SUSTAINABILITY AND OBSOLESCENCE IN THE PROPERTY MARKET

The long-standing theoretical approach for assessing the depreciated value of a commercial property has commonly been linked to the identification, quantification and assessment of the level of obsolescence. The future income streams of a property may be misunderstood if obsolescence is not correctly recognised and dealt with in the management of the property. The value of the property is related directly to the degree of obsolescence evident in the building (Reed 2007; Myers 2009); accurately estimating the adverse influence on both the income levels and outgoings, particularly capital and operating expenditure, is critical. This is applicable to a wide range of land uses in the built environment including residential housing, commercial, industrial and retail (API 2007). Understanding exactly what obsolescence is and how it affects a property asset is critical although arguably is not fully understood outside the property field (Robinson et al. 2003). A consensus within valuation practice about the treatment of obsolescence and sustainability is difficult to achieve, consequently affecting the perception of value in sustainability. The debate about sustainable obsolescence must be conducted in light of the changing nature of the property market and increasingly important influences such as corporate social responsibility, the higher profile of the environment and the increased importance of sustainability from view of stakeholders including the government and younger generations. Already it is not possible to undertake a valuation of a property asset without a comprehensive understanding of how sustainable an existing building is, how it is defined and how it relates to property. However, the treatment of sustainability as a direct form of obsolescence, or being acknowledged within the traditional obsolescence categories has surprisingly received limited attention in valuation practice. This paper analyses evidence gathered from large commercial investment funds and practising valuers in Australia and New Zealand, addressing the relationship between sustainability and obsolescence in the valuation of commercial property. The findings will assist property market stakeholders to understand the links between sustainability and obsolescence, as well as the subsequent effect on value.