The effects of eco-certification on office properties: a cap rates-based analysis

Karen McGrath

    Research output: Contribution to journalArticle

    14 Citations (Scopus)


    Though the effects of eco-certification on individual property cash flows and valuations have been addressed in previous literature, the question has remained as to the worth investors place on eco-certification, and whether there is perceived value in the capital outlays often needed in order to achieve eco-certification. This paper is the first to provide credible empirical evidence through the analysis of excess capitalisation rates that investors place on increased value on the property-specific benefits of eco-certification. Based upon a data-set of Leadership in Energy and Environmental Design (LEED) and Energy Star-labelled commercial office properties and their non-certified counterparts, this paper investigates the effects of eco-certification on the excess capitalisation rates of commercial office properties. Hedonic regression analysis is used to determine whether premiums in rent and sales price associated with eco-certified properties translate into lower excess capitalisation rates vs. their non-certified counterparts. The results suggest that overall eco-certified properties have excess capitalisation rates that are 0.364 lower than their non-certified counterparts. Additionally, those properties with only the Energy Star label also exhibit lower average excess capitalisation rates, with properties achieving the Energy Star rating post-sale having lower excess capitalisation rates than those purchased with the Energy Star rating in place. However, due to the small sample size, the results surrounding properties that are LEED-only certified or that possess both the LEED and Energy Star labels are inconclusive.
    Original languageEnglish
    Pages (from-to)345-365
    JournalJournal of Property Research
    Issue number4
    Publication statusPublished - 2013

    Bibliographical note

    The full text of this item is not available from the repository.
    This is an electronic version of an article published in the Journal of Property Research, 30 (4), pp. 345-365. The Journal of Property Research is available online at:


    • capitalisation rates
    • energy efficiency
    • green labels
    • property investment
    • sustainability


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