Supply, Demand and the Value of Green Buildings

Abstract

Attention to 'sustainability' and energy efficiency rating schemes in the commercial property sector has increased rapidly during the past decade. In the UK, commercial properties have been certified under the BREEAM rating scheme since 1999, offering fertile ground to investigate the economic dynamics of 'green' certification in the commercial property market. This paper documents that, over the 2000-09 period, the expanding supply of green buildings within a given London neighbourhood had a positive impact on average rents and prices, but reduced rents and prices for environmentally certified real estate. The results suggest that there is a gentrification effect from green buildings. However, each additional ''green'' building decreases the marginal effect of certification in the rental and transaction markets by 2 per cent and 5 per cent respectively. In addition, controlling for lease contract features, like contract length and the rent-free period, modifies the impact of environmental certification on rental prices.

Government green procurement spillovers: Evidence from municipal building policies in California

“…Several studies have found that LEED-certified buildings charge a three-to-fivepercent rent premium and have higher sale prices and occupancy rates Quigley 2010, 2013; McAllister 2011a, 2011b;Chegut, Eichholtz, and Kok 2013). 10 The eight LEED categories are: location and planning, sustainable sites, water efficiency, energy and atmosphere, materials and resources, indoor environmental quality, innovation and design, and regional priority.…”

Energy-related standards and UK speculative office development

“…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.…”

“…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). These two qualities display that the market is 'performative', i.e.…”

“…It has also been suggested that using such voluntary 'green labels' as LEED/BREEAM is strongly correlated with already high-value buildings, meaning that the 'added value' or price signals conferred by such assessments and badging exercises are confounded and do not incentivize lowenergy buildings (Chegut et al, 2013;Fuerst & McAllister, 2011b). Although common in business and policy, this economic framing of standards and labels as effective and unambiguous price signals represents a narrow understanding of how standards function in society and in markets (Timmermans & Epstein, 2010), and how they are situated in a landscape of cultural, market, institutional, technical and organizational influences that bear on this specific regime of speculative office building design and servicing.…”

Public Procurement and the Private Supply of Green Buildings

“…Several studies have found that LEED-certified buildings charge a 3-5 percent rent premium and have higher sale prices and occupancy rates (Chegut, Eichholtz, and Kok 2012;Eichholtz, Kok, and Quigley 2010, forthcoming;McAllister 2011a, 2011b).…”