or involvement with the subject of the valuation instruction or the party giving the instruction. It is therefore important to determine the establishment of the market value. The market value is largely determined by the current situation on the property market. The value is formed by a well-founded opinion based on an interpretation of market information. In the framework of this research, a connection is sought with the ‘Red Book’ of the Royal Institute of Chartered Surveyors (RICS, 2014):
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably prudently and without compulsion”.
The RICS definition is chosen because the Red Book is designed by the commitment to promote and support high standards in valuation delivery worldwide. The organisation provides strict valuation standards unified in the RICS Red Book which ensure uniformity and quality (Kroot et al., 2017). They have played a central role in the development of international standards that bring greater confidence and consistency in the real estate market and built environment projects. A valuation report must provide insight into the establishment of the market value. It is a clear communication tool between the real estate evaluator and the client, providing the latter with independent, comparable evidence that is neither ambiguous nor misleading. All elements that have contributed to the valuation must be reported. The factors that are not included in the valuation should be indicated as well accompanied by the reason. Valuation report users are among others; property owners, investors and banks.
Sustainability in commercial real estate At this moment, there is a huge mismatch between the expectations of valuation report users and the information which real estate evaluators actually produce in valuation reports. As part of the efforts to implement the Paris Agreement, real estate asset owners, investors and stakeholders must now recognize they have a duty to understand and actively manage climate-related risks as a routine component of their business thinking and practices. “Today, the challenges imposed by sustainable development represent a landmark for the valuation profession” (Lorenz & Lüzkendorf, 2008, pp. 486). The RICS guidance encourages real estate evaluators to be aware of sustainability features and the implications these could have on property values in the short, medium and long term. Sustainability-related building characteristics are becoming important determinants of a property’s worth and market value (idem). In addition, poor environmental and social performance is increasingly seen as an investment risk or reason for not buying or renting commercial real estate (Filose, 2005, cited in Reichardt, 2016). “Failure to address these risks will not only hinder global efforts to address the climate challenge, but will also hurt long-term returns, undermine economic sustainability and reduce the calibre of the infrastructure passed to future generations” (RICS, 2017, p. 29).
“All this affects the way property has to be treated for valuation, insurance, lending and other decision-making purposes along the life cycle of buildings and puts pressure on real estate evaluators and professional property advisors to capture the benefits and economic value of sustainable construction and to reflect sustainability aspects within property price estimates” (Reichardt, 2016).
However, sustainable related advice is not a mandatory requirement of a valuation. Michl et al. (2016) state that real estate evaluators will be cautious about modifying their practices and extending their data-collection procedures because this is experienced as unpaid extra-work. Scholar Warren-Myers (2013) has found that real estate evaluators do not consider themselves as a barrier between sustainability and the market value of an object. Results from the research show that real estate evaluators might misjudge sustainability which means that some are not experiences enough to accurately include the concept in their assessment. The biggest reason for this phenomenon is the level of experience. Following from this, there is still little evidence of factors impacting the value of properties as there is clarity on what sustainability actually means in terms of valuing commercial real estate.
Sustainability in commercial real estate
THEORETICAL FRAMEWORK
The first attempts to define sustainability
One of the first definitions of sustainable development in 1987 is given by the United Nations World Commission on Environment and Development (WCED): “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. The WCED (1987) associated the word ‘needs’ refers to the essential needs of the world’s poor, especially in developing countries. This group is of the upmost importance and should be given priority, because poverty and inequity will always be prone to ecological- and other crises. The organization acknowledged that ‘even the narrow notion of physical sustainability implies a concern for social equity between generations, a concern that must logically be extended to equity within each generation’ (idem). There are several critical observations made by Pearce (2005). First, the outlined ‘win-win’ situation is an illusion, because you cannot have everything if one only plans carefully enough. Second, many of the things we do today are at the expense of future generations.
Norton (1992, cited in Voinov & Farley, 2006) defined sustainability as follows:
“Sustainability is a relationship between dynamic human economic systems and larger, dynamic, but normally slower changing ecological systems, such that human life can continue indefinitely, human individuals can flourish, and human cultures can develop - but also a relationship in which the effects of human activities remain within bounds so as not to destroy the health and integrity of self-organizing systems that provide the environmental context for these activities”
There is little consensus about what the concept sustainability actually means, because it is conceived as chaotic, a cliché and far-reaching. Sustainability has become meaningless and has fallen into the category of the lifeless, while the word is so vital for the continuation of life as we know it (Fuller, 2010). This causes misunderstanding, disagreement and confusion. This is reflected in over 300 attempts in scientific literature to define the concept (Dobson, 2000 in Manderson, 2006). It is possible that all definitions are equally valid in their own context. “As a result, sustainability remains a concept rather than a theory (literally a ‘general notion’), and our efforts to generate a universally accepted definition remain contentious at best” (Manderson, 2006). Thomas Rau, architect and visionary in the field of sustainability suggest a new way of defining the phenomenon: “Sustainability is important, but I prefer to speak of viability. Diseases and corruption are also incredibly sustainable. Sustainability is a characteristic, not a quality (Geluk, unknown).” To further investigate the concept and to give it more meaning, it is therefore best to narrow it down to the specific context of commercial real estate.
