Building upcycling vs. building reconstruction investment decisions: a focus on the discount rate

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This work continues the methodological exploration illustrated in a correlated contribution presented by the Authors to this Symposium. In this advancement, the focus is on selecting the appropriate discount rate for the NPV calculation, evaluating alternative scenarios in the building construction sector. Assuming the presence of environmental and financial input variables in the DCF model, a “time preference” discount rate seems inappropriate. Thus, as an alternative, the environmental hurdle rate technique is explored. This is based on using different rates considering the negative contribution to the environment due to an input variable or, conversely, considering the technological development expectations toward energy consumption and CO2 emissions reduction over time. Simulations on two alternative scenarios are implemented: the retrofit scenario and the demolition and reconstruction scenario of an existing residential building. The results confirm the importance of the discount rate capability in influencing the DCF model output, even more in the presence of environmental input, highlighting their weight on increasing the asset residual value. Further, the environmental hurdle rate can perturb the final scenario ranking toward environmentally responsible investment decisions at different scales.