Measuring the impact of operational energy ratings on office leases in the UK

The aim of this research is to investigate whether operationally energy efficient offices in the United Kingdom command a price premium when compared to operationally energy inefficient offices that possess otherwise similar characteristics. Since October 2008 the operational energy consumption of commercial office space in the United Kingdom has been assessed with Display Energy Certificates (DECs). A DEC shows an operational rating which conveys actual energy used by the building on a scale that ranges from A to G, with A representing operational energy efficiency and G representing operational energy inefficiency. DEC ratings are mandatory for public authorities and institutions in the UK that provide public services to a large number of people, when they occupy buildings where the total useful floor area of the building exceeds 1,000 m2 and when these buildings are frequently visited by the public. DEC ratings must be renewed on a yearly basis so that the year-on-year energy consumption can be monitored and they also have to be put on display in the building so that they can be seen by members of the public. This paper investigates the effect of an operational energy consumption label on observed contract rents in the UK and as such provides a potentially stronger empirical test of the hypothesis than previous appraisal-based studies. Firstly, we investigate a panel dataset that combines information on a sample of DEC ratings for commercial office buildings that were awarded from 2006 to 2010 with a dataset containing commercial office lease transactions and a set of building control variables. As a robustness check, we also investigate the relationship between data on DEC ratings, data on building control variables and data from the Valuation Office Agency on the rateable value of buildings, which represents the open market annual rental value of the sample.