An Exploration of Real Estate Investment Decisions and the Significance of Green Certificates: Towards a Multi-Attribute Decision Model

Abstract

Real estate investment decisions are a relevant but understudied topic. This study aims to fill this research gap by exploring real estate investment decisions in the German office market. Given the increasing trend and necessity to account for sustainability across all asset classes, and real estate in particular, I evaluate the role of green certificates in investment decisions in the German office market. I adopt an object-oriented ontological position and a phenomenological epistemology, enabling me to explore decisions without over- or undermining them. My research is split into two phases. In the First Research Phase, I explore decision-making expertise by conducting 22 semi-structured interviews with investment managers active in the German office market. This set of participants is diversified across different firm sizes, origins and investment focuses. As a result of the First Research Phase, I obtain an understanding of the decision-makers’ expertise and the criteria impacting their investment decisions. Furthermore, I devise ten attributes that describe investment decisions in the German office market. A cross-check with the participants and an external expert confirms that the set of attributes accurately represents real estate investment decisions. The Second Research Phase aims to develop the Multi-Attribute Utility Model (MAU) for Office Investments (OffIn-MAU), a model that supports investment decision-making in the German office market. The model allows the user to transform personal views into numbers and to assess up to ten core or value-add investment alternatives at once. To use the model, the respondents allocate relative importance scores to each of the ten attributes. The average of the resulting importance weights indicates the industry consensus on the relative attribute preferences. My research is the first to explore real estate investment decisions and to present a functioning, useful OffIn-MAU model that simplifies real estate decision-making. I have strong confidence in the results of my research because they are validated by a knowledgeable real estate expert and the participants themselves and have a high degree of coherence with the current state of the literature. My research also reveals considerable differences between accounting for environmental, social and governmental (ESG) criteria among core and value-add investments. Even within both risk classes, the high range of importance weights of the attribute and its standard deviations indicated significant variability in its perceived importance among the respondents. I conclude that sustainability in real estate is an emerging topic known to all investment decision-makers, while its importance for decision-makers varies and it affects core investments first. Nonetheless, considering increasing regulatory requirements and the prevalence of ESG criteria, sustainability will become even more relevant across all investment classes soon.