Sustainability in commercial real estate Sustainability in commercial real estate
Despite the increasing awareness in the real estate sector about the term ‘sustainability’, there is a lack of knowledge and no broad agreement as to what constitutes a sustainable building (Reichardt, 2016, Ahn et al., 2013, Runde & Thoyre, 2010, NVM, 2011, Voinov & Farley, 2006). Graaskamp (cited in DeLisle, Grissom & Högberg, 2013) defined an empirical link between urban property and social problems, by recognizing that real estate decisions should satisfy a high ethical standard in terms of future generations. “The political and social processes required to produce a real estate product must consider a diversity of impacts to find equitable reconciliation between who pays and who benefits” (DeLisle, Grissom & Högberg, 2013). He empathized the fact the true test of sustainability is the ability to satisfy this proposition over time by providing a durable solution. Durability comprises a long-term perspective which mandates that there is a continues market demand for the building over the full life cycle of the property. Following from this, DeLisle came up with a definition:
“The use of scarce real estate in an efficient, economic, equitable and socially responsible manner that provides an acceptable - if not optimal - fit between users of space and the space that is produced that has an existing and enduring effective demand and balances the needs of current and future generations.”
However, this definition does not explicitly mention the environmental aspects. Subsequently, Lützkendorf & Lorenz (2007, p. 646) state that:
“A sustainable building is meant to be a building that contributes - through its characteristics and attributes - to sustainable development. By safeguarding and maximizing functionality and serviceability as well as aesthetic quality a sustainable building should contribute to the minimization of life cycle costs; the protection and/or increase of capital values; the reduction of land use, raw material and resource depletion; the reduction of malicious impacts on the environment; the protection of health, comfort and safety of workers, occupants, users, visitors and neighbours; and (if applicable) to the preservation of cultural values and heritage”. This definition propagates the idea that sustainable building encompasses social, environmental and economic aspects that are equivalent and have to be treated simultaneously (Berardi, 2011). The Nationale Vereniging van Makelaars en Taxateurs (National Association of Real Estate Agents and Real estate evaluators) (NVM, 2011) supports this way of thinking and states that: “Sustainable real estate is real estate that has been built or adapted in such a way that it places a (relatively) minimal burden on scarce resources (materials, energy, water) and at the same time functions optimally (tenants satisfaction, indoor environment, health)”.
They state that the focus should not just be on the building itself. Otherwise the term ‘green building’ is probably more useful here. A green building is designed to use less energy and water and to reduce life-cycle environmental impacts of the materials used (Yudelson, 2008, p. 13). A green building is not automatically a sustainable building. A building can possess a high sustainability rate, but if it does not correspond the experience of the users and social considerations, it will eventually remain empty and that is not sustainable at all.
Sustainability in commercial real estate The American Environment Protection Association (EPA, 2009, cited in Fuller, 2010) describes the practice of green building as:
“... creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle from siting to design, construction, operation, maintenance, renovation and destruction”.
People planet profit
John Elkington (1994) developed a framework called the triple bottom line. The triple P term consist of the three elements; people, planet and profit.Translated into practice, the elements should be taken into account when pursuing profit, environmental quality and social wellbeing. In case of an imbalance between the elements, the other two will suffer. The concept simultaneously considers and balances economic, environmental and social issues. The triple-bottom-line concept suggest that firms need to engage in socially- and environmentally responsible behaviour and at the same time make positive financial gains. Economic responsible behaviour refers to the use of energy and other resources and the footprint they leave behind as a result of their operations. It is often related to among others waste reduction, pollution reduction, energy efficiency, a decrease in the consumption of harmful materials and emission reduction. Social sustainability shifts the focus on both internal communities (employees) and external ones. It means that an organization provides equitable opportunities, encourage diversity, ensures the quality of life, provides democratic processes and promotes connectedness within and outside the community. Firms enhance their social reputation by engaging in Corporate Social Responsibility (Giminez, Sierra & Rodon, 2012).
Sustainability in commercial real estate Corporate Social Responsibility
Businesses around the world, are becoming increasingly aware of the need for, and benefits of, their contribution to sustainable development (ISO, 2014). Increasingly attention has being given to the relationship between property valuation, risk analysis and the growing interest and responsibility that the property industry is taking towards society and the environment. Researchers Lubin and Estay (2010) describe sustainability as a global “business megatrend” that influences business decisions. A business megatrend forces a fundamental and persistent shift in the way a company competes. This process of change can be reinforced by a shift in social reality that affect the business world and / or threat of conflicts about raw materials. All these conditions are currently met, including the fact that environmental issues have certainly started to exert more influence of the past ten years on the possibility for companies to create value for their consumers, shareholders and other stakeholders. “As society’s values shift to include sustainability, so, too, will the way real estate decisions are made” (Runde & Thoyre, 2010). This means an organization’s commitment to the welfare of society and the environment has become a strategic necessity for the business world, otherwise they will lose their competitiveness in the long run (ISO, 2014).
