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The impact of Energy Performance Certificates on the rental and capital values of commercial property assets

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  • Fuerst, Franz
  • McAllister, Patrick

Abstract

This paper focuses on the effect of energy performance ratings on appraised capital values, rental values and equivalent yields of UK commercial property assets. The study is based on a cross-section of 708 commercial property assets. Incorporating a range of potential confounding factors such as unexpired lease term, vacancy rate and tenant credit risk, we use hedonic regression procedures to estimate the effect of EPC rating on rental and capital values. The study finds no evidence of a significant relationship between environmental and/or energy performance and rental and capital values. A small subset of 24 BREEAM-rated assets is also tested for significant price effects but a statistically significant effect is only confirmed for equivalent yields. Similarly, there was no evidence that the EPC rating had any effect on Market Rent or Market Value with only minor effects of EPC ratings on equivalent yields. The preliminary conclusion is that energy labelling is not yet having the effects on Market Values and Market Rents that would be expected if high EPC ratings were associated with substantial cost savings that are fully reflected in capital values and/or were readily available and taken into account by prospective tenants and buyers.

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  • Fuerst, Franz & McAllister, Patrick, 2011. "The impact of Energy Performance Certificates on the rental and capital values of commercial property assets," Energy Policy, Elsevier, vol. 39(10), pages 6608-6614, October.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:10:p:6608-6614
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    References listed on IDEAS

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    1. Fuerst, Franz & McAllister, Pat, 2011. "Eco-labeling in commercial office markets: Do LEED and Energy Star offices obtain multiple premiums?," Ecological Economics, Elsevier, vol. 70(6), pages 1220-1230, April.
    2. Sorrell, Steve, 2009. "Jevons' Paradox revisited: The evidence for backfire from improved energy efficiency," Energy Policy, Elsevier, vol. 37(4), pages 1456-1469, April.
    3. Piet Eichholtz & Nils Kok & John M. Quigley, 2010. "Doing Well by Doing Good? Green Office Buildings," American Economic Review, American Economic Association, vol. 100(5), pages 2492-2509, December.
    4. Franz Fuerst & Pat McAllister & Karen Smith, 2010. "Eco-Labeling, Rents, Sales Prices and Occupancy Rates: Do LEED and Energy Star Labeled Offices Obtain Multiple Premiums?," Real Estate & Planning Working Papers rep-wp2010-01, Henley Business School, University of Reading.
    5. Jonathan Wiley & Justin Benefield & Ken Johnson, 2010. "Green Design and the Market for Commercial Office Space," The Journal of Real Estate Finance and Economics, Springer, vol. 41(2), pages 228-243, August.
    6. Gary Pivo & Jeffrey D. Fisher, 2010. "Income, Value and Returns in Socially Responsible Office Properties," Journal of Real Estate Research, American Real Estate Society, vol. 32(3), pages 243-270.
    7. Hanley, Nick & McGregor, Peter G. & Swales, J. Kim & Turner, Karen, 2009. "Do increases in energy efficiency improve environmental quality and sustainability?," Ecological Economics, Elsevier, vol. 68(3), pages 692-709, January.
    8. Yoshida, Jiro & Sugiura, Ayako, 2010. "Which “Greenness” is Valued? Evidence from Green Condominiums in Tokyo," MPRA Paper 23124, University Library of Munich, Germany, revised 02 Jun 2010.
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