Do Green Buildings Capture Higher Market-Values and Prices? A Case-Study of LEED and BOMA-BEST Properties

Abstract

It is becoming increasingly clear that as the pressures of climate change increase around the world, all nations must strive to lower their carbon footprint through conservation. In our society, the buildings sectors impose heavy environmental burdens going beyond green house gas emissions. As such, it is becoming increasingly urgent to promote 'green' buildings and infrastructure. At the same time, innovations in technology must be based upon sound socio-economic and technological evidence. Fortunately, green certified buildings have been on the rise over the past decade. However, they continue to face numerous challenges, including uncertainty with respect to how well they perform from a socio-economic and technical standpoint. If this growth trend is to be continued and improved upon, then evidence must be collected as to the benefits they bring about, and the level of support they enjoy in the market. As such, now is an opportune time to examine how well they perform in the real estate market. This thesis aims to shed light on the economic performance of green buildings by evaluating whether LEED for Homes and BOMA-BEST properties capture higher market-valuations, prices, and lower vacancy-rates. Our literature review revealed that these types of research questions have not been addressed to a great deal in the context of Canadian academic research and writing. The analysis was conducted using multi-variable regression models, and paired-analysis techniques borrowed from the appraisal sciences. Also, commercial vacancy rates were compared through the use of chi-square tests and tests of group means. Our analysis did not lead to conclusive evidence that there exists a 'green' premium in the real-estate market with respect to market valuations. Firstly, the certification variables did not show themselves to be positive and statistically-significant. We argue that this may largely be due to appraisal methods that currently do not incorporate sustainability factors. The paired-analysis for residential properties yielded some evidence of a price premium; however, greater amount of research is required to confirm this. Furthermore, while the vacancy-rates of green commercial buildings were, on the whole, lower than their non-green counterparts, the differences were not statistically-significant. Given these results, we propose a set of policies for industry, academia, the appraisal community, and governments.