On the Value of Environmental Certification in the Commercial Real Estate Market

38 Pages Posted: 4 Jun 2020

See all articles by Rogier Holtermans

Rogier Holtermans

University of Southern California - Lusk Center for Real Estate

Nils Kok

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Date Written: Autumn 2019

Abstract

A significant part of the global carbon externality stems from the real estate sector. Environmental certification is often hailed as an effective means to resolve the information asymmetry that may prevent markets from effectively pricing the energy performance of buildings. This study analyzes the adoption and financial outcomes of environmentally certified commercial real estate over time. We document that nearly 40% of space in the 30 largest U.S. commercial real estate markets holds some kind of environmental certification in 2014, as compared to less than 5% in 2005. Tracking the rental growth of 26,212 office buildings, we measure the performance of environmentally certified real estate over time. We document that certified office buildings, on average, have slightly higher rental, occupancy and pricing levels, but do not outperform non‐certified buildings in rental growth over the 2004–2013 period. Further performance attribution analysis indicates that local climate conditions, local energy prices and the extent of certification lead to significant heterogeneity in market pricing. On aggregate, these findings provide some evidence on the efficiency of the market in the adoption and capitalization of environmental characteristics in the commercial real estate market.

Suggested Citation

Holtermans, Rogier and Kok, Nils, On the Value of Environmental Certification in the Commercial Real Estate Market (Autumn 2019). Real Estate Economics, Vol. 47, Issue 3, pp. 685-722, 2019, Available at SSRN: https://ssrn.com/abstract=3617157 or http://dx.doi.org/10.1111/1540-6229.12223

Rogier Holtermans (Contact Author)

University of Southern California - Lusk Center for Real Estate ( email )

650 Childs Way
Los Angeles, CA 90089
United States
+15103098392 (Phone)

Nils Kok

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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