Is Intrinsic Energy Efficiency Reflected in the Pricing of UK Office Leases?

26 Pages Posted: 24 Oct 2012 Last revised: 26 Oct 2012

See all articles by Franz Fuerst

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Jorn van de Wetering

University of Reading - Department of Real Estate and Planning

Peter Wyatt

University of Reading - Department of Real Estate and Planning

Date Written: October 23, 2012

Abstract

The aim of this research is to investigate whether the intrinsic energy efficiency rating of an office building has a significant impact on its rental value. Using a sample of 817 office buildings with Energy Performance Certificate (EPCs), we investigate whether a pricing differential can be identified depending on the energy rating. While previous analyses of this topic have typically relied on appraisal-based and/or asking rent data, our dataset contains actual contract rents as well as information on lease terms. The results indicate a significant rental premium for energy efficient buildings. However, we find that this premium appears to be mainly driven by the youngest cohort of state-of-the-art energy efficient buildings. We also find that tenants of more energy efficient buildings tend to pay a lower service charge but this link appears to be rather weak and limited to newer buildings. Hence, we argue that the information contained in the EPC is still not fully taken into account in the UK commercial property market with the possible exception of both the highest and the lowest EPC ratings.

Keywords: Energy Performance Certificate, Hedonic modeling, Commercial office space, Energy efficiency, Eco-labeling

JEL Classification: C01, O52, Q4, Q58

Suggested Citation

Fuerst, Franz and van de Wetering, Jorn and Wyatt, Peter, Is Intrinsic Energy Efficiency Reflected in the Pricing of UK Office Leases? (October 23, 2012). Available at SSRN: https://ssrn.com/abstract=2166048 or http://dx.doi.org/10.2139/ssrn.2166048

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

Jorn Van de Wetering

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

Peter Wyatt

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

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