Evaluation of Investments in Vilnius Housing Renovation from the Aspect of Real Estate

Evaluation of Investments in Vilnius Housing Renovation from the Aspect of Real Estate

Peculiarities on Vilnius multistoried housing refurbishment from the energy efficiency aspect

Saulius Raslanas1, Andrius Gulbinas2, Laura Tupenaite3

1Professor of Social Sciences, Department of Construction Economics and Property Management, Vilnius Gediminas Technical University, Sauletekio Av. 11, LT-10223 Vilnius, Lithuania.


2 Associated professor of Construction Engineering, Department of Construction Economics and Property Management, Vilnius Gediminas Technical University, Sauletekio Av. 11, LT-10223 Vilnius, Lithuania.


3Phd.student of Construction Engineering. Department of Construction Technology and Management, Vilnius Gediminas Technical University, Sauletekio Av. 11, LT-10223 Vilnius, Lithuania.



The European building stock is a major contributor to energy waste and CO2 emission. Multi-storey buildings form a significant proportion of this building stock - 13 % in the old EU member states and more than one third in the new Central and Eastern European member states. Here, the prefabricated housing stock is predominant, characterized by an enormous maintenance backlog and very low structural and thermal quality.

So far, no comprehensive strategies have been developed in the countries to start energy efficient multi-storey housing refurbishment. Especially effective legal and administrative structures need to be developed, energy efficient refurbishment measures chosen, complex housing renovation implemented.

The main purpose of this paper is to select energy efficient refurbishment measures to encourage significant energy savings as well as housing value enhancement. Vilnius multi-storey housing condition is observed, packets of energy efficient investment measures proposed, refurbishment influence to housing value increase discussed. Authors of this paper have participated in Vilnius municipality research project and formed recommendations to Vilnius housing refurbishment from the aspect of real estate value. Basing on these and other researches results Vilnius municipality programme “Renew the house - renew the city” started. Pilot refurbishment project results are discussed at the end of this paper.

Keywords: multi-storey housing refurbishment, energy efficiency, investments in refurbishment, market value


The general dilemma of renovating vs. rebuilding has received only limited attention in the professional literature. It is indeed a multidisciplinary dilemma in which even the apparently numerical economic evaluation is not straightforward due to much uncertainty [12]. According to Papadopoulos at al [13], Gorgolewski at al [6] the energy efficient renovation of existing buildings is an important tool for the reduction of energy consumption in the building sector, the improvement of prevailing indoor thermal comfort conditions and also for the improvement of environmental conditions in urban areas. At the same time, it is technical, economic and social problem, due to the way in which many cities have been built and the restrictions imposed by economic constrains that tantalize most countries in South-Eastern Europe.

At present a benefit of buildings renovation was usually considered as only the saving of energy. It is obvious, however, that most energy saving measures allow one not only to save energy, but also to improve the building’s condition and in turn to increase the value of a building. According to Martinaitis at al [12] building renovation projects, whose feasibility is assessed only with regards to energy efficiency, should be considered as the result of an “old attitude”. It is unlikely that such projects meet the concepts of the six essential requirements for construction works as well as the need for sustainable development. Buildings, which form the accumulated wealth of a country during a long time and are frequently the largest asset of each country, should be renovated, considering the benefit as well of the timely renewal of worn out building elements.

Mao and Ruthenberg [11,17], argued that reconstruction should bear as “extra cost” the waste of demolishing a valuable though old and ill-functioning existing building, while the renovation option utilizes the existing value of the old building and just adds to it. In more recent papers decisions on economically efficient renovation are adapted to new technology methods: Adeli [1] applies general theories and techniques of expert systems to construction, Henket [7] suggests a theoretical model of several modular stages in the decision process, Reddy et al. [15] offer a frame-based decision support model for building renovation, Alanne [2] proposes a multi-criteria “knapsack” model to help designers select the most feasible renovation actions in the conceptual phase of a renovation project.

