A Green Winner's Curse? Investor Behavior in the Market for Eco-Certified Office Buildings

32 Pages Posted: 22 Jul 2012 Last revised: 30 Oct 2012

See all articles by Franz Fuerst

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Tommaso Gabrieli

University of Reading - Henley Business School

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning

Date Written: July 20, 2012

Abstract

Previous studies of rental and price premiums in the market for eco-certified real estate have largely ignored buyer characteristics. This paper investigates whether there are significant concentrations of eco-investors in commercial real estate markets and uses hedonic regression analysis to examine whether eco-investors tend to pay additional premiums for these assets. Auction theory is used to model the expected price effects where eco-investors differ systematically in their valuation of assets. Drawing upon a comprehensive database of commercial real estate transactions of Class A offices that took place during between January 2007 and March 2012, The fact that a number of investors have relatively high market shares suggests that there are eco-investors. The results are broadly consistent with previous hedonic studies that find significant positive price premiums for eco-certified offices. We also find that for each 1% increase in a company's "green" market share, the company pays an additional premium of 1.4% for eco-certified assets in excess of the predicted price of our hedonic model. By comparison, a 1% increase in the "non-green" market only increases the average transaction price by only 0.3% for non-green investors and is insignificant for green investors.

Keywords: real estate auctions, Nash equilibrium, green buildings

JEL Classification: C70, D44, R33

Suggested Citation

Fuerst, Franz and Gabrieli, Tommaso and McAllister, Patrick M., A Green Winner's Curse? Investor Behavior in the Market for Eco-Certified Office Buildings (July 20, 2012). Available at SSRN: https://ssrn.com/abstract=2114528 or http://dx.doi.org/10.2139/ssrn.2114528

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

Tommaso Gabrieli

University of Reading - Henley Business School ( email )

University of Reading, Real Estate and Planning
Whiteknights Campus
Reading, Berkshire RG6 6AH
United Kingdom

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

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