A green winner's curse? Investor behavior in the market for eco-certified office buildings

Fuerst, Franz; Gabrieli, Tommaso; McAllister, Patrick

doi:10.1016/j.econmod.2016.11.007

Cited by 20 publications

(22 citation statements)

References 44 publications

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“…Globally, there has been much research seeking to link real estate values with sustainability ratings, but the number of UK studies has been limited. Fuerst et al ( 2015; concluded that there was emerging evidence of price differentiation based on EPC; but whether this is by a 'green' premium partially caused by a shortage of high grade stock (Fuerst et al, 2017) or to an emergence of a 'brown discount' for less good stock (RICS, 2019) is questionable. From the interviews the dominant view of valuers was that "generally 'green' issues do not really arise".…”

Section: Valuation Practicementioning

confidence: 99%

The initial impacts of Minimum Energy Efficiency Standards (MEES) in England

Sayce

Hossain

2020

JPIF

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PurposeThe paper investigates the initial impacts on asset management and valuation practice of the Minimum Energy Efficiency Standard (MEES) introduced in England and Wales from April 2018 for new lettings.Design/methodology/approachThe paper reports findings from a small-scale pilot study of valuers, asset managers, lawyers and building consultants. Interviews were conducted over the summer of 2019 and explored the impact on practice and market values and perceived links to the carbon reduction agenda. Data were analysed thematically manually and using NVivo software.FindingsParticipants welcomed MEES but many had doubts about the use of energy performance certificates (EPCs) as the appropriate baseline measure. Compliance was perceived as too easy; further, enforcement is not occurring. Vanguard investors have aligned portfolios for carbon reduction; others have not. Lease practices are changing with landlords seeking greater control over tenant behaviours. Valuers reported that whilst MEES consideration is embedded in due diligence processes, there is limited value impact.Research limitations/implicationsThe study is limited by its small-scale and that the MEES regulations are not yet fully implemented. However, the research provides early findings and lays out recommendations for future research by identifying areas in which the regulations are/are not proving effective to date.Practical implicationsThe findings will inform investors, consultants and policy makers.Social implicationsAchieving energy efficiency in buildings is critical to driving down carbon emission; it also has economic and social benefits through cost savings and reducing fuel poverty.Originality/valueBelieved to be the first post-implementation qualitative study of MEES.

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Section: Valuation Practicementioning

confidence: 99%

The initial impacts of Minimum Energy Efficiency Standards (MEES) in England

Sayce

Hossain

2020

JPIF

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“…Such forms of green certification have indeed been found globally to correlate with a (small) rental price premium (Fuerst & McAllister, 2011a;Wiley, Benefield, & Johnson, 2010) used to support this model (Axon et al, 2012;Fuerst, van de Wetering, & Wyatt, 2013). This willingness to pay is potentially self-fulfilling, with the most recent meta-analysis of US data (Fuerst, Gabrieli, & McAllister, 2017) finding that 'eco-investors' pay the most for environmentally certified properties. It might also be self-correcting, as its mainstreaming reduces the differentiation value (Chegut, Eichholtz, & Kok, 2013).…”

Section: Introductionmentioning

confidence: 93%

“…Investment decisions and rental deals both constitute and reflect 'the market' created through the qualculative processes described above. Tracing the 'impact' of various green certifications, assessments and regulations as 'price signals' in a classical market is an established area of literature (Chegut et al, 2013;Fuerst & McAllister, 2011;Fuerst & van de Wetering, 2015;Fuerst et al, 2013Fuerst et al, , 2017, which fails to capture fully the recursive effects of their use, along with less formal 'standards', in the creation of a market itself through calculations and deals (MacKenzie et al, 2007). Seeing decisions to invest in energy-efficient buildings as being solely incentivized by their market value premium (De Jong & Parkinson, 2013) ignores: the powerful social processes shaping energy-related decisions which tend to lead development actors to make seemingly 'irrational' choices, building and buying energy-intensive offices beyond the 'needs' of actual occupiers.…”

Section: Discussionmentioning

confidence: 99%

Energy-related standards and UK speculative office development

Cass

2017

Building Research & Information

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Non-domestic buildings have great potential for energy-related emission reductions in response to climate change. However, high-specification office buildings in the UK demonstrate that regulation, assessment and certification ('standards') have not incentivized the development of lower-energy office buildings as expected. Making use of the concepts of 'qualculation' and 'calculative agency', qualitative case studies of 10 speculatively developed office buildings in London, UK, provide new insight into why this is the case. Interview data (n = 57) are used to illustrate how 'market standards' substitute for user needs, and ratchet up the provision of building services to maximize marketability competitively. The examples of energy modelling and the market's (mis)use of British Council for Offices guidelines are used to explain how such standards perversely bolster energy-demanding levels of specification and building services, and militate against lowerenergy design, in the sector researched. The potentials for alternative, performance-based standards and new industry norms of quality are discussed. It is concluded that at least the London speculative office market by its very constitution and operation, including the reliance on standards, continues to create increasingly energy-demanding buildings.

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“…Wadu Mesthrige and Chan [15] looked at prime commercial office buildings in Hong Kong used a hedonic-model of rent and building attributes. A US study conducted in 2018 by Fuerst et al [33] also used a hedonic model. They looked at the price investors paid in sealed bid auctions for foreclosed commercial real estate.…”

Section: Financial Factorsmentioning

confidence: 99%

Decisions by Key Office Building Stakeholders to Build or Retrofit Green in Toronto’s Urban Core

Ensign

Roy²,

Brzustowski³

2021

Sustainability

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The environmental impact of greenhouse gas emissions from buildings—especially in global cities such as Toronto—is well documented. Green mitigation of new and existing buildings has also been researched. Few studies, however, have focused on the decision to build or retrofit green. Are key stakeholders in Toronto’s office building sector aligning their decisions to achieve sustainable environmental goals? Do they support LEED certification regardless of the impact on market valuation? Are tenants willing to pay higher rents in LEED office buildings? The study first obtained data on 16 LEED and 52 conventional buildings to determine if LEED certification has a significant impact on net asking rent. Pearson correlation and linear regression analysis did not find LEED certification to be statistically significant in explaining the variance in net asking rent (market value). The second stage included interviews with senior executives engaged in Toronto’s office building sector. The expert informtabants were asked to assess if financial drivers are the deciding factor in decisions to pursue LEED certification. They concurred that LEED certification is not the primary driver. It is a combination of numerous factors that overall have an impact on a firm’s financial bottom line.

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A green winner's curse? Investor behavior in the market for eco-certified office buildings

Cited by 20 publications

References 44 publications

The initial impacts of Minimum Energy Efficiency Standards (MEES) in England

The initial impacts of Minimum Energy Efficiency Standards (MEES) in England

Energy-related standards and UK speculative office development

Decisions by Key Office Building Stakeholders to Build or Retrofit Green in Toronto’s Urban Core

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