It is usually agreed that renovation would enhance the market value of the property, but there are few empirical studies on it. Theoretical models can be traced back to Sweeney [18], Dildine and Massey [5] and Ohls [14]. They developed models on the opposing impacts to the rate of depreciation of maintenance, on the premise that renovation produced net value enhancement. Arnott at al [3] extended the model to include rehabilitation. More recent researches analyzed investment in renovation estimation problems. Mansfied [10] defined renovation as housing investment category, while Chau at all [4] used hedonic model for multiple-ownership buildings renovation investment valuation.

Investment in housing renovation was analyzed by Lithuanian authors as well. According to Martinaitis et al. [12], the renovation implementation of benefits of some energy saving measures is associated not only with energy saving, but also with the improvement of building element conditions, durability and the value of a building.

Zavadskas, Kaklauskas, Raslanas [14,21] more detail analyzed Vilnius housing renovation investment efficiency from the point of real estate value and this paper is mainly based on research results where authors took active participation. As it was mentioned before, analysis results were used in Vilnius municipality renovation policy decisions making processes and renovation program witch is further discussed at the end of this paper.

1. Energy efficient refurbishment projects of apartment buildings in Vilnius

About 59% of apartments in dwelling houses in Vilnius are located in large-panel buildings. In brick and cast-in-place buildings they take 35% and 6% of all apartments in multifamily buildings, respectively. The types of buildings are not numerous. They include about seven varieties of large-panel houses, six types of brick and four types of cast-in-place buildings. Major problems associated with maintenance as well as defects and drawbacks found in panel houses are common to all such buildings constructed in the period from 1960 to 1996. Usually, the enclosure walls of these houses have poor thermal characteristics. In later structures, the requirements to these parameters are more rigorous. Therefore, considering these buildings from the economical point of view it may be stated that thermal insulation of some of their enclosures is by 4 – 4.5 times lower than specified by the regulations.

This means that to make the above houses economical, thermal insulation of enclosures should be improved. Another problem of the most of apartment buildings is not associated only with high thermal conductivity of their windows and doors, but is related with poor sealing caused by natural ageing and low quality of building products. As a result, in winter, cold air can easily infiltrate into the spaces and heat losses due to ventilation are also increased. Many problems arise in large-panel buildings (especially in the older ones) because of leaking joints between panels. Due to this, the walls are getting damp and even frozen (in cold weather). The interior finishing of the apartments is damaged, thermal conductivity of walls and heat losses increase, worsening the microclimate of the spaces. The balconies in large-panel and in some brick houses are in a bad (sometimes, emergency) state. In brick houses, signs of wetting, crumbling and freezing of an external ceramic brick layer may be observed. In cast-in-place buildings some joints between floor slabs are not well sealed because the concrete was not properly compacted, thereby leaking water which sometimes penetrates the walls and gets into the wall cavity.

Roofs of apartment buildings are usually flat, covered with rolled material (e.g. ruberoid on the bituminous base) and having the internal water removal. Nearly all such roofs are characterized by heavy wearing of the covering and its bubbling. They also may leak water, especially near the parapets and water catchers. In brick houses, the walls often get damp if water leaks near the parapets.

All the above problems and defects indicate the need for innovation of Vilnius apartment buildings and of their surroundings. Therefore a demand for heating in these houses is two or more times higher than in those in Western countries [8].

Different scenarios of buildings renovation may be used. Four variants of renovation projects aimed to determine preliminary investments and their effectiveness have been prepared (Table 1). They include a set of small investment projects, a set of medium investment projects, a set of large investment projects and a “basic” set of renovation projects. Besides, the calculations of several types of large-panel apartment buildings have been made.

