Impact Of Green Building Certification On The Rent Of Commercial Properties: A Review
Main Article Content
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.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All articles published in JIWE are licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) License. Readers are allowed to
- Share — copy and redistribute the material in any medium or format under the following conditions:
- Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use;
- NonCommercial — You may not use the material for commercial purposes;
- NoDerivatives — If you remix, transform, or build upon the material, you may not distribute the modified material.
References
Sharm El-Sheikh Climate Change Conference, https://unfccc.int/cop27#:~:text=UNFCCC%20Nav&text=At%20the%20Sharm%20el%2DSheikh,Sharm%20el%2DSheikh%2C%20Egypt, 2022.
J. Yudelson, “The green building revolution”, Island Press, 2007.
R. J. Cole, “Shared markets: coexisting building environmental assessment methods”, Building Research & Information, vol. 34, no. 4, pp. 357-371, 2006. https://doi.org/10.1080/09613210600724624
U. Berardi, “Clarifying the new interpretations of the concept of sustainable building”, Sustainable cities and society, vol. 8, pp. 72-78, 2013. https://doi.org/10.1016/j.scs.2013.01.008
D. Doan, A. Ghaffarianhoseini, N. Naismith, T. Zhang, J. Tookey, “A critical comparison of green building rating systems”, Building and Environment, vol. 123, pp. 243-260, 2017. https://doi.org/10.1016/j.buildenv.2017.07.007
M. Boubekri, J. Lee, P. MacNaughton, M. Woo, L. Schuyler, B. Tinianov and U. Satish, “The impact of optimized daylight and views on the sleep duration and cognitive performance of office workers,” International journal of environmental research and public health, vol. 17, no. 9, pp. 3219, 2020. https://doi.org/10.3390/ijerph17093219
S. Bae, C. S. Martin and A. O. Asojo, “Higher education students’ indoor environmental quality satisfaction benchmark”, Building Research & Information, vol. 49, no. 6, pp. 679-694, 2021. https://doi.org/10.1080/09613218.2020.1813012
J. G. Cedeño-Laurent, A. Williams, P. MacNaughton, X. Cao, E. Eitland, J. Spengler and J. Allen, “Building evidence for health: green buildings, current science, and future challenges”, Annual review of public health, vol. 39, pp. 291-308, 2018. https://doi.org/10.1146/annurev-publhealth-031816-044420
J. G. Allen, P. MacNaughton, U. Satish, S. Santanam, J. Vallarino and J. D. Spengler, “Associations of cognitive function scores with carbon dioxide, ventilation, and volatile organic compound exposures in office workers: a controlled exposure study of green and conventional office environments”, Environmental health perspectives, vol. 124, no. 6, pp. 805-812, 2016. https://doi.org/10.1289/ehp.1510037
Y. Li, Y. Rong, U. M. Ahmad, X. Wang, J. Zuo and G. Mao, “A comprehensive review on green buildings research: bibliometric analysis during 1998–2018”, Environmental Science and Pollution Research, vol. 28, no. 95-10718, pp. 1-19, 2021. https://doi.org/10.1007%2Fs11356-021-12739-7
USGBC, “LEED v4.1: Building design and construction”, Washington, DC: U.S. Green Building Council, 2021.
A. E. M. Taha, A. Elabd, “IoT for certified sustainability in smart buildings”, IEEE Network, vol. 35, no. 4, pp. 241-247, 2021.
C. K. Metallidou, K. E. Psannis, E. A. Egyptiadou, “Energy efficiency in smart buildings: IoT approaches”, IEEE Access, vol. 8, pp. 63679-63699, 2020.
C. Debrah, A.P. Chan, A. Darko, “Artificial intelligence in green building”, Automation in Construction, vol. 137, no. 104192, 2022.
O. I. Olanrewaju, W. I. Enegbuma, M. Donn, N. Chileshe, “Building information modelling and green building certification systems: A systematic literature review and gap spotting”, Sustainable Cities and Society, vol. 103865, 2022.
O. I. Olanrewaju, W. I. Enegbuma, M. Donn, “Systematic Literature Review of Building Information Modelling and Green Building Certification Systems”, International Symposium on Automation and Robotics in Construction, vol. 39, pp. 167-174, 2022.
