1. Sustainability and Obsolescence in the Property Market
Dr Georgia Warren-Myers (RMIT University)
Professor Richard Reed (Deakin University)

2. Information Technology Services
Summary
Introduction
What is obsolescence?
Types of obsolescence
Research approach
Obsolescence and sustainability
Concluding comments
RMIT University©2008
Information Technology Services

3. Information Technology Services
Definitions
There are two core meanings:
“1 (a) no longer in use or no longer useful (b) of a kind or style no longer current;
2 of a plant or animal part : indistinct or imperfect as compared with a corresponding part in related organisms.”
From a property perspective, ‘obsolescence’ can be defined as
“a loss in value due to a decrease in the usefulness of property caused by decay, changes in technology, people’s behavioural patterns and tastes, or environmental changes. Obsolescence is sometimes classified according to items of outmoded design and functionality, items with structural design unable to meet current code requirements, and factors arising outside the asset, such as changes user demand” (API Glossary 2008).
RMIT University©2008
Information Technology Services

4. Information Technology Services
What is obsolescence
Economic
Functional
Physical
Technological
Social
Market
RMIT University©2008
Information Technology Services

5. Information Technology Services Information Technology Services 5
RMIT University©2008
RMIT University©2008
Information Technology Services
Information Technology Services 5

6. Information Technology Services
What is obsolescence
RMIT University©2008
Information Technology Services

7. Findings from the research: Methods
Survey Instruments
Valuers
Online Questionnaire – 3 themes
Structured and unstructured questions
Likert scales, ranking questions and free response
Distributed through PINZ, API and RICS to qualified valuers
Investors
Unstructured Interview
9 questions – three themes
Interviews held with senior executives, general managers, fund and portfolio managers of institutional investment vehicles like REITS, unlisted trusts, funds and companies
The valuers were surveyed via a closed fixed response method which was conducted through hard copy survey and online survey composed of both structured and unstructured questions. The desire to maximise the response rate from the valuation field a questionnaire was developed enabled valuers to answer a series of structured questions in addition some unstructured comments were added to allow comments.
the questionnaire utilised a combination of structured and unstructured questions to provide quicker and easier data collection (Neuman, 2007)
The investor data was collected by means of an unstructured interview in the form of a standardised open-ended interview.
Relational analysis was used to allow quantification of the data where applicable for statistical analysis providing statistical justification and support for the theories identified (Busch et al, 2005). The structured responses were categorised and coded to enable frequency of responses and statistical analysis of results.
Quantitative content analysis has been undertaken where appropriate to assess the frequency of particular themes or comments from respondents, this has enabled statistical analysis of the responses (Riffe, Lacy et al. 1998). Relational content analysis, also known as semantic analysis, has been used to gain greater understanding of these relationships and statistics are utilised to establish the findings.
hierarchical clustering analysis has been used to identify particular groups of investors and by using multidimensional analysis has enabled interpretation of these groups. Hierarchical clustering analysis is used as a multivariate technique to reveal groupings of variables (Cox and Cox 2001). The results are presented in Dendrogram, and are often used in conjunction with multidimensional scaling. Chi-squared measures were used to determine distances between data points and values. Multidimensional scaling is a multivariate statistical method, which is used to explore similarities and dissimilarities between multiple variables (Kruskal 1964; Gifi 1990). The use of multidimensional scaling is common in investigating relationships and perceptions along with other variables (Forgas 1979).

8. Results and Analysis Valuer data collection Investor data collection
Conducted in Australia and New Zealand,
244 responses
Analysis of data used a combination of qualitative and quantitative analysis
Investor data collection
Conducted in Australia and New Zealand
30 responses
Analysis of data collected from investors used primarily qualitative analysis and some limited quantitative analysis
Analysis Techniques
Content Analysis
Qualitative and Quantitative Content analysis
Statistical analysis
Hierarchical clustering analysis
Multidimensional analysis
107 New Zealand Valuers and 137 Australian Valuers
16 from Australia and 14 from New Zealand Investors

9. Information Technology Services
Sustainability focus
Investors Response
Rationale for Energy
Cost benefits – a financial return easily identifiable
Measureable!
Mitigation against increasing resource costs and other legislative risks
ETS
Compulsory disclosure
Analysis of portfolio on an energy basis
Divestment of non-performing stock
Anticipation of two tier market
RMIT University©2008
Information Technology Services

10. Relationship between obsolescence and sustainability
Sustainability factors
Physical
Energy and water usage considered too high
Technological aspects of building technology regarding sustainability management of property
Advances in current technologies for sustainability may quickly become outdated
Economic
Energy and water costs (escalation)
Reduced rentals and achievable sale price as a result of non-sustainability
Market changes, desire of tenants/owners changes as a result of increasing requirements for sustainability, consequently a form of market obsolescence
Social
Tenant attraction & retention (reduced as a result of non-sustainability)
High operational costs
Reduced quality of indoor environment
Potential degradation of brand
RMIT University©2008
Information Technology Services

11. Valuers Ranking of Obsolescence
General Valuation Context
Sustainability
Yield
Rental growth
Vacancy
Discount rate
Level of outgoings
Letting up allowances
Risk premium
Terminal sale price
Capital expenditure
Obsolescence
Yield
Rental growth
Vacancy
Level of Outgoings
Letting up allowances
Risk premium
Discount rate
Terminal sale price
Capital expenditure
Obsolescence
RMIT University©2008
Information Technology Services

12. Consequences for the market
Valuers lack of acknowledgement of obsolescence and sustainability having a relationship and being taken into account in practice
Investors are anticipating a two tier market, evidence apparent through:
Portfolio analysis regarding sustainability levels
Anticipation of future requirements and risk mitigation
Divestment of non-performing stock
If valuer ignore this developing trend and market dynamic, there could be major ramifications for the market in the future.
More research is required in addressing the issue of sustainability as a form of obsolescence, and
Development of better mechanisms for valuers to incorporate obsolescence in property valuation
RMIT University©2008
Information Technology Services

13. Information Technology Services
Thank you
Any questions
Contact details:
Dr Georgia Warren-Myers
Prof Richard Reed
RMIT University©2008
Information Technology Services