Green Office Buildings Demand 2% Higher Rents, 16% Higher Property Values.
In a working paper by noted economist and professor of public policy at the University of California, Berkley, John M. Quigley shows that historically, rents for green offices have been shown to demand a nearly 2% rental premium over comparable buildings. These premiums, Quigley argues, are related to the building’s energy-saving characteristics. His results indicate the importance of obtaining a green label and its subsequent effects on market rent and overall values of commercial units. Quigley’s results suggest that if given two otherwise identical commercial buildings, the building with an Energy-Star certification will rent for about three percent more per square foot, and when cap rates are taken into account, the difference in effective rent is nearly double. In addition to higher rents, his findings suggest that the selling price for the Energy-star certified building may be as much as 16 percent over the non Energy-star rated property. From a non label standpoint, Quigley’s study shows that a 10 percent decrease in energy consumption results in a value increase of roughly 1 percent, and that’s above the premium demanded by the green labeling alone. His research shows that the private market does in fact incorporate, whether at the owner or tenant level, energy efficiency, certification, and green practices, into rents and asset values.
Source: Doing Well By Doing Good? Green Office Buildings.By Piet Eichholtz, Nils Kok, and John M. Quigley, August 2009.