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Valuing sustainability in real Valuing

sustainability
estate: a case study of the United in real estate

Arab Emirates
Tess Lambourne 335
Centre for Development, Environment and Policy CeDEP, SOAS,
University of London, London, UK Received 18 April 2020
Revised 25 December 2020
Accepted 31 December 2020
Abstract
Purpose – The purpose of this paper is to determine if there is an impact of sustainability on the market in
terms of a green premium or a brown discount on the price of commercial and residential real estate. It also
seeks to identify the incentives and barriers for sustainable developments perceived by real estate
professionals.
Design/methodology/approach – The paper investigates the impact of sustainability features on the
valuation of buildings in the United Arab Emirates (UAE). The study uses a qualitative structured
questionnaire to determine the views of certified real estate valuers and advisors on this subject.
Findings – The results suggest a green premium of at least 1% in the UAE, coming from both supply-side and
demand-side, and in commercial and residential sectors. Key barriers for the recognition of green building value
include availability of reliable market data, lack of relevant technical skills and apparent client disinterest.
Initiatives that would encourage green buildings include financial incentives for key stakeholders, raising and
enforcing building standards, and higher energy prices. This paper identifies policy measures that local
authorities may consider in transforming to a more sustainable economy. It is expected that such changes
would convey to the real estate industry and affiliated stakeholders the financial benefits to be gained from
investing in green buildings.
Research limitations/implications – The UAE is not a transparent environment in terms of building prices
and rents, and it can be challenging even for experienced professionals to determine whether an observed
higher value can truly be considered a green premium. The second issue is that the results may be affected by a
“voluntary response bias”, whereby recipients who are interested in sustainability are more likely to have
responded to the survey.
Practical implications – This paper identifies policy measures that local authorities may consider in
transforming to a more sustainable economy. It is expected that such changes would convey to the real estate
industry and affiliated stakeholders the financial benefits to be gained from investing in green buildings.
Originality/value – Most research exploring the value of green buildings originates from developed
economies and its applicability to the Middle East is questionable due to its differing origins and unusual
development path. This article offers new insights into an under-researched market.
Keywords Real estate sustainability, Property valuation, Green building, Green premium, Brown discount,
United Arab Emirates, Middle East
Paper type Research paper

1. Background
1.1 Introduction
The real estate sector has a significant impact on the global environment. Many people spend
most of their lives inside buildings, which are estimated to account for over 33% of final
energy use worldwide (IPCC, 2014). New construction also has significant environmental
effects, being responsible for more than a third of global resource consumption, including
fresh water (United Nations Environment Programme, 2011). This can vary from country to
country and between regions and is dependent upon climate, topography and building style.
Journal of Property Investment &
This study was undertaken for the degree of Masters of Science in Sustainable Development at Finance
Vol. 40 No. 4, 2022
University of London. The author thanks CBRE Middle East for contributing to this study. All pp. 335-361
statements of opinion reflect the views of the author and do not necessarily reflect the opinion of CBRE © Emerald Publishing Limited
1463-578X
Middle East or its associated companies. DOI 10.1108/JPIF-04-2020-0040
JPIF In the Northern Hemisphere, much of the energy consumption is based on winter heating,
40,4 particularly in Europe where many of the existing studies on property and sustainability
have been carried out. However, in the Middle East, the energy consumption can be just as
significant but based on cooling. This paper looks at the importance and impact of building
suitability initiatives on the price of property in the United Arab Emirates (UAE).
In the UAE, buildings use almost 90% of total electricity (Dubey and Krarti, 2017).
Residential properties are responsible for over 55% of national power consumption, half of
336 which is used for air-conditioning alone (Asif, 2016). This makes the building sector a natural
target for policies seeking to reduce resource use and decrease greenhouse gas emissions.

1.2 Green buildings and sustainable buildings

In most literature on green buildings and sustainable buildings, these terms are used
interchangeably; a convention continued in this article. Yet, technically, they are slightly
different:
‘Sustainability’ is a broad concept that refers to a building’s ability over the long term not to impact
on the environment. Sustainable buildings are not just about the environment, but take into account
all three pillars of sustainability: planet, people, and profit.
‘Green’, on the other hand, is a concept that is solely focused on the environment. Green buildings
tend to concentrate upon environmental matters such as energy efficiency.
As noted, a “Green” building is one that has been designed and built to have a less negative
overall impact on the environment (Berardi, 2013). So, although not strictly the same as
“sustainable” buildings, a term which encompasses a greater set of financial, social and
cultural considerations (Awadh, 2017), for simplicity the terms are used interchangeably
herein. Green buildings have a reduced impact on the natural environment by: (1) efficiently
using energy, water, and other resources; and (2) reducing waste, pollution and
environmental degradation. The sustainable considerations span a building’s life cycle:
from location, functional design, sourcing materials and construction; to its ongoing use and
maintenance and eventually, its deconstruction.
The earliest attempts to reduce the building sector’s harmful effects on the natural world
began in the 1970s following the oil crisis, but a global movement towards a sustainable
building industry began to develop more formally in the 1990s. Since that time, researchers
have investigated whether buildings designed and constructed to reduce their environmental
impact, green buildings, are a sound financial investment. Consequently, there is now
convincing evidence that green buildings deliver a range of financial and other less tangible
benefits to many real estate stakeholders (World Economic Forum, 2016).
In Europe and America, there is significant evidence that the “battle” to ensure the green
construction of new buildings has been won (French, 2020). Ranking schemes of the
greenness of commercial buildings such as the Building Research Establishment
Environmental Assessment Method (BREEAM) [1] (principally UK and Europe) or
Leadership in Energy and Environmental Design (LEEDS) [2] (principally USA and
Europe) have led to occupiers of new building to expect a minimum ranking (Awadh, 2017) so
all developers build to the highest standard as they know that if they fail to do so, then their
property is unlikely to let or sell. It is an example of the market regulating itself. In those
markets, the battle to provide new efficient buildings has largely been won (French, 2019), the
principal challenge of the next decade will be the retrofitting of older buildings to make them
more sustainable and energy efficient.
New buildings that have been built in accordance with LEED or BREEAM generally have
a prevalence of sustainability features. Indeed, it is often suggested (French and Antill, 2018)
that sustainability has simply become another normal specification for a new property.
 Yet, despite this evidence indicating cost efficiency and profitability, the building Valuing
industry in the UAE has not, in general, demonstrated the mindset shift required for major sustainability
environmental progress. One likely explanation is that greening a project requires a greater
capital outlay from investors, yet the cost savings benefit occupiers and takes place over a
in real estate
longer time frame. If, however, green buildings are assessed as having a higher inherent
value as an asset, then this is likely to impact decision-making by stakeholders across the
sector, including city planners, financiers, insurers, developers, buyers and tenants. But
there lies the crux of the problem. Property values reflect the market; they do not make the 337
market.

