The Effect of Sustainability on Retail Values, Rents, and Investment Performance: European Evidence

Abstract

This paper is the first to focus on the effects of sustainability on the investment performance of a European retail portfolio comprising 128 properties in the Netherlands and extends the existing range of studies on the office and residential sectors in the United States. As the data sample is an existing fund portfolio, all attributes of the properties are known. Environmental sustainability is measured by the Dutch energy label, which compares with ENERGY STAR in the U.S. Through OLS regressions, we examine whether a sustainability premium exists. We find that green retail properties have a significantly higher income return of 0.52%, while, counterintuitively, non-green retail properties appear to have significantly higher rents and values. After controlling for various factors, however, the sustainability effects become insignificant. This contradicts some of the findings in the office and residential sectors. We attribute this to the importance of traditional retail location theory factors, which continue to dominate returns.