Effect of "Green" (LEED and ENERGY STAR) Designation on Prices/sf and Transaction Frequency: The Chicago Office Market

Sofia Dermisi and John McDonald

Journal of Real Estate Portfolio Management, 2011, vol. 17, issue 1, 39-52

Abstract: Executive Summary. This is an empirical study of the economics of green (LEED and ENERGY STAR) designation among all downtown Chicago office transactions spanning 12 years. Green properties achieve on-average higher occupancies and prices / sf compared to non-green properties. The hedonic, repeat-sale, and transaction frequency models applied provide evidence of the price "bubble" in 2006–07 and the importance of green designation. LEED properties sold for a 23% price / sf premium, while an ENERGY STAR designation had no effect. Also, LEED Class A properties transacted 68% less than non-LEED, while ENERGY STAR Class B properties transacted 23% more than non-ENERGY STAR. These findings are consistent with the hypothesis that significant capital expenditures for achieving a greener property require longer cost recovery holding periods.

Date: 2011
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DOI: 10.1080/10835547.2011.12089893

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