Point of View: on long-term prospects & property development
- by Tom Watkinson
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- 11 Jul 2011
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“Does the sustainable property market require a new business model to evolve and prosper?”, asks Tom Watkinson.
Tom first got in touch with us regarding one of our articles mentioning the Passivhaus concept, his company having received that certification for its Watermead Business Park 6,000 sq ft office project). He gives us an interesting point of view regarding short-termism at work in the development business.
The Passivhaus Raynsway office building.
The traditional development business model contains a significant flaw in that the financial viability as it is often focused on today’s value, rather than looking at whether such a building will still be viable in 30 or 40 years time. There is no consideration of the real long term prospects of the building or its sustainable credentials and as a result such projects are often deemed unviable due to the increased build costs associated with a sustainable building. So how can this position improve?
• Developers need to ensure rental rates reflect a building’s sustainable credentials.
• Developers need to take control of the energy control / usage and revenue for the building.
• Values need to take into consideration the long term sustainability of the building within their valuation.
At the moment, when it comes to property business models, everything is geared up to discourage creating sustainable buildings. The landlord is forced to focus on today’s value and the sustainable energy use of the building is seen as the occupier’s problem. If the business model was changed to focus on tomorrow’s value and revenue, rather than today’s, it would have a dramatic impact on the design philosophy.
Just as Ellen has suggested domestic products, washing machines and cars could be retained by the supplier with the consumer only paying per wash or per journey, we can see buildings being charged for by the day – moving away from the sale or long term lease into a more fluid situation where the long term sustainability of the product is paramount. Similarly, taking Ellen’s theory forward a step we can see a situation where products such as a washing machines, cars and why not buildings that do not meet the highest sustainable standards will be rejected by the consumer, with those that do reach these standards being charged for at a premium.
Moreover, a sustainability-focused business model may have the advantage of lessening the boom / bust tendency of the current model, which is so devastating to the property market. The long term view by it’s very nature would be more stable. What is interesting and helpful is that many in the property industry do have a key existing tendency and that is to look at the long term for their existing investment return. So to take the next step may not be as hard as first thought, we just need all the associated players to move in the same direction.
About the author
Tom Watkinson is Managing Director at Leicester-based property developer, Raynsway Properties
1 comments
richard flisher wrote on July 21 2011:
We have designed this building for Tom and we fully endorse his view. A good analogy is when leasing a car. The cheapest car to buy is often not the cheapest car to lease because leasing takes into account the full cost of ownership, including maintenance and eventual resale value. The lease cost is the true measure of the value of a product, its initial price is only ever part of the story.
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