1.3 Valuation issues

As French (2020) wrote, “Market value is an estimate of price in the market. If the market does
not pay a premium for the perceived or actual benefit of lower running costs of a sustainable
building, it would be wrong for the valuer to increase the value counter to the pricing
information in the market.” In other words, only the market can determine to what extent,
building sustainability improves real estate values.
This is recognised worldwide by the Royal Institution of Chartered Surveyors (RICS), a
global body responsible for regulating qualifications and standards in real estate. The
RICS has published many useful guidance notes on this topic. In the 2009 Valuation
Information Paper 13, “Sustainability and Commercial Property Valuation”, it clearly
stated that:
“If, at the date of valuation, the market does not differentiate, in terms of either occupier or
investor demand, between a building that displays strong sustainability credentials and one
that does not, there will be no impact on value.”
For a full discussion of the impact of sustainability on valuation regulations and guidance
see RICS (2013), RICS (2018) and the RICS’ valuation practice guidance – application 8 (VPGA 8)
in the (Red Book) Global Valuation Standards (2020).
The central tenet of the RICS guidance is that it is the role or the valuer to estimate what
the market “would” pay for a specific property; it is not an assessment of what the market
“should” pay for a property if it fully priced the benefits of the sustainable elements of that
property. To reiterate this point, the valuer reflects the market, they do not dictate to the
market.

1.4 Green premium or brown discount

The RICS first suggested the notion of a green premium in 2005. The concept being that green
building will command higher prices in the marketplace due to the benefit of their sustainable
features. However, for new buildings, it is very difficult to differentiate the impact of
sustainability on sale prices relative to the property just being “new”.
There are academic papers that suggest there is a green premium (see for example, Fuerst
and McAllister (2009 and 2011) and McAllister and Nase (2019)) for UK commercial buildings.
These papers use econometric models to try to determine the increase in price of a building
attributable to the sustainable elements of the construction. The problem with these papers is
that, whilst they claim to have allowed for any “noise” on price simply due to the building
being a high specification throughout, the outcome is at odds with the observation of valuers
in the market.
Most practitioners do not see a premium being paid in the UK in new builds for the simple
reason that all new builds are highly rated by BREEAM. The differentiation applies between
new builds and old stock. Yet this has always been the case, as the occupiers will pay a higher
rent for higher specification and this translates to the investment price of the property.
JPIF In simple terms, green buildings tend to be prime buildings and prime buildings, as a subset,
40,4 tend to be more valuable than a full set of all buildings.
That is not to say that the market does not price in the importance of the sustainable/green
elements of the building, it is simply lost in the “noise” of the whole package of specifications.
A green premium may exist but most practitioners would argue that it is disingenuous to
unpack its impact from the other specifications of a new build property.
What is easier to directly observe is the brown discount as this tends to apply to older
338 properties where there are distinct differences between retro-fitted sustainable properties and
those that have not been improved. In such cases, the market and valuers, always refer to a
brown discount.
There is therefore a debate on the significance of a green premium versus a brown
discount. In this paper, the analysis will concentrate upon the former, as the UAE is a very
modern market with the majority of properties having been built very recently, relative to the
UK and the rest of Europe. It is therefore more likely that a premium may be observed or, at
least, recognised by the valuers in the UAE, than a brown discount.

2. The United Arab Emirates (UAE)

2.1 A green premium in the UAE?
To reiterate, there is a suggestion that green buildings have a higher value than conventional
ones (CBRE, 2018), but it is not known whether this is the case in the UAE. This research aims
to answer this question and identify various factors that drive and hinder the development of
green buildings in the country.
The UAE is at the forefront of real estate development in the wider Middle East and
Africa. At the same time, it has outlined ambitious plans to become a green, smart economy. It
is not yet clear whether the property sector in the UAE has fully embraced a more efficient
and sustainable vision for their industry. A key question is therefore: do sustainable buildings
in the UAE achieve a green premium? An affirmative answer would suggest that the country
is already on its way towards a more environmentally sustainable built environment.
This paper surveyed commercial property professionals to assess whether the
incorporation of environmentally sustainable design and functional characteristics (“Green
Features”) into buildings is recognised by a valuation premium. This is different to some
of the previously reference research in the UK which, instead of a qualitative survey,
used quantitative techniques on portfolio data to try to decant the existence of such a
premium.
Although the title references the entire UAE, the research focussed on the economic
powerhouses of Abu Dhabi and Dubai. These two emirates make up 91% of the country’s
land area, hold much of the population and account for the vast majority of real estate
transactions (see Figure 1).

