How does BREEAM impact on the pricing levels of commercial offices in the UK?

The aim of this research is to investigate whether offices in the United Kingdom with an environmental label command a price premium when compared to non-labelled offices that possess otherwise similar characteristics. The de facto standard for sustainability in buildings in the UK is the Building Research Establishment Environmental Assessment Method (BREEAM). BREEAM is a building quality indicator that investigates a range of environmental criteria, awards credits based on the degree to which these criteria are represented in a building and then awards a rating based on the total number of credits that have been achieved. For organisations, BREEAM can be used to demonstrate a commitment to Corporate Responsibility principles and to the overall green agenda. We postulate that companies are willing to pay a premium for better environmental performance and efficiency of buildings because of the reputational benefits that they provide, as well as reductions in operational costs that might be achieved in them. This paper investigates the effect of environmental certification (BREEAM) on observed contract rents in the UK and as such provides a potentially stronger empirical test of the hypothesis than previous appraisal-based studies. We investigate the impact of a BREEAM rating using a control sample of non-BREEAM rated office buildings throughout the UK. To achieve this, we use a panel dataset that contains building characteristics and more than 20,000 commercial office lease transactions that were completed from 2006 to 2010. Early results indicate that a premium exists for BREEAM certified buildings.