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REVALUE Report Summary

Project ID: 649705
Funded under: H2020-EU.3.3.7.

Periodic Reporting for period 1 - REVALUE (Recognising Energy Efficiency Value in Residential Buildings)

Reporting period: 2015-03-01 to 2016-08-31

Summary of the context and overall objectives of the project

Of every five buildings that exist today, four will still be standing in 2050. That makes energy efficient refurbishment a top priority for Europe, and an important opportunity for owners and tenants.

Despite the potential savings, energy efficiency is rarely the focus of residential renovations in Europe – and with 3.1 million dwellings refurbished annually, that’s a problem that must be addressed. Adding weight to the issue is an increasing body of evidence that suggests that when renovations are completed with a view to increasing efficiency, the investments made are routinely suboptimal. The result is a long-term lock-in effect and a great deal of unrealised potential for energy demand reduction.

Among myriad factors influencing investor confidence are project risk, return on investment and government policy, but also valuation norms and standards. The crux of the problem is that current multinational valuation standards don’t directly account for the energy performance of a building. The appraisal of property is a vital instrument for enabling market actors to efficiently price real estate assets and finance investments in building activities (i.e. new developments or refurbishment).

This state of affairs would appear to be at odds with an increasing quantity of literature that documents positive rental and transaction premiums of between 3 and 11% for an energy efficient building versus a conventional building, as well as higher and more stable occupancy rates. Development of a set of norms & standards, along with an accompanying framework that recognises the value of energy efficiency in buildings would help to unlock the market.

The REVALUE project aims to lead the development of appraisal norms and standards that REcognise Energy Efficiency Value in social and private residential real estate. Specifically, it’s objectives are:
• To develop a set of guidance and insights under the RICS framework for the valuation of property that recognises energy efficiency in buildings
• To create a framework that aligns property valuation techniques used by lenders (banks and other institutional investors), property owners (housing associations and private commercial landlords), and assessors (valuing bodies, organisations that measure energy performance) in valuing energy efficiency in buildings
• To create and validate project examples on the application of norms and valuation techniques

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

In Months 1-12 work performed so far includes:

The project partners have established the basic structure to link typically available technical description of a building (components) and energy quality with broader building archetypes and commonly used valuation methods. The methodology will allow a scalable analysis on international level of the relation between energy aspects and value. The method would help present evidence of a correlation on varying levels of detail.

Data collection and Analysis
Savills UK has worked with nine housing providers to get technical descriptions of in total 100,000 dwellings. These databases will form the basis for further analysis and possibly evidence of the relation between energy aspects and value.

Norms & Standards
RICS has reconstituted its Valuation and Sustainability working group. This group will lead the effort to update RICS information note on valuation of sustainability in residential buildings. The independent working group is linked with the project through several of its members. REVALUE will support the working group with data collection, analysis and the organisation of industry reviews.

A series of interviews have been organised with experts from housing providers, valuation industry, the finance world and engineering firms to identify the current relation between norms/standards and decision making on investment, valuation and finance. The workshops and individual interviews in England, the Netherlands and Germany have provided insights in the interaction between these bodies, and the potential added value - and possible direction of - further guidance with regards to valuation of energy efficiency in residential buildings.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

REValue is a three-year project to enhance international guidance for residential property appraisers, incorporating the collection and easy analysis of relevant evidence. This will help valuers to reflect the value of energy efficiency (EE), in their valuations of social and private housing stock. By increasing awareness of impact of energy efficiency on value among lenders, investors and valuers, the project aims to promote advanced market practices and support and encourage market transformation.

The data collection and analysis method developed by REVALUE will allow identifying the correlation between energy quality of dwellings and value at varying levels of detail. Where most recent work methods and research is based on energy labels as indicator of energy quality, the REVALUE approach takes into account building type and over 30 other characteristics linked to the energy quality of a property. The method will result in enhanced detail of evidence of the correlation, a key driver for updating valuation guidance. It will also allow determining the appropriate level of data to be collected, and indication how data should be assessed. Other users of the methodology could include lenders, real estate advisors and property owners, which can better determine the value of certain proporties or of individual retrofit decisions.

It is hoped that by introducing guidance to practitioners in the market, additional income streams related to EE could be recognised and other value drivers found, which might assist buyers and owners consider EE retrofit decisions. Conversely implementation of EE measures may result in additional expenditure for those with interests within such properties. Investors and financiers may begin to reflect EE in their risk assessments and cash flow projections; potentially unlocking additional streams of finance, or resulting in adjusted discount factors.

For certain investors, the financial aspect may not be the prime concern. Opting for a ‘green’, EE building, can be part of a wider sustainability strategy, to future proof an asset, protect its value, and potentially improve tenant satisfaction.

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