Who Pays Green Office Building Premiums in Sydney: Owners or Tenants?

Preliminary studies on green multi-tenanted office buildings in the United States, Europe and Australia have widely reported the presence of price premiums for certified green or energy-efficient buildings. When researchers look at sales and rental premiums, it is generally concluded that both are present relative to uncertified office buildings. The scale employed in the vast majority of these studies is the building scale, not individual tenancies. Because of this, an alternative explanation for energy efficiency rental premiums is that they originate in the methodology used to calculate a single rental rate that represents the heterogeneous mix of rents within a single building. To test the robustness of rent premiums in Australia, we self-construct a dataset of lease transaction data covering all NABERS Energy-certified buildings in central Sydney directly from lease contracts. The characteristics of each transaction are placed in a hedonic regression model to explain annual base rent per square metre. We find neither significant premiums for highly rated buildings nor significant discounts for poorly rated buildings, implying that the alternative explanation of green rental premiums arising from the process of calculating a single rent for an entire building has merit. Incentives and net effective rent are also considered, to test if Sydney rents are shadow prices. We conclude that green building price premiums in Sydney are paid by owners, not tenants.