2.2 Economy and demographics

As a leader in the region, the UAE sets a moderate and progressive path that its neighbours
aspire to and imitate (Luomi, 2015). In leading the way with a more market-driven, private
sector-focussed and production-oriented economic model, Dubai in particular has already
inspired many countries in the region to form similar diversification plans for the future.
If the country is able to draw inspiration from green buildings and innovations overseas, it
could develop new sustainable real estate solutions targeted for the Middle East’s unique
challenges, which include extreme heat and scarcity of freshwater.
The advantages of such a course are wide-ranging: global leadership in sustainable
technologies; creating high-skill employment; reducing an excessive global footprint;
 Valuing
sustainability
in real estate

339

Figure 1.
Map of Middle East
(Britannica, 2015) with
inset Map of UAE
(NordNordWest, 2015)

reducing the harm to fragile ecosystems and future-proofing national real estate assets
(Ellison and Sayce, 2006). In embracing green building practices, the UAE may also leapfrog
obsolete construction methods and thereby avoid the costs of upgrading obsolete
technologies.
In seeking the views of real estate professionals, this study highlights some of the
motivators and obstacles facing the UAE in persuading its property sector to move towards a
more sustainable future.
The discovery of oil in Abu Dhabi in 1958, and the resulting export revenue restructured
the economic fabric of the UAE (Rizvi, 1993). Prior to this, it had been one of the poorest Arab
countries, suffering enormous economic hardships well into the 20th century. This newfound
prosperity marked the start of an era in which massive construction projects and
skyrocketing national incomes transformed the UAE from rags to riches (Al Fahim, 1995).
Indeed, the development of Abu Dhabi has been described as: “one of the most rapid and
grandiose processes of urbanisation ever witnessed in modern times” (Crot, 2013, p. 2,811); an
observation equally applicable to Dubai.
Given this rapid growth, the real estate sector is considered central to the UAE’s efforts to
reduce its environmental impact, and there is great opportunity to incorporate sustainable
design features into the new developments (EGBC, 2018). As a country, the UAE has unique
characteristics that would be expected to facilitate the implementation of environmentally
sustainable initiatives:
(1) A highly urbanised population, with over 86% of residents living in cities.
(2) High per capita income.
(3) A monarchical form of government giving considerable authority to the UAE’s rulers,
encouraging the adoption of long-term views.
JPIF (4) A highly centralised institutional structure allowing for fast decision-making and
40,4 significant co-ordination of investment and development activities (Hvidt, 2009).
(5) Few agricultural or manufacturing industries that claim special status from the
government, limiting their influence on policy decisions.
(6) Prevalence of government-related companies, giving the government an ability to
champion specific sectors of interest (OECD, 2013).
340
(7) A relatively well-diversified economy, with non-oil activities making up 64% of GDP
(Statistics Centre Abu Dhabi, 2018).
Like many other countries, however, the UAE also faces development challenges relating to
rising energy demand, ongoing industrialisation and urbanisation, and continued population
growth.
The private sector is central to environmental sustainability efforts in the real estate
sector. However, given that much of the UAE’s economic success is due to its openness to
foreigners and trade, low taxes and business-friendly environment (Hvidt, 2013), the country
must tread carefully when designing sustainable development policies.
A heavy regulatory approach could have serious and unintended consequences and
decrease the UAE’s appeal as the economic centre of the region. In particular, Hertog and
Luciani note that: “Dubai’s free-wheeling business environment has in the past not been very
amenable to forceful regulatory intervention” (2009, p. 35).
Resource subsidies on petrol, electricity and water subsidies for Emirati nationals have
led to unsustainable patterns of overconsumption (Dargin, 2014), although the government is
lowering them gradually. Sprawling developments and national land grants that extend
into the desert in all directions also contribute to high per capita energy use (Ghazal
et al., 2016).
Education levels in the UAE are high for the region, but this has not yet corresponded to
high awareness of or interest in sustainability (Issa and Al Abbar, 2015). Given that citizen
consciousness and participation are integral components of a sustainable development
system, this is one area that government authorities may look to improve in future.
The UAE government is increasingly committed to improving environmental standards
and resource consumption. In 2006, the country was alarmed to learn that it had the world’s
largest Ecological Footprint per capita (WWF, 2006), meaning that its residents were
consuming global resources at a highly unsustainable rate. Due to the high volume of
imported goods, the overconsumption also far exceeded the biocapacity of UAE ecosystems.
Since that time, the government has made continuous efforts to reduce its environmental
impact with some success, although the overall level remains high.

