The impact of renewable on-site energy production on property values

Niina Leskinen*, Jussi Vimpari, Seppo Junnila

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

Purpose: Contrary to the traditional technology project perspective, real estate investors see building-specific renewable energy (on-site energy) investments as part of the property and as something affecting the property’s ability to produce a (net) cash flow. This paper aims to show the value-influencing mechanism of on-site energy production from a professional property investors’ perspective. Design/methodology/approach: The value-influencing mechanism is presented with a case study of a prime logistics property located in the Helsinki metropolitan area, Finland. The case study results are compared with the results of a survey answered by over 70 property valuation professionals in the Finnish real estate market. Findings: Current valuation practice supports the presented value-creation mechanism based on the capitalisation of the savings generated by a building’s own energy production. Valuation professionals see benefits beyond decreased operating expenses such as enhanced image and better saleability. However, valuers acted more conservatively than expected when transferring these additional benefits to the cash flows of the case property. Practical implications: Because the savings in operating expenses can be capitalised into the property value, property investors should consider on-site energy production when the return of on-site energy exceeds the return of the property. This enhances the profitability of on-site energy, especially in urban areas with low initial yields. Originality/value: This is the first research paper to open the value-influencing mechanism of on-site energy production from a professional property investors’ perspective in commercial properties and to confirm it from a market study.

Original languageEnglish
Number of pages20
JournalJournal of European Real Estate Research
DOIs
Publication statusE-pub ahead of print - 20 Apr 2020
MoE publication typeA1 Journal article-refereed

Keywords

  • Distributed renewable energy investment
  • On-site energy production
  • Property value
  • Responsible property investment
  • Sustainability
  • Sustainability in real estate

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