Nils Kok on Green Building: Lusk Center for Real Estate

The University of Southern California

Lusk Center for Real Estate

Spring 2010 Research Seminar Series


Nils Kok

Maastricht University (Netherlands)

“Sustainability and the Dynamics of Green Building”


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. We analyze the dynamics of green building and the private returns to the recent surge in investments in energy-efficient office buildings. We examine a comprehensive panel of “green” office buildings and nearby controls first observed in 2007, estimating changes in the economic premium for energy efficiency between 2007 (when green office space was 7 percent of the national inventory and unemployment rates were 4.6 percent) and 2009 (when green space was 14.9 percent of the inventory and the unemployment rate was 9.3 percent). Surprisingly, we find that the large increases in the supply of green buildings during 2007-2009, and the recent downturns in property markets, have not reduced the returns to green buildings relative to those of comparable high quality property investments. We employ an analogous research design to document precisely the very substantial economic returns to energy efficiency and sustainability in commercial property markets using a much larger cross section of office buildings which were “certified” by independent rating agencies in 2009. We estimate separately the increment to market rents and asset values enjoyed by buildings which have been certified by the two major rating agencies – the U.S. Green Building Council and U.S. Department of Environmental Protection. We relate the estimated premiums for green buildings to the particulars of the rating systems that underlie certification. The analysis of samples of more than 27,000 buildings confirms that the attributes rated for boththermal efficiency and sustainability contribute to increases in rents and asset values. Increased energy efficiency is fully capitalized into rents and asset values.

JEL codes: G51, M14, D92

Friday, March 12, 2010

12:00 noon. – 1:30 p.m.

RGL 105 (Ralph and Goldy Lewis Hall)