In a newly released working paper by John Quigley, Piet Eichholtz, and Nils Kok titled Doing Well by Doing Good? Green Office Buildings, the authors discuss the economic value of green building certification in the commercial sector. They matched publicly available information on 694 certified green buildings (Energy Star and LEED) with 7489 other office buildings located within a quarter mile of the certified green buildings. The research revealed systematic evidence that rents for green buildings are about 2% higher than rents for comparable buildings located nearby. Effective rents, or those adjusted for the occupancy levels in the building, are about 6% higher in green buildings than in comparable office buildings nearby. The authors deduce therefrom that at a generalized cap rate of 6%, conversion of a non-green building to an equivalent green building would add more than $5 million in market value. Wow!
The new report also contains some interesting commentary on average characteristics of green buildings compared to the nearby non-green buildings.
- Green buildings are substantially larger,
- Green buildings have higher occupancy rates,
- Green buildings have lower variability in occupancy,
- Green buildings are much newer, on average (about 24 years compared to 44 years old),
- Green buildings are higher quality – 79% are class A compared to 35% in comparison buildings,
- Green buildings tend to have more on-site amenities such as retail shops, mail rooms, and exercise facilities.
Dubbing itself the “only systematic evidence on the economic value of certification of green buildings in the U.S. economy,” this new working paper is certainly helpful support for the position that a green label can command serious rent premiums in the commercial real estate market.
If you are looking for similar information, make sure to check out the recent CoStar report talked about here in the article “Green Buildings Financial Crush and Outperform Non-Green Buildings!”