Operating Expenses and the Rent Premium of Energy Star and LEED Certified Buildings in the Central and Eastern U.S.
This paper investigates the relationship between operating expenses and rents of Energy Star and LEED certified buildings in the Central and Eastern United States. Several studies have shown that sustainable buildings command a rent premium compared to comparable conventional buildings. Lower operating expenses are expected to be a major source of the rent premium that sustainable buildings command. This is especially the case for buildings with triple-net leases, where tenants directly benefit from savings in operating costs. For a large dataset of U.S. office buildings this study finds significantly lower operating expenses in LEED certified buildings. However, savings in operating expenses only explain part of the rent premium. Additional factors must be at work. Surprisingly, we find significantly higher operating expenses in Energy Star rated buildings. Hence, intangible benefits appear to be the major source of rental premiums of Energy Star rated buildings.
KeywordsRent premium Eco-certification Energy Star LEED Operating expenses Triple-net lease Sustainable real estate
JEL codesM14 C23 D92
The author would like to thank the CoStar Group for providing access to their database. He is grateful to Joachim Zietz and Nico B. Rottke for their comments and suggestions on an earlier version of this paper. The anonymous referees and the editor of this journal provided valuable comments and guidance that improved the quality of this article.
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