R. Sukmadiansyah, S. Noviaristanti, “Digital Readiness Analysis in Bandung Government for Smart City Implementation,” International Journal of Management, Finance and Accounting, vol. 3, no. 1, pp. 22-37, 2022. https://doi.org/10.33093/ijomfa.3.1.2
S. Y. C. Hong, C. C. Kang, J. D. Tan, & M. Ariannejad, “Smart Parking System Using IoT Sensors,” Journal of Engineering Technology and Applied Physics, vol. 5. no. 1, pp. 63-69, 2023. https://doi.org/10.33093/jetap.2023.5.1.7
UN climate change conference, https://www.aegee.org/un-climate-change-conference-2021-cop26/, 2021.
T. Ahmad and D. Zhang, “A critical review of comparative global historical energy consumption and future demand: The story told so far”, Energy Reports, vol. 6, no.52, pp. 1973-1991, 2020. https://doi.org/10.1016/j.egyr.2020.07.020
X. L. Yuan, X. J. Wang, J. Zuo, “Renewable energy in buildings in China-a review”, Renewable and Sustainable Energy Reviews, vol. 24, pp. 1–8, 2013. https://doi.org/10.1016/j.rser.2013.03.022
D. W. Kim, Y. M. Kim, S. E. Lee, “Development of an energy benchmarking database based on cost-effective energy performance indicators: Case study on public buildings in South Korea”, Energy and Buildings, vol. 191, pp. 104–116, 2019.
W. Tushar, N. Wijerathne, W. T. Li, C. Yuen, H. V. Poor, T. K. Saha, K. L. Wood, “Iot for green building management”, arXiv preprint arXiv:1805.10635, 2018.
M. Maksimovic, “The role of green internet of things (G-IoT) and big data in making cities smarter, safer and more sustainable,” International Journal of Computing and Digital Systems, vol. 6, no. 4, pp. 175-184, 2017.
S. Murugesan, “Harnessing green IT: Principles and practices”, IT professional, vol. 10, no. 1, pp. 24-33, 2008.
G. Kats, “Green building costs and financial benefits”, Boston, MA: Massachusetts technology collaborative, pp. 2-8, 2003.
P. Morris and D. Langdon, “What does green really cost?”, PREA quarterly, vol. 1, no. 3, pp. 55-60, 2007.
T. B. Oyedokun, C. Jones, N. Dunse, “The growth of the green office market in the UK,” Journal of European Real Estate Research, vol. 8, no. 3, pp. 267-284, 2015.
World Green Building Council, “Green Building Incentives: A Global Review”, 2013. https://www.worldgbc.org/sites/default/files/Green%20Building%20Incentives_0.pdf.
International Energy Agency, “IoT in sustainable buildings: An overview”, 2017. https://www.iea.org/reports/iot-in-sustainable-buildings-an-overview, 2017.
O. A. Olubunmi, P. B. Xia, M. Skitmore, “Green building incentives: A review. Renewable and Sustainable Energy Reviews”, vol. 59, pp. 1611-1621, 2016.
N. Leskinen, J. Vimpari, S. Junnila, “A review of the impact of green building certification on the cash flows and values of commercial properties”, Sustainability, vol. 12, no. 7, pp. 2729, 2020.
P. Eichholtz, N. Kok, J. M. Quigley, “Doing well by doing good? Green office buildings”, American Economic Review, vol. 100, no. 5, pp. 2492-2509, 2010.
F. Fuerst and P. McAllister, “Eco-labeling in commercial office markets: Do LEED and Energy Star offices obtain multiple premiums?”, Ecological Economics, vol. 70, no. 6, pp. 1220-1230, 2011.
A. Reichardt, F. Fuerst, N. Rottke and J. Zietz, “Sustainable building certification and the rent premium: a panel data approach,” Journal of Real Estate Research, vol. 34, no. 1, pp. 99-126, 2012.
P. Eichholtz, N. Kok and J. M. Quigley, “The economics of green building”, Review of Economics and Statistics, vol. 95, no. 1, pp. 50-63, 2013.
J. A. Wiley, J. D. Benefield and K. H. Johnson, “Green design and the market for commercial office space,” The Journal of Real Estate Finance and Economics, vol. 41, no. 2, pp. 228-243, 2010.
R. Holtermans and N. Kok, “On the value of environmental certification in the commercial real estate market”, Real Estate Economics, vol. 47, no. 3, pp. 685-722, 2019.
