Fisher Center for Real Estate and Urban Economics

Research on climate change suggests that small improvements in the “sustainability” of buildings can have large effects on greenhouse gas emissions and on energy efficiency in the economy. This paper analyzes the economics of “green” building. First, we analyze a panel of office buildings certified by independent rating agencies, finding that large recent increases in the supply of green buildings and the unprecedented volatility in property markets have not significantly affected the relative returns to green buildings. Second, we analyze a large cross section of office buildings, demonstrating that economic premiums in rent and asset values of buildings certified for energy efficiency are substantial. Third, we relate the economic premiums for green buildings to their relative efficiency in energy use, documenting that the attributes rated for both thermal efficiency and sustainability contribute to premiums in rents and asset values. Even among green buildings, increased energy efficiency is fully capitalized into rents and asset values. JEL codes: G51, M14, D92