Abstract
This research examines the effects of energy efficiency certification levels on office rental rates and lease structures to determine whether any cost savings and other tangible and intangible benefits of green buildings are captured by landlords via higher rental rates or remain, at least partially, with the tenant. To this aim, our analysis expands previous studies by applying the largest and most detailed dataset to date, a panel of 14,283 office properties observed over 30 quarters from 2006 to 2013 with a total of 364,636 observations. Using fixed-effects and dynamic Arellano-Bond frameworks allows us to estimate the differential rental price impact of Energy Star certification both across buildings and within buildings over time. The general results indicate that buildings with higher Energy Star scores and higher levels of energy efficiency achieve higher gross rents compared to their non-certified peers allowing landlords to benefit from the premium. However, improved energy efficiency performance in the same buildings over time is also linked to a slower growth of rental prices as some of the benefit is passed onto tenants. These results are robust to various model specifications and sample definitions despite the fact that the composition of the energy certification premium varies.
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