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The effects of eco-certification on office properties: a cap rates-based analysis

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  • Karen McGrath

Abstract

Based upon a dataset of LEED and Energy Star labeled commercial office properties and their non-certified counterparts, this paper investigates the effects of eco-certification on the capitalization rates of commercial office properties. Hedonic regression analysis is used to determine whether premiums in rent and sales price associated with eco-certified properties translate into lower capitalization rates versus their non-certified counterparts. The results suggest that overall, eco-certified properties have capitalization rates that are 650 basis points lower than their non-certified counterparts. Additionally, those properties with only a LEED or Energy Star label also exhibit lower average capitalization rates. Surprisingly, however, those properties that possess both the LEED and Energy Star labels are evidenced to have higher capitalization rates than non-certified properties.

Suggested Citation

  • Karen McGrath, 2012. "The effects of eco-certification on office properties: a cap rates-based analysis," ERES eres2012_290, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2012_290
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    References listed on IDEAS

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    1. Piet Eichholtz & Nils Kok & John M. Quigley, 2013. "The Economics of Green Building," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 50-63, March.
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    1. Niina Leskinen & Jussi Vimpari & Seppo Junnila, 2020. "A Review of the Impact of Green Building Certification on the Cash Flows and Values of Commercial Properties," Sustainability, MDPI, vol. 12(7), pages 1-22, March.
    2. Prashant Das & Patrick Smith & Paul Gallimore, 2018. "Pricing Extreme Attributes in Commercial Real Estate: the Case of Hotel Transactions," The Journal of Real Estate Finance and Economics, Springer, vol. 57(2), pages 264-296, August.
    3. Ankamah-Yeboah, Isaac & Rehdanz, Katrin, 2014. "Explaining the variation in the value of building energy efficiency certificates: A quantitative meta-analysis," Kiel Working Papers 1949, Kiel Institute for the World Economy (IfW Kiel).
    4. Mathew, Paul & Issler, Paulo & Wallace, Nancy, 2021. "Should commercial mortgage lenders care about energy efficiency? Lessons from a pilot study," Energy Policy, Elsevier, vol. 150(C).
    5. Constantin Kempf & Juerg Syz, 2022. "Why pay for sustainable housing? Decomposing the green premium of the residential property market in the Canton of Zurich, Switzerland," SN Business & Economics, Springer, vol. 2(11), pages 1-39, November.
    6. McGrath, Karen, 2014. "Does Increased Investment in Responsible Properties Lead to Better Corporate Performance?," MPRA Paper 57767, University Library of Munich, Germany, revised 05 Aug 2014.
    7. Deng, Yongheng & Wu, Jing, 2014. "Economic returns to residential green building investment: The developers' perspective," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 35-44.
    8. Manganelli Benedetto & Anelli Debora & Tajani Francesco & Morano Pierluigi, 2024. "Capitalization Rate and Real Estate Risk Factors: An Analysis of the Relationships for the Residential Market in the City of Rome (Italy)," Real Estate Management and Valuation, Sciendo, vol. 32(3), pages 101-115.

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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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