J. Liang, Y. Qiu, M. Hu, “Mind the energy performance gap: Evidence from green commercial buildings”, Resources, Conservation and Recycling, vol. 141, no. 78, pp. 364-377, 2019. https://doi.org/10.1016/j.resconrec.2018.10.021
P. Das, A. Tidwell, A. Ziobrowski, “Dynamics of green rentals over market cycles: evidence from commercial office properties in San Francisco and Washington DC,” Journal of Sustainable Real Estate, vol. 3, no. 1, pp. 1-22, 2011.
P. Das and J. A. Wiley, “Determinants of premia for energy-efficient design in the office market,” Journal of Property Research, vol. 31, no. 1, pp. 64-86, 2014.
S. Robinson, R. Simons, E. Lee, A. Kern, “Demand for green buildings: Office tenants’ stated willingness-to-pay for green features,” Journal of Real Estate Research, 38(3), pp. 423-452, 2016.
I. Turan, A. Chegut, D. Fink, C. Reinhart, “The value of daylight in office spaces”, Building and Environment, vol. 168, 2020.
S. Robinson, R. Simons, E. Lee, “Which green office building features do tenants pay for? A study of observed rental effects,” Journal of Real Estate Research, vol. 39, no. 4, pp. 467-492, 2017.
S. Robinson and P. McAllister, “Heterogeneous price premiums in sustainable real estate? An investigation of the relation between value and price premiums,” Journal of Sustainable Real Estate, vol. 7, no. 1, pp. 1-20, 2015.
D. Harrison and M. Seiler, “The political economy of green office buildings,” Journal of Property Investment & Finance, 2011.
C. Zhu, A. White, P. Mathew, J. Deason, P. Coleman, “Raising the rent premium: Moving green building research beyond certifications and rent”, Summer Study on Energy Efficiency in Buildings, 2018.
A. Chegut, P. Eichholtz, N. Kok and J. M. Quigley, “The value of green buildings: new evidence from the United Kingdom”, ERES 2010 proceedings, 2011.
N. Kok and M. Jennen, “The impact of energy labels and accessibility on office rents”, Energy Policy, vol. 46, pp. 489-497, 2012.
M. Zieba, S. Belniak, M. Gluszak, “Demand for sustainable office space in Poland: the results from a conjoint experiment in Krakow”, Property management, vol. 31, no. 5, pp. 404-419, 2013.
E. Plebankiewicz, M. Juszczyk, R. Kozik, “Trends, costs, and benefits of green certification of office buildings: a Polish perspective”, Sustainability, vol. 11, no. 8, pp. 2359, 2019.
A. Chegut, P. Eichholtz, N. Kok, “Supply, demand and the value of green buildings”, Urban studies, vol. 51, no. 1, pp. 22-43, 2014.
A. Mangialardo, E. Micelli, F. Saccani, “Does sustainability affect real estate market values? Empirical evidence from the office buildings market in Milan (Italy)”, Sustainability, vol. 11, no. 1, pp. 12, 2019.
F. Fuerst and J. Van de Wetering, “How does environmental efficiency impact on the rents of commercial offices in the UK?,” Journal of Property Research, vol. 32, no. 3, pp. 193-216, 2015.
C. Ott and J. Hahn, “Green pay off in commercial real estate in Germany: assessing the role of Super Trophy status,” Journal of Property Investment & Finance, vol. 36, no. 1, 2018.
T. Dixon, G. Ennis-Reynolds, C. Roberts, S. Sims, “Is there a demand for sustainable offices? An analysis of UK business occupier moves (2006-2008),” Journal of Property Research, vol. 26, no. 1, pp. 61-85, 2009.
M. Halim, “Economic issues on green office buildings in Malaysia”, International Real Estate Research Symposium, pp. 1-13, 2012.
E.C.M. Hui, E.W.H. Chan, K. H. Yu, “The effect of LEED certification on Shanghai’s prime office rental value,” Journal of Facilities Management, vol. 13, no. 3, pp. 297-310, 2015.
J. H. Cheah, S. I. Ng, K. G Teoh and C. Lee, “Factors Affecting Office Rent in Kuala Lumpur (KL),” International Journal of Economics & Management, vol. 9, pp. 115-134, 2015.
O. Costa, F. Fuerst, S. J. Robinson, W. Mendes-Da-Silva, “Green label signals in an emerging real estate market. A case study of Sao Paulo, Brazil,” Journal of Cleaner Production, vol. 184, pp. 660-670, 2018.
