Impact of green building certification on the rent of commercial properties: A review

Abstract

The world is currently facing two major problems, namely, increasing energy costs and global warming. As a result, it is crucial to take proactive measures to effectively address and mitigate the detrimental impacts arising from elevated energy costs, the pressing issue of global warming, and various types of environmental degradation. As a reaction, international organizations are advocating for the development of eco-friendly, sustainable, or green buildings as a strategy to reduce the harmful effects of the construction sector on the environment. While green development may entail higher costs for developers, it is imperative to evaluate the return on investment from their perspective. As such, this study initially delves into the global landscape of green building certifications and their associated institutions by thoroughly examining relevant literature published between 2003 and 2021. Following that, the study scrutinizes the advancement of research on green building practices across diverse office building sectors and over the course of time. Following that, the study explores green incentives in property markets worldwide, with a particular emphasis on the United States and Europe, as well as other regions. Ultimately, the paper assesses the efficacy of green incentives in driving sustainable building practices in diverse real estate markets. The findings from the review suggest that green certification is associated with higher commercial building rents as opposed to buildings without certifications, with 77% of the research demonstrating a significant positive correlation between green certification and rental rates. Nevertheless, the study recommends that relative rent should be regarded as an endogenous variable in future research, as investment profitability is jointly influenced by both occupancy rate and rental value, underscoring the need for careful consideration in analytical analyses.