Grey discounts – do less energy efficient buildings face economic obsolescence and decreasing prices over time?

Properties with outstanding green features and their potential influence on increasing rents and values in the market place associated with higher economic performance on investments have been investigated on a global scale in the past. As a result the upside of green credentials is well understood and has been proved by various empirical studies. However, the competitive advantage of sustainable buildings affecting the building stock and therefore the contrary effect has not been well investigated based on empirical evidence. It is generally assumed that a potential Sustainability Impairment for the existing building stock with inferior energy efficiency etc. is emerging over time caused by the fact that more and more Green Buildings and the ongoing process of increasing energy efficiency regulation for new construction will lead to a situation where sustainable buildings are market standard and older properties face discounts beyond the regular age-related depreciation. In this light the paper investigates two aspects. First the authors explore if the existence of a negative influence on rents, values and economic performance for less energy efficient existing commercial buildings controlling all other factors, especially the effect of age can be proved for the German property market. Data sets from appraisal-based indices are analyzed to provide evidence. Second we analyze the market dynamics over time and try to answer the questions if grey discounts are increasing continuously while green credentials become more and more common. To answer this question we are looking at different timeframes.