J. Bruni, “The Economics of Green Building: The Green Rental Premium in Johannesburg”, Doctoral dissertation, University of the Witwatersrand, Faculty of Engineering and the Built Environment, School of Architecture and Planning, 2017.
J. Wadu Mesthrige, H. T. Chan, “Environmental certification schemes and property values: Evidence from the Hong Kong prime commercial office market,” International Journal of Strategic Property Management, vol. 23, no. 2, pp. 81-95, 2019.
W. Li, G. Fang, L. Yang, “The effect of LEED certification on office rental values in China”, Sustainable Energy Technologies and Assessments, vol. 45, 2021.
N. Kok, M. Miller and P. Morris, “The economics of green retrofits,” Journal of Sustainable Real Estate, vol. 4, no. 1, pp. 4-22, 2012.
K. Carlson and K. D. Pressnail, “Value impacts of energy efficiency retrofits on commercial office buildings in Toronto, Canada”, Energy and Buildings, vol. 162, pp. 154-162, 2018.
D. C. Jang, B. Kim, S. H. Kim, “The effect of green building certification on potential tenants’ willingness to rent space in a building,” Journal of Cleaner Production, vol. 194, pp. 645-655, 2018.
P. S. Abraham and H. Gundimeda, “Greening offices: Willingness to pay for green-certified office spaces in Bengaluru, India. Environment”, Development and Sustainability, vol. 22, no. 3, pp. 1839-1857, 2020.
J. Gabe and M. Rehm, “Do tenants pay energy efficiency rent premiums?,” Journal of Property Investment & Finance, vol. 32, no. 4, pp. 333-351, 2014.
S. Roy, P. C. Ensign, T. Brzustowski, “An assessment of LEED certification's impact on net rental rates for commercial office space in Toronto, Ontario”, 2016 Portland International Conference on Management of Engineering and Technology (PICMET), pp. 2420-2429, 2016.
F. Rahman, I. Rowlands, O. Weber, “Do green buildings capture higher market valuations and lower vacancy rates? A Canadian case study of LEED and BOMA-BEST properties”, Smart and Sustainable Built Environment, vol. 6, no. 4, 2017.
I. J. Onuoha, G. U. Aliagha, M. S. A. Rahman, “Modelling the effects of green building incentives and green building skills on supply factors affecting green commercial property investment”, Renewable and Sustainable Energy Reviews, vol. 90, pp. 814-823, 2018.
R. J. Laverne and K. Winson-Geideman, “The influence of trees and landscaping on rental rates at office buildings,” Journal of Arboriculture, vol. 29, no. 5, pp. 281-290, 2003.
N. Miller, J. Spivey, A. Florance, “Does green pay off?,” Journal of Real Estate Portfolio Management, vol. 14, no. 4, pp. 385-400, 2008.
R. Simons, S. Robinson, E. Lee, “Green office buildings: A qualitative exploration of green office building attributes,” Journal of Sustainable Real Estate, vol. 6, no. 1, pp. 211-232, 2014.
F. Fuerst, C. Kontokosta, P. McAllister, “Determinants of green building adoption”, Environment and Planning B: Planning and Design, vol. 41, no. 3, pp. 551-570, 2014.
A. Devine and N. Kok, “Green certification and building performance: Implications for tangibles and intangibles,” Journal of Portfolio Management, vol. 41, no. 6, pp. 151-163, 2015.
C. Govett, M. Murray, J. Cook, “Supreme green: The effect of LEED certification levels on net and gross lease rental rates in commercial offices”, 2020.
N. Sadikin, I. Turan, A. Chegut, “The financial impact of healthy buildings: Rental prices and market dynamics in commercial office”, MIT Center for Real Estate Research Paper, 21/04, 2021.
V. A. Porumb, G. Maier, I. Anghel, “The impact of building location on green certification price premiums: Evidence from three European countries,” Journal of Cleaner Production, vol. 272, pp. 122080, 2020.
Y. M. Adnan, M. N. Daud, A. M. Aini, A. M. Yassin, M. N. Razali, “Tenants’ preference for green office building features,” Research Journal, vol. 3, no. 2, pp. 41-48, 2013.
W. N. W. Rodi, T. K. Hwa, A. S. Said, N. M. Mahamood, M. I. Abdullah, A. R. Abd Rasam, “Obsolescence of Green Office Buildings: A Literature Review”, Procedia Economics and Finance, vol. 31, pp. 651-660, 2015.