This business practice, based on ethical values and respect for employees, communities, and the environment is also known as Corporate Social Responsibility (CSR). The relationship between businesses and the society and environment in which they operate, is a critical factor in their ability to continue to operate effectively states ISO, the International Organization for Standardization (ISO.org, 2018). This organization develops international standards in an open, impartial and consensus-based process. They published the standard ‘ISO 26000’, which aims to provide guidance on how businesses and organizations can operate in a socially responsible way and act in an ethical and transparent way that contributes to the health and welfare of society. In the standard, Corporate Social Responsibly is defined as follows:
“Social responsibility is the responsibility of an organisation for the impacts of its decisions
and activities on society and the environment, through transparent and ethical behaviour that:
• Contributes to sustainable development, including the health and the welfare of society, • Takes into account the expectations of stakeholders,
• Is in compliance with applicable law and consistent with international norms of behaviour, • Is integrated throughout the organization and practised in its relationships” (ISO, 2014). This definition is chosen because the ISO 26000 is described as one of the most important documents on CSR in the world (Mihaela, 2016). However, there is a lot of uncertainty and critique in the academic and corporate world about the definition because of the abundance of definitions. Van Marrewijk (2003) states that there is no such thing as the features of CSR or the existence of one definition, because a successful strategy has to be context specific for each individual business, manifesting intrinsic motivations.
Dahlsrud (2008) analysed 37 definitions of CSR and identified five key terms; environmental, social, economic, stakeholder and voluntariness dimensions. He showed that there is a 50 percent change for any of the dimensions to be included in a definition and a 97 percent probability that at least three of the dimensions are used. The five dimensions of CSR are
Sustainability in commercial real estate described below. In the last decades, research have been focused on the motivations and benefits on why firms engage in sustainable standards (Bansal & Roth, 2000, Boiral, 2005 & Gravonski, 2006).
Five dimensions of Corporate Social Responsibility
Operating benefits related to green and sustainable buildings when surveying corporate users, developers and investors are mentioned in relation to each dimension. Identifying these benefits can provide a major opportunity for policy integration (Ürge-Vorsatz et al., 2007)
Economic dimension
Elving et al. (2015) argues that CSR is not only good for society but also for the business itself. Economic key terms describing the phenomenon CSR are; preserving the profitability, contribution to economic development and association with the term as a business operation. Tenants also indicate they have a strong interest in leasing sustainable office space (Muldavin, 2010). Furthermore, a sustainable building enables goodwill, positive marketing and advantages in reputation and public image (DeLisle, Grissom & Högberg, 2013). Increasing evidence shows that a well-designed, energy-efficient building often will have a positive effect on employment and the economic multiplier effects of spending in other ways the money saved on energy costs (Ürge-Vorsatz et al., 2007). The first taking sustainability standards into account have the potential to increase their competitiveness and long-term profitability (Bansal & Roth, 2000). Having a first and leading market position in the sustainability market can generate high profits and create a temporary first advantage. Firms that are mostly driven by the economic dimension of incorporating sustainability engage in more visible activities to improve their corporate environmental reputation (Bansal & Roth, 2000).
Environmental dimension
The environmental dimension is named less than the other dimensions when describing the definition of CSR. Dahlsrud (2008) mentioned that a reason for this could be that it is not explicitly included in the naming and in early definitions. However, it is an important part of CSR, embracing concerns relating to a cleaner environment, environmental stewardship (resilient-based resource management) and concerns in business operations. Investors, developers and corporate users are more and more concerned with the environmental impacts of their investments and therefor showing increasing interest in sustainable buildings (Reichardt, 2016).
Stakeholder dimension
The dimension of stakeholders applies to the way organizations interact with their employees, suppliers, consumers and stakeholders (Dahlsrud, 2008). A stakeholder can be defined as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives” (Freeman, 1984, pp. 46). When businesses proactively address society issues,
Sustainability in commercial real estate building partnerships with stakeholders, seeking benefits through social strategic goals and emphasising the citizenry responsibilities, we talk about corporate citizenship. This term refers to ‘businesses acting responsibly toward their stakeholders (Weber & Wasieleski, 2003). Adopting sustainable standards as a firm can improve the relation with stakeholders because this can lead to long term benefits for themselves (Webb, 2005). It can provide financial support or support from the government in terms of tax advantages or subsidies (Orsato, 2006). New employees may be attracted and retained and positive signs about the firms improved reputation are being circulated (Miles & Covin, 2000). Because of this improved reputation, The spatial impacts of a green and sustainable building are improved performance and operations of investments and facilities. It also produces a more comfortable building for tenants and lowering operation costs (Reichardt, 2016). Operating costs are expenses associated with the maintenance and administration of a business. This
Voluntariness dimension
The voluntariness dimension relates to actions that are not prescribed by law. They are based on ethical values and go beyond legal obligations. Firms that are motivated by ecological responsibility act out a sense of obligation, responsibility and self-interest. The reason for this motivation often points to values of powerful individuals in the company or work field rather than external decision-making and rules (Bansal & Roth, 2000). Studies have shown that successful initiatives are often initiated by actors who are intrinsically motivated to engage in the process due to their willingness to pioneer (Van Doren et al., 2016).
