Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings

Franz Fuerst and Patrick McAllister ()
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Patrick McAllister: Department of Real Estate & Planning, University of Reading

Real Estate & Planning Working Papers from Henley Business School, University of Reading

Abstract: This paper investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. First, certified buildings offer a bundle of benefits to occupiers relating to business productivity, image and occupancy costs. Second, due to these occupier benefits, certified buildings can result in higher rents and lower holding costs for investors. Third, certified buildings may require a lower risk premium. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that, compared to buildings in the same metropolitan region, certified buildings have a rental premium and that the more highly rated that buildings are in terms of their environmental impact, the greater the rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find price premia of 10% and 31% respectively compared to non-certified buildings in the same metropolitan area.

JEL-codes: C31 C5 M2 Q2 Q4 R33 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:repxwp:rep-wp2008-09

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