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
Date Written: July 20, 2012
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: Suggested Citation