Social dimension
The social dimension relates to the relationship between business and society. The real estate industry is becoming actively aware of communicating a sustainable oriented attitude towards the wider public. This dimension encompasses the contribution to a better society, integrating social concerns in business operations and considering the full scope of their impact on communities. A challenge for businesses is to understand how CSR is socially constructed in their specific context and how to take this into account when business strategies are developed (Dahlsrud, 2008). The growing acceptance of social responsibility (SR) also influences the demand for and the provision of products (e.g. buildings, property investment products, financing and insurance products) (Lorenz & Lützkendorf, 2008). A green building can potentially contribute to increased life expectancy, reduced emergency room visits, asthma attacks and fewer lost workdays (Ürge-Vorsatz et al., 2007).
Critical notes
Most of the time, sustainability is having a positive connotation and is therefore often shielded from critique and politicization. Unfortunately, investment in green infrastructure can further entrench inequity and sharpen inequality by serving some at the expense of others, resulting in winners and losers (McClintock, Mewald & McCann, 2017). The so-called ‘losers’ include those who suffer more than their fair share of the health, property, and ecosystem damage costs
Sustainability in commercial real estate of pollution. Usually these are the poor, living and/or working in more vulnerable areas compared to the rich (WCED, 1987). Furthermore, companies sometimes seek to use the moral and ethical connotations of sustainability towards their own advantage. The confusion and vagueness around the concept enables them to further advance their own agendas and legitimise other end goals. Mohr & Sarin (2009) conclude that CSR is only used as a marketing tool because costumers have become sensitive for social issues. Such actions skew the essence of sustainability, and couple with a lack of a consensual definition, this misuse threatens to render the sustainability concept meaningless or relates it to begin little more than a hollow cliché (Manderson, 2006).
Vicious Circle of Blame
This meaninglessness causes and/or strengthens the further underdevelopment and limited adoption of the concept within the real estate sector. Real estate evaluators are focused merely on square meter costs and market value which results in reluctance concerning sustainability. Cadman (Warren‐Myers, 2012) identified the key relationship between the stakeholders causing the limited adoption of the sustainability concept in the commercial real estate market (see Figure 1).
Figure 2. The Vicious Circle of Blame
Developers, investors, occupiers and constructers are the stakeholders that blame each other for not acting on their desire for sustainability; representing the Vicious Circle of Blame. However, as scholar Warren-Myers states, the role of real estate evaluators as advisors to the different commercial real estate sectors is missing. “Thus, the valuation profession has a crucial role in the adoption of sustainability in the commercial real estate market, because decisions made by real estate investors, financiers, and other stakeholders are based on opinions and advice from real estate evaluators. The importance of financial justification and verification of the effect of sustainability on asset values by the financial sector, is paramount (RICS, 2005), otherwise
Occupiers
We would like to have sustainable building but there
are only a few available.
Constructors
We would like to build sustainable buildings but the developers don't
ask for them.
Developers
We ask for sustainable buildings but the
investors won't pay for them.
Investors
We would fund sustainable buildings but there
is no demand for them.
Sustainability in commercial real estate there will only be limited, or no, investment in sustainability” (Warren-Myers, 2012). Lorenz (2008) changed the negative connotation that accompanies the Vicious Circle of Blame to a more positive perspective on the elements in the circle. Lorenz created the Virtuous Circle of Blame and feedback loops, including those involved directly and indirectly within commercial real estate (see Figure 3). Here, the valuers and advisors play a central role in the process of incorporating sustainability into the commercial real estate market. The real estate evaluators are expected to recognise the benefits of sustainability and reflect this in their estimates of market value and calculations of worth as well as in their advice given to clients. Many stakeholders are awaiting financial justification and acknowledgement of any relationship between sustainability and market value which they are expecting to get from the valuation department.
“But the industry can be forgiven if it struggles to take sustainable development, or sustainability, on board since there is a shortage of sound guidance on just what the concept means and what the industry would have to do to achieve it” (Pearce, 2005).
The willingness-to-pay has not been evident within the commercial real estate market, which indicates that stakeholders, occupiers or investors are not willing to sacrifice profit for the environment. Real estate evaluators in their turn require evidence to report the change, but this change will not occur if they do not present a positive relationship between sustainability and market value (Warren-Myers, 2012).
