Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings

Fuerst, Franz and McAllister, Patrick (2008): Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings.

Abstract

Evaluating the environmental performance of a building is rapidly gaining importance as a metric in real estate investments. Since interpretation of the technical measurements is difficult and requires high expertise, investors tend to rely on markers as provided by environmental certification standards instead of evaluating environmental performance directly. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that certified buildings have a rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find a price premium of 10% and 31% respectively.

• Item Type: MPRA Paper
• Language: English
• Keywords: Green buildings, LEED, Energy Star certification, commercial real estate, appraisal, partial equilibrium, price premium, innovation diffusion
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C31 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions ; Social Interaction Models; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R33 - Nonagricultural and Nonresidential Real Estate Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation

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