Green Noise or Green Value? Measuring the Effects of Environmental Certification on Office Property Values
25 Pages Posted: 4 Jun 2008 Last revised: 13 Jun 2014
Date Written: July 15, 2008
The environmental performance of a building is rapidly gaining importance as a metric in real estate investments. This study 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. These are additional occupier benefits, lower holding costs for investors and 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. The results suggest that, compared to buildings in the same submarkets, eco-certified buildings have both a rental and sale price premium.
Keywords: Green buildings, LEED, Energy Star certification, commercial real estate, appraisal, partial equilibrium, price premium, innovation diffusion
JEL Classification: R33, Q2, Q4, M2, C31, C5
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