The effects of eco-certification on office properties: a cap rates-based analysis

Karen M. McGrath
Authors registered in the RePEc Author Service: Karen Mitchell McGrath

Journal of Property Research, 2013, vol. 30, issue 4, 345-365

Abstract: Though the effects of eco-certification on individual property cash flows and valuations have been addressed in previous literature, the question has remained as to the worth investors place on eco-certification, and whether there is perceived value in the capital outlays often needed in order to achieve eco-certification. This paper is the first to provide credible empirical evidence through the analysis of excess capitalisation rates that investors place on increased value on the property-specific benefits of eco-certification. Based upon a data-set of Leadership in Energy and Environmental Design (LEED) and Energy Star-labelled commercial office properties and their non-certified counterparts, this paper investigates the effects of eco-certification on the excess capitalisation rates of commercial office properties. Hedonic regression analysis is used to determine whether premiums in rent and sales price associated with eco-certified properties translate into lower excess capitalisation rates vs. their non-certified counterparts. The results suggest that overall eco-certified properties have excess capitalisation rates that are 0.364 lower than their non-certified counterparts. Additionally, those properties with only the Energy Star label also exhibit lower average excess capitalisation rates, with properties achieving the Energy Star rating post-sale having lower excess capitalisation rates than those purchased with the Energy Star rating in place. However, due to the small sample size, the results surrounding properties that are LEED-only certified or that possess both the LEED and Energy Star labels are inconclusive.

Date: 2013
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Citations: View citations in EconPapers (8)

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Working Paper: The effects of eco-certification on office properties: a cap rates-based analysis (2012)
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DOI: 10.1080/09599916.2012.762034

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