2.3 Literature review

In recent years, an increasing amount of scholarly attention has been dedicated to the
dynamics of value, sustainability and the commercial property market. This research is
reviewed below, and considered in light of its applicability to the Middle East region.
Cities and their buildings are a prime focus for climate change strategies due to the
economies of scale arising from the clustering of populations. The Intergovernmental Panel
on Climate Change (IPCC) believes there is a promising window of opportunity for mitigation
in such cities over the next two decades, particularly in emerging and developing countries
where much of the world’s urban areas and infrastructure will be constructed (IPCC, 2014,
p. 25). It is hoped that by incorporating sustainability into its business model, the property
industry can reduce environmental impacts before construction, and thereby avoid the higher
costs of trying to retrofit or renovate existing buildings for improved sustainability
(IPCC, 2007, p. 44).
 The real estate and construction industries have been criticised as slow to recognise the Valuing
additional value of green buildings (Warren-Myers, 2012). One explanation for this is the sustainability
misalignment of incentives encapsulated in the “vicious circle of blame” diagram below (see
Figure 2):
in real estate
This model encapsulates the difficulties that key property stakeholders face when
confronted with change. As each party waits for the sustainable transformation to occur
further up the pipeline, the delay keeps them all immobilised in the status quo. As most
property stakeholders are driven by profits, building sustainability will only be adopted more 341
broadly if it causes an increase in economic value that is understood and accepted by
stakeholders (Pivo and Fisher, 2010). For this reason, academics and real estate practitioners
have developed strong conceptual and methodological arguments for integrating
sustainability considerations into the property valuation process (Michl et al., 2016).
The business case for green buildings is based on improved returns and reduced risk for
both investors and occupiers, as well as the community at large. The benefits to be shared
include: direct cost savings; image improvements; increased liquidity/lettability, lower
depreciation and reduced regulatory risk, amongst others (World Economic Forum, 2016).
Additional advantages for occupiers include reduced utility costs due to energy and water
efficiency (Oyedokun, 2017).
Conversely, critics argue that the literature showing a green premium is based more on
normative theory (“what should be”) instead of actual outcomes. Allegations are made that
sample size limitations and other data problems have led to large unexplained variation
within models, weakening their validity and reliability (Khoshbakht et al., 2017). The
contention is that while such studies are useful for developing policy, they cannot be used as a
basis for professional real estate valuation as they lack the specificity and market sensitivity
required to adjust comparables or yield rates (Runde and Thoyre, 2010).

2.4 The role of the property valuer

As noted above, the valuation of real estate has a pivotal role in increasing the level of
sustainability in the built environment (Warren-Myers, 2011). The importance of valuers arises
from their position as “information managers” in a market where the distribution of information

OWNERS & TENANTS

DESIGNERS & BUILDERS
‘We would like to have ‘We can built or retrofit
sustainable buildings, but there buildings in a sustainable
are very few available.’ way, but developers don’t
ask for it.’

DEVELOPERS
INVESTORS
‘We would ask for
‘We would invest in
sustainable buildings but the
sustainable buildings but there
investors won’t pay for Figure 2.
is no demand for them.’
them.’ Vicious circle of blame
(Cadman, 2000; cited in
Keeping, 2000)
JPIF is generally asymmetrical (RICS, 2008b). The valuer may also have a role to inform stakeholder
40,4 groups (Hartenberger et al., 2015). This is a crucial role, empowering valuers to convey the
increased net asset value of green buildings to the financiers and developers of potential real
estate projects where it has been observed in the market (RICS, 2005). Through this ability to
affect the decision-makers, real estate valuers may be able to realign incentives, break the
“vicious circle of blame” and replace it with a “virtuous circle” (see Figure 3):
342
OWNERS & TENANTS DESIGNERS &
BUILDERS
‘We demand sustainable
buildings, because they are ‘We can design and build
cheaper to run, increase our sustainable buildings because
well-being and improve our that’s what our clients want
image.’ and society expects.’
VALUERS & BROKERS
‘We recognise the value of sustainable
buildings, and reflect this in our
estimates of market value as well as in
our advice to clients’
INVESTORS DEVELOPERS
‘We invest in sustainable ‘We develop sustainable
buildings because that’s what buildings because they are
occupiers want, they give easier to sell, achieve higher
Figure 3. higher returns and have greater
The virtuous circle prices and are more resistant
value growth potential.’ to obsolescence.’
(derived from
RICS, 2008a)

There is, however, an inherent tension in assigning the responsibility of environmental

“chain-breaker” to real estate valuers. A valuer’s primary role is to reflect the market in
assessing an asset’s value, considering all relevant factors that may influence stakeholders
and market conditions (Warren-Myers, 2013).
Yet if a market is not appreciative of the value of green buildings, this may conflict with
what RICS describes as a “professional responsibility” to integrate sustainability into
everyday valuation practice (RICS, 2008b). This paper investigates how relevant real estate
professionals are balancing these obligations in the UAE.

2.5 Applicability of previous research to the UAE

It is not yet clear to what extent research indicating a green premium in mainly developed
countries will be relevant for the Middle East. Due to underlying economic, political, social
and technical difficulties, this region has struggled to recognise the value of sustainability in
real estate (Issa and Al Abbar, 2015).
Recent research relating to the Gulf region and environmental real estate includes the below:
(1) Dubey and Krarti (2017) showed that improving building stock energy efficiency in the
UAE could provide cost-effective reductions in electricity consumption, peak power
demand and GHG emissions, whilst creating significant employment opportunities.
(2) In neighbouring Saudi Arabia, Alrashed and Asif (2014) found that the building
industry has yet to realise the importance of sustainability from their survey of
various construction and development professionals.
 (3) The barriers preventing UAE companies from improving energy and water efficiency Valuing
were illuminated by the Emirates Wildlife Society-World Wide Fund for Nature sustainability
(EWS-WWF) in 2015.
in real estate
(4) Yas and Jaafer (2019) surveyed UAE construction professionals, concluding that the
biggest barrier for the spread of green buildings is the shortage of experienced
“green” professionals, whereas government financial incentives are an important
driver. 343
The above literature covers both real estate valuation and green building, and some aspects
of the sustainable property industry in the GCC [3]. However, no research exploring the
connections between real estate valuation of green buildings in the UAE has been
undertaken; a gap that this paper aims to fill.

