The embeddedness of sustainability in real estate investment decision-making

The importance of real estate’s sustainability rating has increased significantly. Studies undertaken in 2007 and 2016 show that, at acquisition, the rating rose from 7th to 3rd most important attribute. This shift in priorities parallels the RICS embracing the 10 principles of the UN Global Compact (RICS, 2015). However, while sustainability value premia appear common in some international markets, the picture is mixed and drivers and mechanisms lack empirical investigation. The literature reveals potential barriers to investors fulfilling both sustainability and financial objectives. The purpose of this study is explore these potential barriers.

Focus groups with real estate fund managers, sustainability managers and acquisitions surveyors are undertaken to explore the adoption and implementation of environmental sustainability policies. This reveals a series of barriers to implementation and these are then explored in greater depth through a series of interviews with fund managers. This layered, qualitative approach is designed to provide detailed knowledge of practical and conceptual sustainability issues within the UK real estate market.

Key drivers underpinning the adoption of sustainability policies are revealed and barriers to implementation are found to relate to data on investment performance, valuation methodologies and prohibitive capex. Further, the heterogeneous, opaque and slow-moving nature of the market is prohibitive and intervention is encouraged to overcome the lack of financial viability that hinders improvements.

Research is dominated by highly aggregated quantitative data on sustainability within commercial real estate markets. The qualitative approach used here adds new insights and value to the understanding of the embeddedness of sustainability in real estate investment decision-making.