Abstract
A barrier to green-building development is the uncertainty and scepticism about the financial implications. This study aimed to investigate whether the green-certification schemes help buyers to recognize the benefits of green office buildings by their willingness to pay a premium for such buildings. The study used a hedonic-model based on a sample of 67 prime office buildings (including non-green comparables) certified by HKBEAM, BEAM-Plus and LEED in Hong Kong. The empirical findings suggest that green certification schemes add extra value to an office property. The rental value of office properties certified by HKBEAM, BEAM Plus and LEED is about 10.9% higher than for non-certified office buildings. More specifically, tenants/users are willing to pay a premium of 10.9% for green-certified office properties. The findings have practical implications in encouraging green building development in Hong Kong and elsewhere. The findings indicate that the higher rental income from green office buildings can cover the additional cost of obtaining green certification within a period of 22-months (22.32 months) in Hong Kong. The results provide references for various stakeholders (developers/investors/users) in establishing the business case for green-office buildings, because of the ability of the market to capitalize the environmental benefits of green office properties.
Highlights
In order to address climate change and global warming issues, policy makers and property investors consider buildings as one of the most important vehicles (Chegut, Eichholtz, & Kok, 2014), as buildings account for nearly one-third of overall CO2 emissions and constitute the largest climate change offender
As for physical attributes, the results reveal that office rental values (RENT) are positively related with saleable area (AREA), floor level (FLOOR), floor-to-ceiling height (CEIL), indoor car-parking (I_CPARK) and raisedfloor (R_FLOOR)
Based on a sample of 67 commercial office buildings, the empirical findings suggest that certified commercial office properties yield a rental price premium of 10.9%
Summary
There is a notable degree of uncertainty and scepticism underlying the financial implications of green buildings, and this is considered to be a barrier to their development. Researchers believe this is mainly due to the misalignment of incentives for green buildings or a “vicious circle of blame” (Falkenbach, Lindhol, & Schleich, 2010; RICS, 2008). Construction firms are barred from constructing those properties as developers do not want them to do so (Heinzle et al, 2013) As a result, those property buyers, who are willing to buy or rent green properties, are frustrated by the insufficient supply (Heinzle et al, 2013). This is known as “asymmetry of incentives” among stakeholders, or ‘vicious circle of blame’ (Falkenbach et al, 2010)
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