+33(0)173101995Labels and certifications are real estate asset enhancement tools, providing insights on the impact of an asset on its environment, its energy consumption, the comfort of its users, and so on. They also play a major role in real estate valuations. Interview with Vincent Verdenne, Director of Commercial Development of BNP Paribas Real Estate Valuation France.
What are the impacts, added value and stakes of environmental labels and certifications in determining the value of a real estate asset?
The impact of environmental labels on the value of a real estate asset is manifold. For example, they can be part of a CSR programme desired by shareholders, tenants or investors. In addition, occupiers enhance the company’s brand image in the face of its customers. Another benefit is that they can help reduce building operating costs and make them more energy efficient, by cutting heating costs for example. Finally, these advantages can help landlords claim more advantageous lease rates.
The value of a label and certification on a building’s valuation is partly based on current market expectations and its future projected value. For example, High Quality Environnement, LEED and BREEAM, are certifications that certify an asset’s environmental qualities and go beyond current regulatory requirements. Which means that in a few years’ time, assets with these certifications are more likely to be up to standard in the future, with no additional construction costs.
To meet the market's expectations, other labels or certifications take into account new needs. Well or WiredScore labels mainly impact what is known as the immaterial value of the building, whose components and indicators are defined by real estate professionals.
How do labels and certifications impact market value?
A label or certification impacts various elements of cash flow. However, in order to properly measure this impact, two elements must be considered carefully: The first is the additional cost of the work to analyse the cost-benefit ratio. The second is the glass ceiling that exists for certain products or regions and which limits the potential increase in value, even if this will increase the liquidity of the property on the market.
An ad hoc analysis is therefore necessary to measure value creation for each product and location. Real estate experts will consider these elements into account in order to identify the best scenarios for labelling or certification projects according to the potential for value creation for each property.
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BNP Paribas Real Estate - Valuation at MAPIC 2017