3. The research
3.1 The survey
This research is an observational study incorporating aspects of cross-sectional comparison.
It investigates the motivations of the primary stakeholders involved in real estate
development, from the view of the real estate professionals who work closely with and
advise them.
Employing qualitative methods to analyse the survey results, this study intends to:
(1) describe the status quo;
(2) determine any barriers to the recognition of the value of green buildings and
(3) identify certain actions that could be taken to encourage sustainable real estate.
Primary data were collected using a structured online questionnaire incorporating 5-point
Likert scales, multiple choice and checkbox questions. An online platform was used to create
the questionnaire, track responses and review results. Participants received an email
containing a link to the online questionnaire.

3.2 The research universe

The intention of the research was to identify whether real estate professionals in the UAE felt
that there was a green premium paid for green buildings.
Target population: The population for the study was real estate valuers, commercial
brokers and transaction advisors working in the UAE with a professional real estate
qualification from either RICS or Dubai’s Real Estate Regulatory Agency (“RERA”). These
certifications were used as a proxy for having a high level of relevant education and
experience; qualities closely matching the population sought for the study.
Sampling: This study used an “expert sampling” method to identify its sample. By using
purposive sampling, this paper was able to obtain a greater depth of information from
knowledgeable and experienced sources.
To invite appropriate experts, details all UAE members of RICS were copied from its
public website. Individuals in the following categories were identified:
(1) Registered Valuers;
(2) Chartered Valuation Surveyors and
(3) Commercial Property Chartered Surveyors.
Online resources such as LinkedIn, company websites and Google search were used to
identify the workplaces, and email addresses of these people.
JPIF A total of 183 RICS members, and 23 recipients registered with RERA fulfilled the set criteria.
40,4 As this sample population was relatively small, all 206 individuals who could be identified
were invited to participate. A delivery failure notice was returned in 10 cases, resulting in 196
effective recipients. In total, 70 responses were received, a response rate of 36%.
Survey design: The questionnaire was structured to identify the current status and value
attributed to green buildings in the UAE, and also to ascertain factors that promote or inhibit
the recognition of value for sustainable features. It was limited to 20 questions, with an
344 estimated completion time of 8 minutes.
The draft questionnaire was reviewed in advance by four intended recipients to ensure
that the questions were clear and appropriate terminology was used. Participants were sent a
summary of the research findings in return for their involvement.

4. The results
4.1 About the respondents
The results showed that 96% of the respondents are expatriates in the UAE, with only 4%
originating from the UAE or GCC countries. This suggests that the vast majority have
experience working outside the region and an international perspective as seen in
Figure 4 below.
Amongst the participants, 24% were female and 76% male, which is consistent with the
gender balance across the real estate services industry (PwC, 2017).
Despite their technical status as foreigners, more than half of the respondents had worked
in the UAE for more than six years. Only 10% were relative newcomers with less than two
years’ residence. This is clear from Figure 5 below.
As Figure 6 below shows, many respondents were highly experienced, with 56% having
commenced working in real estate more than ten years ago. Those with less than five years of
work history accounted for 13% of the 70 respondents.
In terms of service provision, 66% of the respondents were valuers. Brokers, who
generally represent clients for leasing, sales/purchase or finance transactions, accounted for
14%. The remaining 20% did not belong in either category, which may include heads of firms
or those currently working in other business lines.

Figure 4.
Nationality of
participants
 Valuing
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in real estate

345

Figure 5.
Participants’ time
in UAE

Figure 6.
Participants’ real estate
experience

Overall, the purposive sampling led to a majority of respondents having significant

experience working in real estate and in the UAE, as well as a focus on commercial or a
variety of asset classes. As a result, the group’s views on sustainability and value are
expected to be relevant and broadly reflective of the country’s real estate industry as a whole.

4.2 Market sentiment on sustainability

When asked to categorise the level of interest in green buildings, 64% of respondents
answered “Low” or “Very Low”. Only 6% categorised market sentiment as “High”, as can be
seen in Figure 7:
This result suggests that despite the aspirations, policies and legislative efforts of the
UAE leadership, the importance of sustainability has not yet been widely embraced by the
real estate and development sectors.
JPIF
40,4

346

Figure 7.
Level of interest in
green buildings

One possible explanation is that respondents may be comparing the local market with
Western countries. Given that the UAE only began addressing environmental sustainability
relatively recently, it is not surprising that market sentiment has not yet caught up.
In the following question, respondents were asked how sustainability was viewed by real
estate investors and developers in the UAE. Multiple responses could be submitted and
together they also give some insight into views of property developers (shown in Figure 8).