Sustainability in commercial real estate Sustainability assessment
Hastings & Wall (2007) made a division between three different groups of sustainability assessment. Sustainability rating are intended to provide stakeholders, investors and developers with a quick way to evaluate the sustainability performance of an object, so they can make informed decisions based on the findings. Stakeholders think differently about the concept, attaching different values to different parts of sustainability which makes it hard to systematically asses sustainability (Berardi, 2012). The first assessment is cumulative energy demand (CED), focussing on energy consumption. The second one is life cycle analysis (LCA), focussing on environmental aspects. The last one is called total quality assessment (TQA), which evaluates ecological, economic and social aspects.
Considering the above-mentioned definitions and ideas of what the concept of sustainability should comprehend, the TQA system comes closest to a representative analysis. The complexity of a building suggests a multidisciplinary approach in the assessment of sustainability as well as a holistic and integrated evaluation. Every subcomponent should be evaluated as well as the building in its entirety (Berardi, 2012). An TQA system take into account three aspects of sustainability of buildings namely environmental issues (GHG emission and energy consumption), economic aspects (investment and equity) and social requirements (accessibility and quality of space). Part of these systems are the multi-criterion systems, which base the evaluation on several parameters. BREAAM (Building Research Establishment Environmental Assessment Method) is the oldest multi-criteria sustainability rating method for the build environment. This method attempts to establish best practices in sustainable building design, construction and operation. Berardi (2012) compared six different rating systems, showing which aspects of building performance are given more consideration in sustainability assessments. Energy efficiency turned out to be most important. Followed by indoor environment quality, waste and pollution, sustainable site and material and resources. Environmental aspects in existing systems receive much more attention than economic and social aspects (Berardi, 2011).
The RICS recognises the growing importance and created a worldwide guideline on how to incorporate the concept sustainability into the valuation of commercial real estate. This guideline states that real estate evaluators need to be able to provide a clear description of the sustainability related property characteristics, provide a statement of their opinion on the relationship between sustainability factors including a comment on the current benefits / risks and a statement on the relative property values over time (RICS, 2013). A division is made between seven components of which the description should exist.
Environmental risks
The transition towards a sustainable society seems to be on the rise. For several decades, we know that an energy transition is necessary. There are several crucial motives for changing our system of energy supply and consumption. The first one involves the finite nature of the earth’s fossil fuel reserves (Verbong & Loorbach, 2012, p. 2). We are consuming all the limited resources of oil, gas and coal. There is a lot of uncertainty about how long the remaining stock can last our ever-growing demand on the long-term. The other motive concerns the increasing
Sustainability in commercial real estate level of greenhouse gas emission, contributing to global warming and climate change worldwide. This the most urgent reason to accelerate the energy transition and build towards a sustainable society (Sijmons, 2014, p. 13). The building sector is the largest energy-consuming sector, accounting for over one third of the final energy consumption (IEA, 2013). Environmental risks that may affect a property are extreme weather events such as drought, flooding, tornadoes, mudslides and earthquakes and the impact of rising sea levels and temperature changes. These risks are all caused by climate change. Natural resource depletion, soil contamination and air pollution, the rising levels of waste materials produced also have implications for real estate values (RICS, 2013). Energy conservation in the existing building stock is seen as the fastest and most cost-effective way to mitigate climate change, global greenhouse gas emissions and improve air quality. Especially in large cities where huge amounts of primary energy sources are consumed for space heating ((Levine et al., 2007 mentioned in Van Doren et al., 2016, Ürge-Vorsatz et al., 2007). Moreover, reducing use of non-renewable resources, improving energy savings and contributing to carbon and waste reduction are also mentioned. Gathering up-to-date key risk information about references, can help investigating to what extent the risks relate to the subject property alone or other properties within the area (RICS, 2013).
Design and configuration
Sustainable buildings have been designed or refurbished to achieve longer life cycles. This means they have different resource utilisations or a smaller ecological footprint. Design features in these buildings will have a positive influence on for example the heat island effect, internal natural light distribution and natural ventilation (RICS, 2013). Co-benefits of a sustainable building design are also; improved indoor air quality and thermal comfort and reduced level of outdoor noise infiltration (triple-glazed windows or high-performance wall and roof insulation (Jakob, 2006). Following is the potential to create a better work environment which enhances productivity of employees. This results in reduced staff turnover and absenteeism (Reichardt, 2016) as well as improved occupant health and well-being, directly affecting employee satisfaction and staff productivity.
Construction materials and services
Part of the assessment of the valuation can be the type of building materials used and the building services such as air-conditioning, heating installations, water management, storm water management and waste management provision (RICS, 2013). These aspects may impact the profitability and financial outlay but can also have social implications. Non-renewable materials or inefficient services can cause negative environmental consequences. New technologies (solar panels, photovoltaics) are constantly developing and changing. Real estate evaluators should be aware of the differences in available technologies and the financial incentives associated with them. However, not all technologies are proven the be successful and may increase the risk (RICS, 2013).
