Green Jobs: The Present and Future of the Building Industry, Coursework Example

Introduction

This paper aims to provide a client reported for the Glenworth Developments. The client report will provide authentic information and data related to the operational street named Henry Street Store, and this report is meant to enhance the client-agency relationship, increase client loyalty alongside stipulating expected or optimum income of the firm’s client (Mangialardo, Micelli, and Saccani 2019).  In the first part, I will prepare a rental value grid that will outline relevant adjustment factors regarding every property and identify the best comparable and ascertain the freehold value of Henry Street Store, applying the two alternative traditional methods of valuations. The second task will discuss the impacts of sustainability and its impact on the sustainability of Real Estate Values from three perspectives that are economical, socio-cultural, and environmental categories (Kievani et al. 2010). This part will be explained in line with the Climate Change Act of 2008 and HM Treasury of 2006 on the economics of climate change. In the third task, I will advise Glenworth Developments on whether they should offer Henry Street Store based on the provided information. Lastly, in task four, I will highlight the importance of the yield as a measure of return and risk.

The appropriate adjustment factors taken into consideration in each property when determining the best comparable include the age of the property based on years, measurement based on the provided dimensions with the method of measure like the Gross Internal Area basis and location of the property (Araújo et al. 2018). Other factors for consideration include whether the property is leased or not. If so, we consider the lease agreement of the property and the number of years the property has been leased, and other features such as car parking.

Based on the information provided, Supervalu Stores is based in South Circular road, and it is a 15-year retail unit that measures 60m in width by 92m in depth based on the gross internal area basis. The property is based in a middle-class location, and it can be leased based on the FRI lease, and its lease was finalized with a rent of €525 yearly for every meter square based on ITZA terms (Mangialardo, Micelli and Saccani 2019).  It has restricted parking, thus calls for on-street parking. Marshall’s Stores based in South Ann Street measures 50m (width) by 86m (depth) in dimensions based on the gross internal area basis. It has an accessible parking area, and its lease was 12 months ago with a 30-year lease period with a rent rate of €575 years per square meter based on ITZA terms. Gordon’s Superstores, based in Grafton Street, is a 15-year property with 60 meters (width) by 5 meters (depth) and has display units alongside shelving offering all amenities. The lease period for this property is 30 years based on the FRI lease for €610 yearly per square meter based on ITZA terms.

ITZA and annotated valuations

Supervalu Stores

Dimension of the property=60m*92m

=5520 square meters

The cost per square meter is €525

Thus cost =€525*5520 square meters

=€2,898,000 per year

Marshall’s Stores

Dimension of the property=50m*86m

=4300 square meters

The cost per square meter is €575

Thus cost =€575*4300 square meters

=€2,472,500 per year

For thirty years=€2,472,500*30

=€74,175,000

Gordon’s Superstores

Dimension of the property=60m by 54m

=3240 square meters

The cost per square meter is €610

Thus cost =€610*3240 square meters

=€1,976,400 per year

For thirty years, the cost of leasing will be €1,976,400*30

=€59,292,000

Based on this analysis, it is evident that all the properties have different values based on their location and the features attached to each property. At the same time, their cost differs based on their dimension in square meters, and this can explain why one property is leased at a higher price compared to the other (Mangialardo and Micelli 2017). However, the asset’s value increases with the features attached despite varying dimensions or measurements, as shown in the calculations of these properties. For instance, Supervalu Stores has a value of 2,898,000 per year, and Marshall’s Stores has a value of €2,472,500 per year, followed by Gordons’ Superstores of €1,976,400 per year. Despite different dimensions, the location of the business matter alongside changes in all risks yield during the year brought along the changes in the rent of the properties.

The aspect of sustainability is affecting every industry or sector. There is a need to consider how this would affect real estate in terms of energy efficiency and the sustainability of buildings. The real estate or construction sector is the largest consumer of energy. When we talk about energy use, this industry requires efficiency and effectiveness in energy usage (Kievani et al., 2010). Also, this sector is the leading in producing greenhouse gases, and for these reasons, there is a broad debate regarding how to build environmentally sustainable buildings. This would mean the industry will adopt green buildings.

Economy

The stated considerations in line with energy efficiency and sustainability of buildings influence the real estate economically. In the first instance, all corporations within the industry will go for green buildings, which offer several economic or financial benefits to the sector. Such benefits are relevant to a wide range of people within the manufacturing or building sector. One universal benefit is cost savings related to utility bills for the households and tenants (Araújo et al., 2018). This is achieved through water and energy efficiency. Another economic impact includes lower construction costs alongside higher property value for construction or building developers. This is possible because the materials that will be used would be based on the sustainability goals. At the same time, the economic impact of the stated consideration involves lower construction occupancy rates alongside operating costs for building owners because the materials that would be used within the construction sector will be cost-effective. Accordingly, the maintenance costs would be less because the companies within the real estate sector or building owners will not pay more money on gas emitted from the buildings.