Table 1. Characteristics of the packets of investments implements into renovation for large-panel building of the type 120V-06/1

Renovation project based on small investments / Investments, Euro
No. / Implement / Cost / Cost Euro/m2
1 / Erection of new roof cover / 4995 / 4,7
2 / Repair and glazing of balconies / 4166 / 4
3 / Replacement of windows / 38591 / 36
4 / Replacement of entrance doors / 4726 / 1,33
5 / Repair of boards joints / 3480 / 3,33
6 / Reconstruction of heating unit / 11333 / 10,7
7 / Well-balance of heating system / 1400 / 1,33
Total: / 65360 / 61,33
8 / Design and engineering services / 5228 / 5
9 / Customer’s reserve / 7059 / 6,67
TOTAL: / 46341 / 72,7
Renovation project based on medium investments / Investments, Euro
1 / Insulation of roof and a new roof cover / 12210 / 11,33
2 / Repair and glazing of balconies / 4166,67 / 4
3 / Replacement of windows / 38591 / 36
4 / Replacement of entrance doors / 1393 / 1,33
5 / Insulation of terminal façade / 3480 / 3,33
6 / Reconstruction of heating unit / 11333 / 10,67
7 / Well-balance of heating system / 2400 / 2,33
8 / Separate accounting of heating and regulation / 5958 / 5,67
9 / Arrangement of the environment / 14253 / 13,33
Total: / 93786,7 / 87,67
10 / Design and engineering services / 7503 / 7
11 / Customer’s reserve / 10129 / 9,33
TOTAL: / 205205 / 192
Renovation project based on large investments / Investments, Euro
1 / Erection of pitched roof and new dwelling / 12210 / 11,33
2 / Repair and glazing of balconies / 21666,67 / 20,33
3 / Replacement of windows / 38591,33 / 36
4 / Replacement of entrance doors / 1393 / 1,33
5 / Insulation of façade / 51562 / 48,33
6 / Reconstruction of heating unit / 11333 / 10,67
7 / Reconstruction of heating system (collector) / 56666,67 / 53
8 / Replacement of water pipes / 14609,67 / 13,67
9 / Replacement of electrical equipment / 1485 / 1,33
10 / Arrangement of the environment / 14253 / 13,33
Total: / 223771,3 / 209,33
11 / Design and engineering services / 17901,67 / 16,67
12 / Customer’s reserve / 24167,33 / 22,67
TOTAL: / 489611,7 / 458
Renovation project based on “basic” investments / Investments, Euro
1 / Insulation of roof and a new roof cover / 4070 / 11,33
2 / Repair and glazing of balconies / 7222,22 / 20,33
3 / Replacement of windows / 12863,8 / 36
4 / Replacement of entrance doors / 464,4 / 1,33
5 / Insulation of façade / 17187,33 / 48,33
6 / Reconstruction of heating unit / 3777,8 / 10,67
7 / Well-balance of heating system / 800 / 2,33
8 / Separate accounting of heating and regulation / 1986,11 / 5,67
9 / Arrangement of the environment / 4751,11 / 13,33
Total: / 53122,8 / 149
10 / Design and engineering services / 4249,8 / 12
11 / Customer’s reserve / 5737,22 / 16
TOTAL: / 116232,6 / 326,33

A set of renovation projects based on small investments is oriented to the replacement, reconstruction or repair of building elements which are in the worst technical conditions. This alternative is attractive because it is relatively cheap, but thermal characteristics of building enclosures are not improved much (except for doors and windows). The same applies to the architectural appearance and aesthetic characteristics of buildings. Another drawback is not sufficiently accurate calculation of thermal power consumption in the apartment (based on living space) and unavailability of temperature regulation in spaces.

A set of renovation projects based on medium investments is aimed at energy saving. It can provide rather high economic effect. The possibility to regulate temperature in the apartments and individually determine thermal energy consumption encourages the tenants to save energy. These savings may be relatively large. The alternative also provides for minimum outdoor amenities. However, the aesthetic view of a building is not considerably changed according to this renovation variant and the walls can hardly satisfy the currently used standards. There are also some drawbacks relating to the calculation of thermal energy consumption and temperature regulation in particular apartments. Thus, all thermal energy consumed in the house is proportionally distributed among the apartments according to indication of their meters. Moreover, in the case of repair or break-down in one of the apartments, heat will not be supplied to others. Tenants cannot start heating their premises before the heating season begins.

