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.
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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: http://www.tandfonline.com/doi/abs/10.1080/09599916.2012.762034
- capitalisation rates
- energy efficiency
- green labels
- property investment