Another economic impact of the stated considerations is job creation. According to Kievani et al. (2010), the adoption of sustainability and energy efficiency in manufacturing or real estate will increase jobs that protect and enhance ecosystems alongside biodiversity. It will also increase jobs related to reducing energy, building materials, and water consumption, where high-efficiency strategies would be adopted to promote such goals (Mangialardo and Micelli 2017). Other jobs will be concentrated on de-carbonizing the economy from previous effects related to carbon gases discharged to the world. These would be carried out by various people who include managers, technicians, designers, and scientists who will actively engage multiple parties to reduce the negative impacts of traditional manufacturing or building real estate. The created jobs fall under the category of green jobs, which will focus on preservation and restoration of the society and environment from negative impacts of gas discharged from the sector and high consumption of energy leading to energy inefficiencies.

Socio-cultural

The social-cultural effects of energy efficiency and sustainability resonate around human health and wellbeing working in the building industry and people living in the houses alongside those within the society where all these activities in this sector take place. The workers will work in well-ventilated areas, which enhance brain function because of reduced gas emissions in the workplace (Araújo et al., 2018). Apart from that, the social impact of such consideration is that it enhances the quality of life amongst the occupants because of the building’s design, construction, and operation, which improve good health and comfort. When the building’s designers and technicians focus on buildings that prioritize health, the public or community health would be positively influenced. In such cases, diseases such as respiratory allergies and asthma-related to living spaces would be reduced.

Environmental

The environment is positively impacted due to the stated consideration where gas emission is reduced. This is the most dangerous issue affecting the environment, and as stated before, more jobs will be created to reduce such impacts on the environment (Gunhan 2019). Reduction of gas emissions has a positive effect because it would enhance energy efficiency and fuel switching because of the availability of renewable energy. Apart from improving energy efficiency, sustainability goals are meant to reduce climate change by reducing greenhouse gases that affect the environment through global warming. Also, water and natural resources would be saved, which would increase biodiversity across the industry or building sector.

Contribution towards the infrastructure =€400,000 (S.106 agreement)

Finance availability =8%*€400,000 *2

=€64,000

Cost of the flats according to the provided cost;

One-Bed Flats 20 units each at €250,000=€5,000,000

Two-bed flats 20 units each at €400,000= €8,000,000

Three-bed 10 units each at €500,000= €5,000,000

Total Income from all the flats=€18,000,000

Legal or agency fees=3%*€18,000,000

=€540,000

Construction or building costs €*total square meters

Total square feet= 1000+800+500=2300 square feet

Conversion to square meters

1 square foot= 0.092903 square meters

2300 square feet=2300*0.92903/1

=2136.769 square meters

=€2000* (2136.769)

=€4,273,538

Consultancy fees= 12%*€4,273,538

=€512,824.56

Legal fees on site purchase=8%*€18,000,000

=1,440,000

The offer that Glenworth Developments should give Henry Street Store should consider all costs related to the infrastructure, purchasing of the site, consultancy, legal fees, and agency fees related to the development (Gunhan 2019). In this case, the offer that will be given to the client will be drawn as follows;

Development value =€18,000,000

Consultancy fees =€512,824.56

Agency fees =€540,000

Legal fees=€1,440,000

Contribution towards infrastructure €400,000

Construction costs=€4,273,538

The total offer should be €25,166,362.56 (this value is applicable if the corporation decides to sell the flats to the client).

The decision criteria, in this case, are that when selling an asset, you consider all the costs associated with the asset. In this case, the corporation will incur these costs at their expense, including construction costs, consultancy, and legal fees alongside agency fees mandatory in construction (Mangialardo and Micelli 2017). However, as in the case scenario, the corporation considers whether to sell or lease the product. When they sell the apartments or the flats, the company will receive a lump sum amount of €25,166,362.56 at once. If the flats are leased, the company will receive a fixed amount from the flats based on the market rate of leasing the flats. That is, the corporation will receive leased value on the asset, and this will depend on the agreement of the corporation.

