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Doing Well by Doing Good? Green Office Buildings

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  • Eichholtz, Piet
  • Kok, Nils
  • Quigley, John M.

Abstract

This paper provides the first credible evidence on the economic value of the certification of "green buildings" -- value derived from impersonal market transactions rather than engineering estimates. For some 10,000 subject and control buildings, we match publicly available information on the addresses of Energy Star and LEED-rated office buildings to the characteristics of these buildings, their rental rates and selling prices. We find that buildings with a "green rating" command rental rates that are roughly three percent higher per square foot than otherwise identical buildings - controlling for the quality and the specific location of office buildings. Ceteris paribus, premiums in effective rents are even higher - above six percent. Selling prices of green buildings are higher by about 16 percent. For the Energy-Star-certified buildings in this sample, we subsequently obtained detailed estimates of site and source energy usage from the U.S. Environmental Protection Agency. Our analysis establishes that variations in the premium for green office buildings are systematically related to their energy-saving characteristics. For example, an increase of ten percent in the site energy utilization efficiency of a green building is associated with a two percent increase in selling price - over and above the 16 percent premium for a labeled building. Further calculations suggest that a one dollar saving in energy costs from increased thermal efficiency yields roughly eighteen dollars in the increased valuation of an Energy-Star certified building.

Suggested Citation

  • Eichholtz, Piet & Kok, Nils & Quigley, John M., 2009. "Doing Well by Doing Good? Green Office Buildings," Berkeley Program on Housing and Urban Policy, Working Paper Series qt507394s4, Berkeley Program on Housing and Urban Policy.
  • Handle: RePEc:cdl:bphupl:qt507394s4
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    References listed on IDEAS

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    1. John M. Quigley, 1991. "MARKET INDUCED AND GOVERNMENT MANDATED ENERGY CONSERVATION IN THE HOUSING MARKET: Econometric Evidence from the U.S," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 3(1), pages 28-38, January.
    2. Piet Eichholtz & Nils Kok & John M. Quigley, 2013. "The Economics of Green Building," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 50-63, March.
    3. Eichholtz, Piet & Kok, Nils & Quigley, John M., 2010. "Why Do Companies Rent Green? Real Property and Corporate Social Responsibility," Berkeley Program on Housing and Urban Policy, Working Paper Series qt7br1062q, Berkeley Program on Housing and Urban Policy.
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    More about this item

    Keywords

    Social and Behavioral Sciences;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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