No Rent Premium for LEEDBuildings

Tuesday, March 10, 2009 at 4:04PM

In a research paper entitled "Doing Well by Doing Good: Green Office Buildings" released from the Institute of Business and Economic Research at UC-Berkeley, prominent real estate economists P. Eichholtz, N. Kok, and J. Quigley provide useful evidence to answer the question of whether or not there is economic value for “green” in commercial office buildings. Using a sample of 8,000+ office buildings, they find that green office space rents for a premium of 2% higher than non-green office space. When occupancy rates are taken into consideration, they find that green office rents are 6% higher than non-green rents.

These results serve as objective evidence that green building features have definite economic value and not just social or psychological value. Though the results can only be interpreted at the aggregate level for this sample of buildings, these findings make a strong “business case” for green building investment.

Interestingly, the study conducted by these researchers indicates that buildings with Energy Star certification exhibit rent premiums, but that buildings with LEED certification do not. The researchers offer no comments in their study about this difference. Given the rigor of both the Energy Star and LEED rating systems, it seems incongruous that the two systems would lead to different results. This disparity suggests that additional research is needed to further examine whether or not real estate values are truly enhanced by green building features.