If the flats are to be leased, the company will agree with the client on the leasing amount and the payment rate because selling and leasing cannot attract the same amount. Equally, the corporation can lease part of the flats and sell some based on their need for money or the decisions of the management (Gunhan 2019). When leasing, there are several factors: cash flow, credit rating alongside maintenance of the property, and real estate values. For example, leasing will help the business conserve its cash flow because of its initial cash expense. At the same time, real estate values change over time. It is upon the owners to ensure that the business meets the needs according to the stipulated rules and regulations in the located business area (Araújo et al., 2018). For instance, properties values decline in some areas while in other areas they increase. It is upon the company’s management to properly evaluate the property based on the current rates.

Yield incorporates income return on investment, excluding capital gains. The difference between market yields and investment yield is that market yield involves the interest rate earned by an individual for investing in securities that have high liquidity alongside maturity of less than one year or short-term securities in that case (Mangialardo and Micelli 2017). Investment yield, on the other hand, incorporates earnings that could be achieved from an investment. This is tabulated through annualized percentage, where the amount earned from the investment is divided by the invested amount.

Initial yield: Involves specific ratio of the present or current income generated from specific investment to the current or present value as expressed in percentage form (Araújo et al. 2018). It is applied to capitalize present of current incomes to the present value. It is tabulated by dividing income for the year by the investment times 100.

Total Income from the property=€18,000,000/€25,166,362.56 *100

=7.1%

Reversionary yield: refers to the yield that could be achieved by the investor when the rent units adjust to the level or limit of the estimated rental value (Mangialardo, Micelli, and Saccani 2019).

Worked example of reversionary yield is as a percentage of gross property value

= estimated rental value/gross property value

=€18,000,000/€25,166,362.56  *100%

=7.1%

All risks yield: refers to the conventional metric used in real estate where annual rental revenues are used to determine the capital value of the specific investment. It is calculated by annual rental income/value of the property * 100%

=€18,000,000/€4,273,538 * 100%

=4.21%

Relationship between yield and multiplier: Multipliers influence yield based on the extra income an investor spends on investment. Any change in income level affects the yield of the investment (Gunhan 2019). This is when aggregate spending increases aggregate expenditure, and any further spending results in what we call a multiplier.

Calculated example:

Yp-1-pv/i

When pv =0.71

Yp- (1-0.71)/0.08

Yp=3.625

Relationship between yield and risk: Investment choices are made based on the expected rate of return and yield, and in this case, the investors consider risks associated with the investment (Mangialardo and Micelli 2017). However, it is commonly known that the higher the risk, the higher the yield and vice versa, which applies to investment decisions. The interest rates influence bond rates or prices, leading to an inverse relationship where the prices decrease and interest rates increase. Assuming in the case above the corporation offers the property at €25,166,362.56, the YP for the year at 8% would be €2,013,309. This explains how the risky affect the yield of the rent in the year.

Impact of investment yield on return to be achieved from Henry Street Store

As indicated from the calculations above, the impact of market yield and investment yield shows that Henry Street Store has an excellent rental yield. The decision criteria are that a reasonable market yield range from 5% to 8%. Based on the calculations above, the corporation has an initial yield of 7.1%, which is the same for the reversionary yield (Gunhan 2019). It indicates that the investment is less risky and it is worth investing in it. The corporation should consider leasing the rentals rather than selling them because it will receive an annual lease charge rather than selling them at €25,166,362.56 at once. Leasing would be prudent for the corporation because it will receive income when Yp is 3.625, and it may change with a change in yields and multiplier in the industry over time. All yield risks of the company are 4.21%. It indicates that the investment and market yields influence rental return based on property prices, regional disparities, capital appreciation, interest rates, and demand growth in the real estate industry alongside fluctuations in the housing market. Thus, I would recommend Henry Street Store to assess these factors before deciding anything regarding leasing or selling the property.

References

Araújo, N., Cardoso, L., Fraiz Brea, J.A. and De Araújo, A.F., 2018. Green Jobs: The Present and Future of the Building Industry. Evolution Analysis. Social Sciences, 7(12), p.266.

Gunhan, S., 2019. Analyzing sustainable building construction project delivery practices: builders’ perspective. Practice Periodical on Structural Design and Construction, 24(1), p.05018003.

Kievani, R., Tah, J.H., Kurul, E. and Habanda, H., 2010. Green jobs creation through sustainable refurbishment in developing countries. ILO.

Mangialardo, A. and Micelli, E., 2017, March. Rethinking the construction industry under the circular economy: principles and case studies. In International Conference on Smart and Sustainable Planning for Cities and Regions (pp. 333-344). Springer, Cham.

Mangialardo, A., Micelli, E. and Saccani, F., 2019. Does sustainability affect real estate market values? Empirical evidence from the office buildings market in Milan (Italy). Sustainability, 11(1), p.12.