Who captures the “green value” in the US office market?

Abstract

This research examines the effects of energy efficiency certification levels on office rental rates and lease structures to determine whether any cost benefits of green buildings are captured by landlords or remain, at least partially, with the tenant. To this aim, our analysis applies the largest and most detailed data set to date, a panel of 14,283 US office properties. Using fixed-effects and dynamic Arellano–Bond frameworks allows us to estimate the differential rental price impact of Energy Star certification both across and within buildings. The general results indicate that buildings with higher levels of energy efficiency achieve higher gross rents allowing landlords to benefit from the premium. However, improved energy efficiency over time is also linked to a slower growth of rental prices as some of the benefit is passed onto tenants. Interestingly, the cost-saving benefit of energy efficiency appears to have the strongest impact on rental rates.

Keywords:

• green buildings
• eco-certification
• commercial real estate
• pricing of energy efficiency

Disclosure statement

No potential conflict of interest was reported by the author.