Quickley, J., P. Eichholtz and N. Kok (2009), Doing Well by Doing Good? Green Office Buildings, Working Paper at European Centre for Corporate Engagement

The study provides evidence on the economic value of the certification of “green buildings” -- value derived from impersonal market transactions rather than engineering estimates. The study matches information on the addresses of Energy Star and LEED-rated office buildings to the characteristics of these buildings, their rental rates and selling prices. For some 10,000 subject and control buildings, the authors relate contract rents, effective rents and selling prices to a set of objective hedonic characteristics of buildings, holding constant the locational characters of properties. They find that buildings with a “green rating” command rental rates that are roughly three percent higher per square foot than otherwise identical buildings – controlling for the quality and the specific location of office buildings. Premiums in effective rents are even higher – above six percent. Selling prices of green buildings are higher by about 16 percent. At prevailing capitalization rates, conversion of the average non-green rental building to an equivalent green building would add about $5.5 million in market value. Conversion of the average non-green office building sold in 2004-2007 to a green building would add $5.7 million in market value. These results are robust to the statistical models employed.

For 494 of the Energy-Star-certified buildings in this sample, the authors obtained detailed estimates of site and source energy usage from the U.S. Environmental Protection Agency. Within the sample of rated buildings, it appears that variations in the premium for green office buildings are systematically related to their energy-saving characteristics. For example, an increase of ten percent in the site energy utilization efficiency of a green building is associated with a 50 basis points increase in effective rent – over and above the six percent premium for a labeled building.