Sustainability in the portfolio: economic efficiency, technical feasibility and political desires

Polarising rental market with urban-rural differential

In many regions, the residential yield market has developed from an almost cleared market (normal to low vacancy rates) into a tenant’s market due to the lower migration balance. Housing shortages are only to be found sporadically in the cities. Elsewhere, some marketers find themselves forced to find tenants with rent-free months or concessions on rents. The growing urban-rural differential in rented housing sector is also confirmed by the recently published vacancy figures.

The market positioning of thermally upgraded flats is crucial

In the increasingly competitive environment of the rental housing market, knowledge of local market conditions, tenant requirements and their willingness to pay is becoming increasingly important for the right renovation strategy. With high demand for cheap rental flats and increasing competition from many new developments, the central question is whether and how flats that have been upgraded to optimum energy standards can be let after refurbishment. In this market constellation, lower ancillary costs resulting from energy-related refurbishments are gaining in importance.

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Typologie der Mietwohnungsmärkte

From construction project to marketing: integrated data set allows new findings

The first results of a quantitative analysis of combined project and offer data indicate that particularly flats that have undergone “compromise renovations” with half-hearted individual measures have a hard time in marketing. There is hardly any significant added value for tenants.

Efficient repairs: the simplest form for economic renovations

On the other hand, simple and efficient repairs, afford the possibility of offering intact apartments at competitive rents. The marketing periods are correspondingly short. Particularly in the current competitive environment, this property strategy offers the opportunity to differentiate oneself from more expensive new buildings in terms of price.

Costly energy improvements with good marketing and new positioning

However, the sample examined also contains a large number of costly renovations. In addition to external envelope insulation, replacement windows and renewable energy sources, qualitative aspects, such as green roofs, are also used here in renovations. Flats in projects such as these are marketed very heterogeneously, but nevertheless more successfully in terms of insertion duration than, for example, interim solutions. What is important here, however, is that the economic success of these sustainable renovations will probably only be achieved by repositioning the flats with higher quality standards and correspondingly higher rents.

Detailed simulation of correlations

These empirical findings are supplemented and confirmed by detailed simulations. The analysis of five model buildings and three levels of renovation shows that small interventions such as the insulation of the basement ceiling and/or roof space, combined with the replacement of the heat generator, can yield great energy saving potential. However, minimal refurbishments are the only profitable strategy for current leases and where there are limited possibilities for passing on the costs. For more extensive interventions, the subsidy contributions become relevant and an upward adjustment of the rents becomes necessary. If these two points are met, even extensive renovations to the Minergie standard will be profitable from the client's point of view.

The amount and targeted use of funding programmes are crucial

From the point of view of distribution policy, the level of the subsidy programmes and the structure of the tenancy law are decisive because ultimately it is a question of who is to bear the enormous costs of renovating the building stock. This applies all the more, given that energy-saving refurbishment measures are typically not investments that are accompanied by the greatest increase in quality, such as a total replacement of wet rooms or kitchens.

Future refurbishment activities heavily dependent on rental potential and interdisciplinary expertise

The incentives for refurbishing buildings work well as long as rents can be increased. However, if the rent levels required for economic efficiency are no longer marketable or the surrounding supply is very competitive, the number of energy-related refurbishments is likely to decrease drastically due to the high rental risk.

Achieving goals requires an interdisciplinary team

More complex refurbishments require integrated property strategies including location analyses, variant studies, sensitivity calculations, marketing and letting strategies for all aspects of construction. A successful and lucrative renovation therefore always requires an interdisciplinary team. Only when asset managers, construction specialists, lawyers and sustainability experts work together can economic and environmental goals be combined, planned and realised.