Sustainability in commercial real estate
Location and accessibility
A buildings sustainability should be considered and assessed by looking at the surrounding area (Berardi, 2012). For a location to be sustainable, it should among other things be accessible via a variety of means of transport and have sufficient parking provision to maintain value (RICS, 2013). A property depending on public transport only (or car-use) can lead to higher stress and staff turnover among employees. Discouraging car usage and penalising car users by charges should shift into enhancing access to all transport modes (installation of secure cycle storage, changing facilities and showers) (RICS, 2013).
Fiscal, legislative and planning
Legislation measures seek to improve the sustainability performance of buildings and act as barriers to non-sustainable buildings. Non-compliant assets and unsustainable aspects of buildings may be at risk of depreciating in value (RICS, 2013). There are three types of subsidies in the Netherlands. The Energy Investment Allowance (EIA) applies to investments in energy-efficient technology and durable energy and compromises a 13,5% tax advantage and ensures a lower energy bill. The Investment Subsidy for Renewable Energy (ISDE) is an allowance for the purchase of solar boilers, heat pumps, biomass boilers and pellet stoves to use less gas and thereby save energy and reduce CO2 emission. The Stimulation Sustainable Energy Production (SDE+) subsidises the production of renewable energy focussing on biomass, geothermic, water, wind and sun (RVO.nl, 2018). Incentives and subsidies from the government could enhance the asset value. Also planning policies and regulations could possible impact the need for redevelopment or refurbishment to deliver sustainable standards. Real estate evaluators should consider whether such standards have an impact on the development costs and potential rental or capital value realised upon development (RICS, 2013).
Management and leasing
A sustainable built building is not sustainable when inappropriately managed, since the use determines the energy bill and the specification standards being met. Sustainable management systems and behaviour change can have great impact on operational sustainability aspects and be pertinent to value (RICS, 2013, RVM, 2006). Encouraging arrangements between the landlord and tenant are for example ‘green leases’. The beneficiaries are the tenant and the landlord. The tenant shares their savings with the landlord and there is an incentive for the landlord to undertake sustainable investment. “Where such arrangements exist real estate
evaluators should assess whether they may have an impact (positive or negative) on rental value or yield within the local market” (RICS, 2013).
Sustainability in commercial real estate
Social considerations
By identifying the given definitions of the sustainability concept, the social dimension must be taken into consideration. Also, assuming that in the commercial real estate context corporate social responsibility plays a role in the property decision-making process, it is of significant importance for the company. Social considerations underline the health and well-being of employees (for example; ambience in the provision of social space in offices) “Concerning the
social dimension of sustainable development there is still not yet consensus on how to translate and adjust wider societal goals and concerns to the assessment and evaluation of single buildings” (Lützkendorf, 2010). Perceptions of security, installation of security systems, privacy and digital connectivity are also social aspects with potential value implications (RICS, 2013).
Sustainability in commercial real estate
METHODOLOGICAL FRAMEWORK
Research approach
To gather information about the way the concept ‘sustainability’ is defined as part of the valuation process and the subsequent valuation report, a qualitative interpretivistic philosophy is used combined with an inductive research approach. When conducting a research that involves the perception of social actors on a social phenomenon it is necessary to understand the subjective meanings that are attached to their reality. Everyone perceives a phenomenon different as a consequence of their own personal view. In order to grasp the meanings of a person’s behaviour, it is important to gain access to people’s common-sense-thinking and hence to interpret their actions and their social from their point of view on social reality. Qualitative research provides the opportunity for this. Also, since the aim is to research a ‘how’ question, a qualitative approach is requested (Yin, 2003). An inductive strategy which predominantly emphasized on the relationship between linking data and theory is typically associated with a qualitative research approach (Bryman, 2012).
Case study
A research design provides a framework for analysing and collecting data (Bryman, 2012). This research is concerned with the particular nature of a single organization and entails the detailed and intensive analysis of a single case. The research will be conducted at the global real estate service provider Savills Nederland. This is an exemplifying case because they are one of the top players in the real estate business in the Netherlands. The company is offering a broad range of specialist advisory. One of the services they are offering is valuation of commercial real estate. Because I am part of the valuation team, I am able to generate an intensive examination of the setting. I also have easy access to valuation reports and the real estate evaluators. My personal experience put me in the position to place the obtained information in the right context.
Data collection methods
Exponents of the case study research design favour the qualitative methods participant observation an unstructured interviewing. These methods are very helpful in the generation of an intensive, detailed examination of a case (Bryman, 2012).
Interviews
Eight in-depth expert interviews were used to gain inside into the meaning of the sustainability concept among real estate evaluators (see appendix A). They are experts in their field, providing hundreds of valuations each year. They are valuing office buildings on a day-to-day basis, which make them an excellent source of information. The interviews are semi-structured; this means that there is a prior interview protocol drawn up containing different important themes and key questions. I will be able to deviate from this scheme, to anticipate on interesting
Sustainability in commercial real estate statements or to ask further questions about a topic. After conducting eight expert interviews, there was a significant overlap, providing me with enough information to conduct my research. Each interview is recorded and described verbatim for the purpose of analysing the received data. The respondents had different years of experience, educational backgrounds and positions.