Projects based on large investments are aimed at providing the highest quality to a building, which would have the enclosures with thermal characteristics satisfying the standards, as well as possessing more advanced heating system allowing for accurate calculation of heat energy consumption and individual temperature regulation. From the economic point of view such houses are most effective, satisfying the standards specified for new construction. However, the investments are large (~200 Euro/m2) being hardly affordable for an average-income family. This alternative is most suited for prestigious residential areas. Pitched roofs would allow to arrange additional apartments which could be sold.

The investment per 1 m2 of total building area for various types of large-panel buildings according to renovation projects based on medium-size investments is shown in Fig.1.

Fig. 1. Average investments into the renovation projects

It can be assumed that renovation costs, according to investment measures vary from 60 to ~200 Euro/m2.

2. Analysis of investments into apartment buildings renovation

A number of factors should be considered in order to determine the proper amount of investments into the renovation of apartment buildings. This is largely determined by the need for financing to achieve the aims set in renovation and by the available financial assets. Considerable changes in the architectural appearance and maintenance costs of a building would require 60-200 Euro/m2 (of the apartment living space).

The factor of cost effectiveness is also important. It shows what benefits or profit can be expected from the investment into the renovation of dwellings. The main goals of apartment building renovation are to make dwellings more economical and environmentally-friendly as well as creating better outdoor amenities (which would increase the attractiveness and competitiveness of the city). The economic effect of renovation can be described in terms of the payback of investments and the change in the market value of dwellings.

Since thermal characteristics of building enclosures are improved and the efficiency of the heating system increased due to renovation, a building will be more energy-efficient and its maintenance costs will be lower. Short-term payback of investments shows that the economic effect of renovation is high. However, it is not advisable to assess renovation only from this perspective. The case may be when a longer payback period of large investments will lead to higher savings and, therefore, greater economic efficiency [2,17]. Then, the period considered is limited by the remaining service life of the renovated parts and the building itself. Economically efficient renovation is that when the payback period is shorter than the remaining service life of the renovated parts or the building itself. The remaining service life of the renovated parts of the building analyzed is longer than 40 years. Judging by the technical state of their structures, the remaining service life of the most of apartment buildings is about 30-50 years. However, this period may even be shorter because of the physical wear, depreciation and other factors. However, according to preliminary calculations, the renovation of dwellings should pay back in 30-40 years. The payback of all renovation scenarios may take about 30 years, except for renovation projects based on large investments which, depending on the type of buildings, may pay back at least in 32 years. An average cost of this renovation scenario implementation is ~100-200 Euro/m2 (of the apartment living space). Therefore, for the investment to be profitable, the renovation cost of a building taking into account yearly inflation should not exceed 200 Euro/m2.

Considering the optimal cost of building renovation from the perspective of its market value enhancement, the limit will be the difference between the market value of a particular building before and after renovation. This is for a very simple reason: any real estate owner is not going to invest more into his property than the expected increase in its market price after renovation, because he hopes to get some profit if he sells it. Before starting the renovation, cost analysis of dwellings should be made in every district. For the sake of comparison, the market values of apartments in newly built and old houses and the investments associated with various renovation scenarios may be considered (see Fig. 2).

Fig.2. Prices of apartments (1 m2 of living space) in large-panel building of the type 11-464LI-18/1 (current average price + renovation costs)

It can be seen in the graph, that, in terms of the value enhancement, it is not economical to implement the renovation scenario based on large investments in all districts except Antakalnis (the cost of erection work is about 200 Euro/m2). The effectiveness of a basic renovation project is practically neutral in other districts, except Šeškinė. Medium investment packet is efficient in particularly all districts. On the other hand in Pilaitė small investment packet seems to be the best alternative.

The engineering projects of renovation are very important. To evaluate them, multicriterion analysis may be used involving the experts in this field [22]. For example, a special questionnaire should be filled by experts to get their opinion about the type of windows (they should provide the values and weights of various criteria) to be used in a renovated property. Then, the data are processed and the most effective alternative is chosen, which could satisfy all interested parties.

3. Market value criterion for evaluation of renovation

There is evidential experience that the cost of renovation is not immediately the market value, as there is the difference between them known as the acceptance of the market. The acceptance of the market as the basic linkage between the cost and value of building may consider its basic parameters symmetric or asymmetric.