Figure 8.
Real estate developers’
views on sustainability

A promising 59% felt that sustainability was “gradually becoming more relevant and
accepted”, while only 16% of responses nominated “not interested”. Less encouraging is that
over half of respondents believed real estate sustainability was viewed as “good in concept
but not in practice”.
4.3 Sustainability features
It was interesting to note the design and resources-related green features that respondents
have encountered in the UAE, as these may be more economically viable, bring reputational
or design benefits to the development or simply more noticeable. Figures 9 and 10 below show
the responses:
 Valuing
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347

Figure 9.
Design-related green
features

Figure 10.
Resource-related green
features

By categorising the responses “Sometimes”, “Often” and “Frequently” as positives in Figures

9 and 10, the following are the top three observed green features:
(1) Designed to minimise energy needs 5 69%;
(2) Choice of location close to public transport 5 69% and
JPIF (3) Use of renewable energy 5 45%.
40,4 Green features mentioned by the respondents in the “other” option included: motion-sensor
lighting, timed air-conditioning, reduced wall-to-ceiling windows to limit solar glare,
insulated water tanks and sensor taps in bathrooms.
4.4 Valuing green buildings
One of the most unexpected outcomes of the survey was that two-thirds of respondents
348 believed there is already some level of green premium in the UAE, from both owners and
occupiers.
4.4.1 INVESTORS and OWNERS. Looking at commercial real estate, respondents felt
that 68% of real estate investors and property owners were willing to pay at least 1% more
for a commercial green building than a conventional one. Although this may seem low, this is
1% of a very high number, which can be considerable.
Nearly a quarter of the real estate professionals thought that investors/owners will pay
more than a 6% premium for a green building.
As Figure 11 below shows, similar results were obtained for residential real estate, with
67% of respondents seeing a price premium of more than 1–5%, and 20% estimating a
premium of greater than 6%. Uncertainty levels for this asset class were higher, with 14%
answering “unsure” for residential properties compared with 7% for commercial.
Unsurprisingly, the green premium was least perceptible in industrial property, but even
here, 43% of respondents reported at least 1–5% premium. This is likely explained by the
reduced prominence of industrial property, where image and prestige are less visible and thus
the non-tangible benefits of building’s sustainable elements will not accrue.
4.4.2 TENANTS and OCCUPIERS. The responses relating to occupiers and tenants were
similar to those for commercial property, but 10% lower for residential property, with 57% of
respondents noting a premium of 1% or more. This decrease is understandable, as residential
tenants generally have greater financial constraints, and less motivation than a commercial
tenant in terms of corporate social responsibility. Figure 12 shows the survey responses.
4.4.3 Assessing value. The survey asked respondents whether certain property
characteristics would increase their assessment of value for a green building.

Figure 11.
Green premium for
investors and owners
 Valuing
sustainability
in real estate

349

Figure 12.
Green premium for
occupiers and tenants

Shown in Figure 13 below, the responses were relatively high, suggesting that the
professionals feel that the advantages of green buildings can already be accounted for
appropriately via traditional valuation assessment processes.
There were two characteristics that nearly half of the respondents agreed would play a
“major factor” in their assessment of a green building: (1) higher rents and (2) lower operating
costs. The third ranked factor was the attractiveness to higher quality tenants, closely
followed by increased investor demand.
The results show that in theory at least, real estate professionals are sensitive to many
aspects of sustainable buildings in terms of assessing value. Surprisingly, LEED certification

Figure 13.
Factors that improve
green buildings’
market value
JPIF in itself is one of the least influential aspects, which suggests valuers look beyond the
40,4 accreditation to analyse how the green features impact a property’s economic fundamentals.

4.5 Barriers to adding value for green buildings

The research highlighted several barriers to the wider addition of value for green buildings
by the respondents (Figure 14 below).
4.5.1 Market data. The most notable factor deterring real estate professionals from adding
350 value for green buildings was a lack of reliable market data, with strong agreement from 70%
respondents. This scarcity is broadly recognised as a market transparency barrier
(Kucharska-Stasiak and Olbi
nska, 2018). It is logical that real estate professionals are
reluctant to add value for newer attributes such as green features without any evidence that
their peers are doing the same. Figure 15 below details the survey responses for this question.
Increasing market transparency in the UAE could improve the communication around the
recognition of a green premium and thereby facilitate market acceptance. If parties were
required to record leasing or transactional details in a centralised location, real estate
professionals would be better able to track rental/value trends linked to green buildings and
value such assets accordingly. Given the sensitivities of real estate data, careful consideration
would be needed as to its release, but there are precedents for managing this balance in many
other jurisdictions around the world.
Another way to increase the availability of market data would be a requirement for
developers to disclose the energy efficiency of their buildings publicly and prominently. This
would allow green landlords to effectively signal to the market the cost savings and ethical
choice represented by a green building. Since 2010, such a scheme has been implemented in
Australia for commercial landlords [4], thereby correcting the information asymmetry
between owners and purchasers/tenants (Christensen and Duncan, 2010).
4.5.2 Green building expertise. Respondents ranked “lack of technical knowledge” as a
third deterrent to recognising a green premium, with 59% agreeing that this was “definitely”
or “likely” to be a factor. “Lack of awareness” was similarly perceived, with 56% agreeing it
was at least “likely” to be a reason.

Figure 14.
Discouraging the
addition of value for
green buildings
 Valuing
sustainability
in real estate

351

Figure 15.
Lack of market data

These results corroborate existing research conclusions that knowledge of sustainability and
its connection to value is still somewhat lacking across the valuation profession.
Interestingly, this appears to be most true for younger valuers than senior ones (Warren-
Myers, 2011), with the latter’s greater experience appearing to give heightened sensitivity and
possibly trust in their own judgement.
Two further questions highlighted that respondents do not have an expected level of
familiarity and expertise in this field. The first asked whether they were confident in their
own ability to value or assess green buildings. While 42% of respondents felt “Very or Quite
Confident”, at least 25% felt “Not so Confident” or “Not at All Confident”. This is revealed in
Figure 16:
Respondents were then asked if they were aware of specific guidance on assessing green
buildings/features. This was designed to assess whether the level of confidence expressed
was confirmed by familiarity with the industry guidance (Figure 17).

