Operating Expenses and the Rent Premium of Sustainable Buildings

Abstract

Sustainability has become an important topic in the real estate industry over the last years. This is reflected in the emergence and rapid growth in the number of Energy Star and LEED certified buildings. A number of prominent pricing studies of green buildings have been conducted in the past four years. These studies suggest that Energy Star rated and LEED certified buildings command significantly higher rents and occupancy rates compared to conventional buildings (e.g. Miller et al., 2008; Eichholtz et al., 2010a; Fuerst and McAllister, 2011a; Reichardt et al, 2011). The rent premiums associated with Energy Star labels and LEED certificates represent the joint effect of operating cost savings, increased employee productivity, reduced staff turnover and absenteeism, and image and reputation benefits (Eichholtz et al., 2010a). So far, however, little is known about the relative contribution of these benefits to the rent premium.