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Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings

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Author Info
Franz Fuerst () (Department of Real Estate & Planning, University of Reading Business School)
Patrick McAllister () (Department of Real Estate & Planning, University of Reading)

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Abstract

This paper investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. First, certified buildings offer a bundle of benefits to occupiers relating to business productivity, image and occupancy costs. Second, due to these occupier benefits, certified buildings can result in higher rents and lower holding costs for investors. Third, certified buildings may require a lower risk premium. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that, compared to buildings in the same metropolitan region, certified buildings have a rental premium and that the more highly rated that buildings are in terms of their environmental impact, the greater the rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find price premia of 10% and 31% respectively compared to non-certified buildings in the same metropolitan area.

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Publisher Info
Paper provided by Henley Business School, Reading University in its series Real Estate & Planning Working Papers with number rep-wp2008-09.

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Length: 39 pages
Date of creation: 2008
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Handle: RePEc:rdg:repxwp:rep-wp2008-09

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Find related papers by JEL classification:
R33 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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