IMPACT OF GREEN BUILDING CERTIFICATIONS ON THE ECONOMIC PERFORMANCE OF REAL ESTATE OFFICE ASSETS: NET OPERATING INCOME, AND MARKET VALUE

Abstract

Following the existing line of inquiry on green buildings economic performance, this study hypothesizes that LEED and Energy Star green building certifications contribute to premiums in net operating income (NOI) and higher market value (MV) in commercial real estate office assets when compared to their broader conventional market competition. This study utilizes two of the most comprehensive propriety databases in the U.S.: Real Capital Analytics (RCA) data on commercial asset sale prices and Trepp Inc. data on property income and expense information. Employing the hedonic regression analysis, and controlling for several building attributes including location, height, size, age, market perception of quality, transit score, walk score, etc., the study finds significant NOI and MV differentials across metropolitan statistical areas of five major U.S. gateway cities. The findings are encouraging and informative and may significantly contribute to the investment communities’ understanding of how investing in green buildings can positively improve companies’ economic bottom line.