Environmental Certification Schemes and Property Values: Evidence From the Hong Kong Prime Commercial Office Market

Abstract

A barrier to green-building development is the uncertainty and scepticism about the financial implications. This study aimed to investigate whether the green-certification schemes help buyers to recognize the benefits of green office buildings by their willingness to pay a premium for such buildings. The study used a hedonic-model based on a sample of 67 prime office buildings (including non-green comparables) certified by HKBEAM, BEAM-Plus and LEED in Hong Kong. The empirical findings suggest that green certification schemes add extra value to an office property. The rental value of office properties certified by HKBEAM, BEAM Plus and LEED is about 10.9% higher than for non-certified office buildings. More specifically, tenants/users are willing to pay a premium of 10.9% for green-certified office properties. The findings have practical implications in encouraging green building development in Hong Kong and elsewhere. The findings indicate that the higher rental income from green office buildings can cover the additional cost of obtaining green certification within a period of 22-months (22.32 months) in Hong Kong. The results provide references for various stakeholders (developers/investors/users) in establishing the business case for green-office buildings, because of the ability of the market to capitalize the environmental benefits of green office properties.

Tenants’ Green Office Leasing Trends: an Exploratory Study of Budapest, Hungary

“…This additional investment can lead to higher construction and operating costs compared to conventional buildings. However, green buildings can also provide significant longterm cost savings through reduced energy and water usage, as well as lower maintenance costs (Li et al, 2021;Mangialardo et al, 2019;Porumb et al, 2020;Wadu Mesthrige & Chan, 2019). The level of green premium can vary depending on a number of factors, including the building's location, size, and design, as well as the level of certification sought.…”

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

“…Additionally, green properties are absorbed by the market in less than half the time when compared to those without green certification [14]. The 2019 study that looked at the city of Hong Kong (7.5 m) by Wadu Mesthrige and Chan [15] found that developer and investor stakeholders were uncertain and sceptical about the financial rewards of green certification. The quantitative study tested the factual basis for these inhibiters with the actions of the real estate market.…”

“…These studies include research in the US [29]; US and Canada [30]; Singapore [31]; and England [32]. 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.…”

Different grades and different green premiums: a cross sectional analysis of a green certification scheme

“…Among various determinants that have been used in hedonic price models in the Hong Kong HPM literature (e.g., Wadu Mesthrige and Chan, 2019;Wadu Mesthrige et al, 2018), ten important determinants are selected for the current study. Besides, other studies (based on HPM) have used these key variables in their studies.…”