Green Design and the Market for Commercial Office Space
Rent the article at a discountRent now
* Final gross prices may vary according to local VAT.Get Access
This paper considers the relationship between energy-efficient design and the leasing/sales markets for commercial real estate. An economic model is provided that considers lease rates and occupancy in simultaneous equilibrium. The behavior of both is predicted to be influenced by efficient design attributes. Selling price is determined by both rents and occupancy; therefore the impact of efficient design on commercial sales activity should be distributed through the leasing market. The model is tested empirically using a national sample of sales and leasing data for class A office buildings. The evidence indicates that “green” buildings achieve superior rents and sustain significantly higher occupancy. The improved performance in the rental market is reflected in a significant premium for the selling price of Energy Star-labeled and LEED-certified properties.
- Bollinger, C. R., Ihlanfeldt, K. R., & Bowes, D. R. (1998). Spatial variation in office rents within the Atlanta region. Urban Studies, 35, 1097–1118. doi:10.1080/0042098984501. CrossRef
- Brennan, T. P., Cannaday, R. E., & Colwell, P. F. (1984). Office rent in the Chicago CBD. Real Estate Economics, 12, 243–260. doi:10.1111/1540-6229.00321. CrossRef
- Benjamin, J. D., Jud, G. D., & Winkler, D. T. (1998). A simultaneous model and empirical test of the demand and supply of retail space. Journal of Real Estate Research, 16, 1–13.
- Cassidy, R. (2003). White paper on sustainability: A report on the Green Building Movement. Supplement to Building Design and Construction.
- Chao, M., & Parker, G. (2000). Recognition of energy costs and energy performance in commercial property valuation. New York, NY: New York State Energy Research and Development Authority.
- Chao, M., Parker, G., Mahone, D., & Kammerud, R. (1999). Recognition of energy costs and energy performance in commercial property valuation. San Francisco, CA: Pacific Gas and Electric Company.
- Clapp, J. M. (1980). The intrametropolitan location of office activities. Journal of Regional Science, 20, 387–399. doi:10.1111/j.1467-9787.1980.tb00655.x. CrossRef
- Frew, J., & Jud, G. D. (1988). The vacancy rate and rent levels in the commercial office market. Journal of Real Estate Research, 3, 1–8.
- Glascock, J. L., Jahanian, S., & Sirmans, C. F. (1990). An analysis of office market rents: Some empirical evidence. Real Estate Economics, 18, 105–119. doi:10.1111/1540-6229.00512. CrossRef
- Hekman, J. S. (1985). Rental price adjustment and investment in the office market. Real Estate Economics, 13, 32–47. doi:10.1111/1540-6229.00339. CrossRef
- Hendershott, P. H. (1996). Rental adjustment and valuation in overbuilt markets: Evidence from the Sydney office market. Journal of Urban Economics, 39, 51–67. doi:10.1006/juec.1996.0003. CrossRef
- Hendershott, P. H., MacGregor, B. D., & Tse, R. Y. C. (2002). Estimation of the rental adjustment process. Real Estate Economics, 30, 165–183. doi:10.1111/1540-6229.00036. CrossRef
- Kats, G. (2003). The costs and financial benefits of green buildings. A Report to California’s Sustainable Building Task Force.
- McHugh, J., Heschong, L., Stone, N., Vogen, A., Mills, D., & Panetti, C. (2002). Non-energy benefits as a market transformation driver. In Proceedings of the ACEEE 2002 Summer Study on Energy Efficiency in Buildings. Washington, DC: American Council for an Energy Efficient Economy.
- Pollakowski, H. O., Wachter, S. M., & Lynford, L. (1992). Did office market size matter in the 1980s? A time-series cross-sectional analysis of metropolitan area office markets. Real Estate Economics, 20, 302–324. doi:10.1111/1540-6229.00586. CrossRef
- Rosen, K. T. (1984). Toward a model of the office building sector. Real Estate Economics, 12, 261–269. doi:10.1111/1540-6229.00322. CrossRef
- Shilling, J. D., Sirmans, C. F., & Corgel, J. B. (1987). Price adjustment process for rental office space. Journal of Urban Economics, 22, 90–100. doi:10.1016/0094-1190(87)90051-9. CrossRef
- Slade, B. A. (2000). Office rent determinants during market decline and recovery. Journal of Real Estate Research, 20, 357–380.
- Watchman, L. H. (2007). LEED certification: Overview and trends for the future. Real Estate Review, 36, 19–29.
- Wheaton, W. C. (1990). Vacancy, search, and prices in a housing market matching model. Journal of Political Economy, 98, 1270–1292. doi:10.1086/261734. CrossRef
- Wheaton, W. C. (1999). Real estate “cycles”: Some fundamentals. Real Estate Economics, 27, 209–230. doi:10.1111/1540-6229.00772. CrossRef
- Wheaton, W. C., & Torto, R. G. (1994). Office rent indices and their behavior over time. Journal of Urban Economics, 35, 121–139. doi:10.1006/juec.1994.1008. CrossRef
- Williams, J. T. (1995). Pricing real assets with costly search. Review of Financial Studies, 8, 55–90. doi:10.1093/rfs/8.1.55. CrossRef
- Green Design and the Market for Commercial Office Space
The Journal of Real Estate Finance and Economics
Volume 41, Issue 2 , pp 228-243
- Cover Date
- Print ISSN
- Online ISSN
- Springer US
- Additional Links
- Green design
- Industry Sectors