Energy performance certificate and office building rents - a case study of the UK market

MEES is a measure to improve buildings’ energy efficiency. However, whether this legislation will achieve its goals is not certain. Since the implementation of MEES, limited evidence of possible impact and effectiveness has been published, especially there is no post-implementation evidence. In this paper, we investigate whether price differentials exist between the EPC-labeled office buildings and nonlabelled buildings; then we further investigate whether the premiums/discount are affected by the level of rating if the price differentials exist, especially for the ones below MEES. We use a much larger sample of office buildings across England and Wales. We use the data of the office buildings, their hedonic features, and the rents from Costar. The EPCs are from data from the Ministry of Housing, Communities and Local Government with which the EPC assessment and rating reports are registered. The proportion of energy performance-certified buildings in our sample has increased significantly to above 50% of the total sample. 12,514 investment office buildings with the full information at the end of 2021 are included in the study, among them, 55% of the office buildings have valid EPC ratings. This is the first study of UK commercial real estate with such a large sample to examine the effect of the EPC on commercial real estate value and provide some post-implementation evidence of the effectiveness of the MEES regulation.