Figure 16.
Confidence in
assessing green
buildings
JPIF
40,4

352

Figure 17.
Awareness of industry
guidance on assessing
green buildings

Looking at the above, 70% of respondents were not well-acquainted with industry guidance,
which is surprising given the extensive output from RICS and other guiding authorities on
this topic in the last 15 years.
Figure 18 above compares the answers of Questions 12 and 15 discussed previously. The
answers of those who felt “Very” or “Quite” confident were combined, and compared against
the answers of those who described themselves as “Not so” or “Not at All” confident. It should
be noted that self-reported confidence does not always equate to capability, but it can be
useful for comparison purposes.

Figure 18.
Impact of industry
guidance familiarity on
confidence
 Of the respondents who had used industry guidance before, 48% felt confident in their Valuing
ability to accurately assess green buildings, compared to only 18% of those who were sustainability
unfamiliar with the guidance. For those who were unaware/unsure of industry guidance, only
7% felt confident in their skills, whereas 30% of this group were less confident.
in real estate
Whilst this correlation should not be confused with causation, the chart suggests that
respondents who are more familiar with the relevant industry guidance are generally more
confident in their ability to accurately value or assess green buildings.
For knowledge deficiencies amongst professionals to obstruct the correct valuing of green 353
features is hardly ideal. Fortunately, this may be one aspect of the “wicked” problem of
sustainable development that is fairly straightforward to address.
Every year, each RICS surveyor must complete at least 20 hours of continuing professional
development (CPD). RERA valuers must complete a day of training and pass an exam to
become certified, while RERA brokers must do the same annually. If a set amount of CPD was
dedicated to sustainability and value, one can imagine significant improvement in the relevant
skills of real estate professionals. In the UAE, almost all international-grade valuations
originate from such individuals, and the market impact of such a change could be considerable.
4.5.3 Lack of interest from clients. Over half of respondents agreed that a lack of client
interest discouraged professionals from accounting for the value of green buildings, with
18% believing this was “definitely a factor” and 41% feeling that it was “likely”. However,
over time, interest in green development is expected to rise in the UAE. This has already
occurred in many developed economies. Improving the sustainability knowledge and skills of
valuers/brokers is expected to increase client engagement. Informed real estate professionals
are in a position to educate the stakeholders they work with on the cost and value of
sustainable building features and technologies (Bently et al., 2015).

4.6 Barriers to the development of green buildings

Having considered the reasons why the respondents and their peers might be discouraged
from adding value, the survey turned to the possible deterrent factors hindering the
development of green buildings (see Figure 19).

Figure 19.
Green building
deterrents
JPIF
40,4

354

Figure 20.
What would encourage
more green buildings

Over three-quarters of respondents felt that the higher cost of green features was “definitely”
or “likely” to be a factor. This is supported by research estimating the additional expense of
building green from 0.4% to 21% (Dwaikat and Ali, 2016). Nevertheless, such costs are
generally recoverable in the long term due to lower operating expenses (RICS, 2013).
In the UAE, most new buildings are sold before or upon completion and this time lag leads
to a misalignment of incentives. Many developers build to the minimum specifications in
order to save on the upfront costs with little regard to reducing future operating costs that
would benefit occupiers.
The next three highest factors identified related to the parties’ attitudes and
understanding:
(1) Lack of information and expertise: 71% thought “definitely” or “likely” to be a factor.
(2) Unwillingness to change: 54% thought “definitely” or “likely” to be a factor.
(3) Lack of interest from tenants/buyers: 49% thought “definitely” or “likely” to be a
factor.
These results are not surprising, as the awareness of the UAE public, and thus the demand for
green buildings, is generally not considered sufficient to motivate developers to construct
sustainable projects (Abu-Hijleh and Jaheen, 2019).
Low occupier interest is unlikely to remain the case for long, however, as an ever-
increasing number of premium companies are embracing sustainability programmes to meet
customer and employee expectations (McKinsey and Co., 2017).
Surprisingly, the concept that green features have no impact on value, or only have low
cost savings, was not perceived as a significant barrier. An oft-ignored factor highlighted by
one participant is the rapid advancement in environmental technologies. Innovations such as
solar panels have displayed a tendency for costs to fall dramatically over time, whilst scope
and capacity increase. Accordingly, a rational stakeholder may delay adopting green
features: either anticipating future drops in price, or out of concern that investments will Valuing
become rapidly outdated. sustainability
in real estate
4.7 Encouraging green building
The survey also endeavoured to identify which, if any, steps could be taken in the UAE to
foster the development of green buildings. Public authorities can have powerful influence on
economic actors depending on priorities, spending levels and the effectiveness of initiatives. 355
Almost all participants felt that the development of green buildings could be boosted by:
(1) the raising and enforcing of building standards and (2) the offering of rewards and
incentives. A third measure, increasing cost of conventional energy sources, was also
viewed by more than half of respondents as “definitely” or “likely” to encourage such
developments.
Establishing an information centre or providing sustainability training were not thought
to be particularly effective by most respondents. This suggests that policymakers would do
well to redirect funds to more effective programmes.
4.7.1 Green building schemes. The survey respondents were mildly positive in their views
on the potential of the UAE green building rating schemes to influence higher sustainability
standards, as seen in Figure 21 below.
These green building assessment systems do not seem to have a major impact on the real
estate market, as reflected in the high rates of “unsure” responses (18% Dubai, 15% Abu
Dhabi). Given that both schemes are mandatory, it is surprising that they were not considered
more influential. One possible explanation is that the schemes are not sufficiently
demanding from an environmental standpoint; alternatively, it could be that enforcement
is lacking.

