The Impact of Energy Performance Certificates on the Rental and Capital Values of Commercial Property Assets
University of Cambridge - Department of Land Economy; City University of New York - Center for Urban Research
Patrick M. McAllister
University of Reading - Department of Real Estate and Planning
This paper focuses on the effect of energy performance ratings on appraised capital values, rental values and equivalent yields of UK commercial property assets. The study is based upon 708 commercial property assets held in the IPD UK Universe. Incorporating a range of potential confounding factors such as unexpired lease term, vacancy rate and tenant credit risk, hedonic regression procedures are used to estimate the effect of EPC rating on rental and capital values. The study finds no evidence of a significant relationship between environmental and/or energy performance and rental and capital value. We also test a small group of 24 BREEAM-rated assets and find a statistically significant effect on equivalent yield only. Similarly, there was no evidence that the EPC rating had any effect on Market Rent or Market Value with only minor effects of EPC ratings on equivalent yields. The preliminary conclusion is that energy labelling is not yet having the effects on Market Values and Market Rents that would be expected if good EPC ratings were either associated with substantial cost savings that are fully reflected in capital values and/or readily available and taken into account by prospective tenants and buyers.
Number of Pages in PDF File: 27
Keywords: Energy Performance Certificates, commercial property values, real estate appraisal
JEL Classification: Q40, R33working papers series
Date posted: May 20, 2011 ; Last revised: June 18, 2011
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