The concept of sustainability and property is rather old, though it feels remarkably fresh and new.

Paul Warde has traced “The Invention of Sustainability”* back to sixteenth century land economics and, likewise, in his “Studies of Nature”, Bernardin de St. Pierre clearly links man’s speculative activities to an impact on the environment when asking, “To what degree have our speculations and our prejudices degraded her [nature]?”** Now, without a coherent policy related to sustainability (usually framed within the broader concept of ESG - Environmental, Social and Governance aspects) it is difficult to engage with responsible property investment.

Investment is a Net Present Value (NPV) positive activity. A cash flow, discounted at an appropriate rate, when compared to price signifies whether an opportunity is an investment. Depreciation, which is the effect of obsolescence, enters this calculation in four ways:

1. The level of rent which is obtainable

2. The potential growth of that rent

3. The risk attached to the potential growth of that rent, and,

4. The direct cost of obtaining increases in 1 and 2, and a decrease in 3

Depreciation in property investment was discussed, conceptually in the 1970s, and by a number of authors since, including Law*** who reviews all of the depreciation studies to date. Depreciation is linked to the rent / risk / cost factors through obsolescence, which can be described in a number of ways:

1. Physical

2. Functional

3. Economic

4. Social

5. Environmental (first mentioned in 1982)

6. Aesthetic

7. Legal

Clearly, items 4 and 5, social and environmental obsolescence, tie in neatly with the idea of sustainability and are linked to NPV calculations through depreciation.

A coherent policy related to sustainability and ESG then, should explicitly include, as one aspect, the interface between obsolescence and depreciation and look at factors across that interface which can impact the NPV of a potential investment.

* Warde, P., (2018), “The Invention of Sustainability”

** Bernardin de St Pierre, J. H., translated by Hunter, H., (1797) “Studies of Nature, Volume 1”

*** Law, V, (2004) ”The definition and measurement of rental depreciation in investment property” (unpublished Ph.D. thesis, University of Reading)