4.8 Personal values

The last question of the survey was designed to gauge respondents’ personal views on the
importance of environmental sustainability. The results were conclusive; over 91% of
respondents stated that this issue was “very” or “quite” important to them (Figure 22 below).

Figure 21.
Abu Dhabi and Dubai
green building
schemes
JPIF
40,4

356

Figure 22.
Personal importance of
environmental
sustainability

When combined with the results from earlier questions, this outcome suggests that the
participants’ personal views are not one of the reasons preventing them from recognising a
higher value for sustainable buildings.

5. Conclusion and recommendations

5.1 Conclusions
Before discussing the implications of the survey results, it is important to comment upon the
limitations of the research. Firstly, the UAE is not a transparent environment in terms of
building prices and rents, and it can be challenging even for experienced professionals to
determine whether an observed higher value can truly be considered a green premium. Many
complex factors contribute to a building’s value, including location, size, newness, proximity
to public transport, quality/grade, management and other tenants. As these vary so much
between buildings, and sometimes interact in unexpected ways, it can be difficult to control
for these factors. The second issue is that the results may be affected by a “voluntary
response bias”, because with a target population of free-thinking and professional adults,
completion of such a survey must be optional. For this reason, recipients who are interested in
sustainability are more likely to have responded to the survey (Michl et al., 2016) and therefore
their views may be over-represented in the data.
However, even allowing for those limitations, the results do give an indication of the
feeling of property professionals that operate in the UAE. The survey results suggest that
there is a green premium of at least 1% across Dubai and Abu Dhabi. Respondents felt that
this willingness to pay came from both the investor/developer side as well as tenants/
occupiers, and in commercial and residential property sectors. This is an interesting result as
the respondents were being asked if prices increased as the perceived sustainability of the
property increased. It is encouraging that property professionals felt confident in this
observation.
That said, it is strange that the response to client involvement indicated that there was
“lack of interest from clients” in UAE. This seems to be at odds with the observation of a green
premium and is counter-intuitive given the investor-driven attention to sustainability of real
estate holdings internationally.
 Nonetheless, the suggestion that there is a green premium is significant. In 2018 alone, this Valuing
1% would total AED 2.24bn (£524m) across 53,500 real estate transactions in Dubai (Dubai sustainability
Land Department, 2019). This amount represents the positive impact that an unseen green
premium may already be having on the Dubai economy [5].
in real estate
Other financial advantages expected to flow from increasing demand for green buildings
include higher quality building stock, future-proofing of assets, reduced energy bills and
creation of new skilled employment opportunities in sustainable and innovative technologies.
A few brief conclusions can be drawn from the discussion above together with the survey 357
results:
(1) Remarkable progress towards a more sustainable economy has been made in the
UAE in a short period of time, however public support alone is unable to effect
transformative change in an economy: private sector participation is also essential.
(2) An overwhelming majority of UAE real estate professionals regard environmental
sustainability as important, but many do not have the technical skills to incorporate
this into their work.
(3) Key barriers for the recognition of green building value include availability of reliable
market data, lack of relevant technical skills and apparent client disinterest.
(4) The primary factors discouraging green buildings are higher costs, delayed return-
on-investment, lack of expertise and resistance to change.
(5) Initiatives that would encourage green buildings include financial incentives for key
stakeholders, raising and enforcing building standards and higher energy prices.

5.2 Recommendations
Given the above, certain policy recommendations can be suggested that would realign
market incentives and correct information asymmetries. Such changes would be expected to
convey to the real estate industry the financial benefits to be gained from investing in green
buildings.
(1) Increase the availability of transactional data within the real estate market, thereby
providing professionals with a firmer basis on which to make assessments. Albeit, the
data would need to show the sustainable features of each building sold so the link
between value and sustainability is more easily observed.
(2) Require regulatory bodies to provide focussed training on the connection between
sustainability and real estate value to certified professionals.
(3) Introduce mandatory and prominent disclosure of building energy efficiency ratings
for all real estate transactions in order to correct market asymmetry.
(4) Provide economic rewards for sustainable developments in the short-medium term,
for example: rebates for renewable energy infrastructure; reduced finance rates; lower
sales or registration fees or discounted building permits. These incentives could be
phased out once the concept of green building value has become more broadly
accepted.
(5) Further investigate the existing green building rating schemes in the major cities to
determine their effectiveness and influence on the UAE real estate industry. If
necessary, adjustment or lifting of the required standards could be considered.
It is hoped that the changes suggested above will also act as a catalyst for the private real
estate sector in the UAE, sparking greater engagement with the government’s sustainability
JPIF agenda. As the engine of the economy, it is essential for the private sector to work with public
40,4 authorities to achieve the country’s smart and Sustainable Development Goals.
Notes
1. Building Research Establishment Environmental Assessment Method (BREEAM), first published
by the UK’s Building Research Establishment (BRE) in 1990.
2. Leadership in Energy and Environmental Design (LEED), first published by the US Green Building
358 Council (USGBC) in 1993.
3. GCC is a commonly used term referring to the member countries of the Gulf Cooperation Council:
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
4. For properties exceeding 2,000 square metres in area.
5. Some of this premium may already have been invested in greening the development, and therefore it
may not represent a net advantage to the seller/landlord. Even in this case, however, the additional
premium will have entered the economy via additional spending during design or construction.

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Corresponding author
Tess Lambourne can be contacted at: tess.lambourne@cbre.com

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