Expert interviews
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drs. A. Tervoort MRE MRICS RT REV 40 minutes-
mr. M. Onderstal MSRE MRICS RT REV 35 minutes-
J. J. C. van der Grinten MSc RT 50 minutes-
G. Klaassen MSc RT 40 minutes-
B. Mulder MSc 32 minutes-
D. Ruizendaal MSc 25 minutes-
K. Kerkkamp MSc 45 minutes-
S. Geilswijk BSc 43 minutes Participant observationDuring work hours I receive a lot of background information about the working process and relevant information in relation to the research question. I will for example attend meetings with clients about sustainability. I will use this information to draw up relevant interview questions and to anticipate quickly during the interviews with in depth questions and practical examples.
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Internal meeting with ING (see appendix B)Secondary data
Secondary data, e.g. valuation reports of the company and scientific literature is also used. Because the valuation reports are internal documents, they cannot be used for other purposes than are stated in the report and they are for the sole and exclusive use of Savills clients. The valuation may not be relied upon by any third party without the expressed and written authorization of Savills Valuations. They accepted no responsibility to any of such third parties whatsoever. These valuations reports provide a more enriched and complete overall picture of the case. Data analysis of the valuation reports will give me insight into the already written reports and the way the concept and the understanding of sustainability is used so far. Outlining the work environment by describing internal meetings, documents and conversations, could possibly contribute to a better understanding of the personal motivations and points of view of the participants. Scientific literature and articles are helping to gain more knowledge about the commercial real estate sector and the developments regarding sustainability.
Sustainability in commercial real estate Data analysis
The semi-structured in-depth interviews were conducted in Dutch and recorded. Afterwards they were described verbatim and sorted by key questions. The names of the respondents and mentioned names were replaced by numbers. Throughout the data analysis, the transcribed interviews were used as a guideline. Interesting quotes where being highlighted for later support of the claims being made. Quotes where carefully chosen to bring more life into the data analysis without repetition. Statements about the same subject where highlighted and placed within the same table of collecting data. The table consisted of an overview of the interview questions. The interview scheme is divided into three parts. The first part is trying to generate information to answer the
Reliability and validity
The credibility of the findings was ensured in several ways. First, most of the interviewees are RICS Registered Real estate evaluators and have therefor sufficient current local and national knowledge of the particular market and the skills and understanding to undertake the interview. All the participants that were selected have experience in the valuation process of commercial real estate or the field they are active in which results in a high qualitative sample. The validity of the research was ensured by the fact that the description of the concepts that played a leading role in the research were carefully chosen out of the existing literature. Hereafter, the intention of this research was to start a conversation and discussion about the given meanings and interpretation of the concepts. The question of whether a given definition really does reflect the concept that it is supposed to be denoting is therefore part of the research and not an established fact. Because of this, the internal validity is less forthcoming as the reflections and representations given by the respondents are personally identifiable and therefore never wrong. The interviews have been conducted in Dutch, after which they are translated into English. This could have an effect on interpretations of the given answers.
Risk Assessment and Ethics
All interviews are conducted in a familiar environment, namely at the work floor in a confined space. This means that respondents do not have to experience stress and discomfort. All names of respondents are replaced by numbers. This ensures that respondents can give their opinion openly. Prior to the interview, respondents were informed about the subject and the fact that they did not have to have factual knowledge about the subject. The participant can then decide for himself if he / she wants to participate in the research. The participant can also indicate that he or she does not want to answer certain questions during the interview. The respondent will be fully informed in advance about, among other things, the purpose, content and course of the research. All these ethical principles are maintained so that the respondent will not suffer any adverse consequences. All respondents signed the consent form (see appendix C).
Sustainability in commercial real estate
RESULTS
Sustainability in commercial real estate
All real estate evaluators were convinced that the term sustainability should be incorporated into the valuation process. They felt that sustainability has become a new important development within the commercial real estate sector, deserving serious attention and consideration. Despite the recognized growing importance, they all expressed their ignorance concerning the actual meaning of the concept. These uncertainties are primarily based on the idea that the concept is still too vague to determine the added monetary value in terms of generated profit.
Respondents
“That is very difficult. Sustainability is a very vague concept. There are many different thoughts about it” (Respondent 2).
“That is a difficult question. Because it is so broad, I do not know where to start” (Respondent 6). “For me, sustainability is still an all-purpose word (container begrip)” (Respondent 8).
