The Impact of Green Premium on the Development of Green-labeled Offices in the U.K.

Abstract

The perceived wisdom in many studies is that the establishment of a premium value is an essential prerequisite for the promotion of green buildings. This green premium is then a driver of the development of new green buildings, as well as an agent of the green transformation of the existing non-labeled properties. In this study, green premium is assessed as a potential driver of labeled office property development. Thirty-two commercial real estate professionals, working for organizations that are involved in the development, sale, letting or management of green offices, were interviewed across four cities in the United Kingdom: London, Manchester, Birmingham, and Edinburgh. The results reveal that after 15 years of an active development of green offices, the existence of a green rent premium remains elusive. Similarly, no evidence was found of a willingness to pay more to occupy green-labeled offices. The results suggest that a green premium cannot be simply seen in terms of a headline rent but more widely by reference to future income streams. Consequently, we propose a “green letting premium” as the primary motivation for the development of green offices. Our study contributes significantly to how green premium is defined, understood, and valued globally.