Impact of sustainability performance on property values

At Newsec, our commitment to sustainability is deeply intertwined with our approach to property analysis and valuation. For years, we have invested significant resources into educating ourselves and cultivating specialized expertise in this domain. Our ongoing dedication to monitoring various sustainability indicators enables us to identify how ESG influences property pricing.

Our valuation practices have become much more sophisticated, with better analyses enabled by data, but also by how we have been able to collect and structure it.

“When it comes to data, bigger is always better. Newsec's scale contributes to this advantage; having the right data and a broad scope available is advantageous for me and the team. It is accessible, easily analyzed, and allows for robust conclusions due to how we have structured our data. The industry is becoming more complex with additional aspects to consider in valuations. Through our methodical work, we can identify patterns and key factors that shape market dynamics over time. Our clients benefit from comprehensive reporting on sustainability parameters, providing them with valuable insights into property valuation”, Ulrika Lindmark, Deputy Managing Director Newsec Advisory Sweden, Head of Valuation & Strategic Analysis.

It is evident that sustainability considerations play an essential role in terms of income, expenses, and yields. For instance, we have observed that properties with green lease agreements generate higher rent, driven by the demand from both tenants seeking environmentally conscious spaces and the overall market trend. Similarly, reduced energy costs can enhance the attractiveness of a property, positively impacting its rental potential and net operating income.

The influence of sustainability extends to buyer preferences and investment strategies. There is a growing proportion of investors who prioritize sustainable and environmentally certified properties, viewing them as more desirable and resilient assets. Conversely, properties with unfavorable energy ratings may face reduced demand and unfavorable loan terms, affecting their market value accordingly.

In navigating today's complex market scenery, understanding the preferences and priorities of potential buyers and the financing market is key. Whether dealing with local investors, international stakeholders, or institutional funds, aligning with their sustainability objectives is crucial. Particularly in the context of green properties, which demonstrate resilience and desirability even amidst market uncertainties, aligning with investor preferences becomes vital.

The driving force behind decision-making is also influenced by what the financing market, for example banks, consider important. This response varies over time: energy classification, governed by taxonomy, and a shift towards considering actual CO2 emissions will become increasingly significant. In addition, measuring the impact of social factors will play a more substantial role going forward. This trend is driven by banks and major investors who seek measurability across all aspects of sustainability.

In summary, sustainability is not just a moral imperative – it is a fundamental driver of property value. By integrating sustainability considerations into our analyses and client engagements, we are not only enhancing transparency and accountability but also contributing to a more resilient and future-proof real estate sector.