When trying to describe the concept sustainability within the commercial real estate market, the environmental aspects where mentioned the most. Seventy percent of the describing aspects can be directly linked to the environmental dimension of sustainability. Energy efficiency is the most mentioned aspect related to the environmental dimension. Commercial real estate should reduce the amount of energy that is required to live and work. The minimal burden on scarce resources also turns out to be a feature mentioned often, which can be distinguished from the possibility to re-use materials. The minimal burden on scarce resources relates to the amount of land being used to build new real estate and to the energy that is needed to build it on a specific location. Longevity of materials related to the idea of buying real estate that will stand the test of time. The production of commercial concrete materials releases CO2 into the atmosphere, which should be reduced to a minimum using alternative building materials. These building materials make adjustments to the layout and construction possible, enabling alternative use and destination of an object. The economic aspect mentioned was saving energy costs and the aspects related to the social dimension contained taking into account the care for next generations.
Respondents
“First of all, I think about energy-efficiency. So nowadays, you see a lot of buildings depending on alternative energy sources. So, for example solar energy that kind of thing. So really focused on energy” (Respondent 6).
“I think about property that is suitable for several years and then again, the materials of the buildings can be reused. And the energy and everything becomes sustainable, so that is does not depend on scarce resources” (Respondent 1).
Sustainability in commercial real estate
“It is important for investors whether, for example, such things as information about energy consumption or energy labels are present. If the real estate is more sustainable, it is worth more” (Respondent 5).
“So, not so only trying to minimize the energy consumption, but just that you are aware of what happens next. That it [commercial real estate] is not only useful for us, but that you also get more out of the life course of real estate keeping the next generation in mind” (Respondent 8).
Figure 4. Mentioned sustainability aspects in commercial real estate and the environmental dimension sorted out.
Tending towards the description of a green building
When trying to give meaning to what a sustainable building actually means, most aspects mentioned by the real estate evaluators are related to the design and construction materials; namely the importance of the possibility to re-use materials and energy efficiency by means of solar panels. The description mostly corresponded to the definition of a green building. As has been mentioned in the theoretical framework, a distinction can be made between a sustainable building and a green building. In case of a green building, the focus lies first of all on the building itself in contrast to a sustainable building, where the social environment is more important.
Figure 5. Mentioned aspects describing sustainable office building and the environmental dimension sorted out.
70% 10%
20%
A S P E C T S E X P L A I N I N G S U S T A I N A B I L I T Y I N C R E
Environmental Economic Social
14% 21% 36% 29% E N V I R O N M E N T A L A S P E C T S Re-using materials Longevity materials Energy efficieny
Minimal burden scarce resources
64% 18%
18%
A S P E C T S E X P L A I N I N G S U S T A I N A B L E B U I L D I N G
Environmental Economic Social
34% 53% 13% E N V I R O N M E N T A L A S P E C T S Re-using materials Energy use
Sustainability in commercial real estate Respondents
“A sustainable building that is made out of fabrics and products that are not bad for the environment and are easily degradable. In addition, a building that of course emits little CO2, which is heated by for example solar panels, and has a minimal impact” (Respondent 2).
“A sustainable building is suitable for several years and then again, the building materials can be reused. And the energy and everything becomes sustainable when it does not depend on scarce resources” (Respondent 1).
“A building that is designed to be energy efficient, use less water and reduce the lifecycle environmental impacts of the used materials” (Yudelson, 2008, p. 13)
“The first (definition of a green building) because, ‘reduce the lifecycle environmental impacts of the used material’, well that is obviously true. If a very sustainable building is now being built, then everything it says in the definition is taken into account. Yes, and the second definition mainly focuses on the demanding functionality and that is not so much sustainable. I find that less sustainable than the first” (Respondent 1).
When providing the real estate evaluators with the definition from Yudelson (2008) and a definition of a sustainable building given by DeLisle, Grissom & Högberg (2013), fifty percent of them chose the definition of a green building as the definition of a sustainable building. The reason why they choose this definition comes from the believe that the environmental and economic aspects should be given a priority and are most important, which corresponds to the scientific literature (Berardi, 2011, 2012). However, adding some nuance is necessary. Most of them agreed that the principal concept of sustainability should find its meaning in a much broader sense. They acknowledged the fact that it is definitely part of sustainability, but according to them not in relation to the valuation process of an office building. The reason they choose this definition comes from the fact they preferred a practical definition that could easily be translated into the valuation process. The definition given by DeLisle, Grissom & Högberg (2013) was perceived as too vague and foggy. They also mentioned that this definition and therefrom the focus on energy efficiency is reflected in the commercial real estate industry. The issues concerning energy are easily measurable. Lack of data about the social dimension is causing insecurity among investors which is keeping them from investing without any other proof.
First attempts to describe a sustainable building
As regards to a sustainable building, the social, environmental and economic dimension needs to be taken into account. Following the definition from Lützkendorf & Lorenz (2007), the social environment includes the protection of health, comfort and safety of workers, occupants, users, visitors and neighbours and (if applicable) to the preservation of cultural values and heritage. There were only two respondents who explicitly mentioned that a sustainable building means providing a viable work environment for employees working at an office building. A pleasant work environment for employees is seen as important and is made possible by automatic
