Green noise or green value? Measuring the price effects of environmental certification in commercial buildings

This paper investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. First, certified buildings offer a bundle of benefits to occupiers relating to business productivity, image and occupancy costs. Second, due to these occupier benefits, certified buildings can result in higher rents and lower holding costs for investors. Third, certified buildings may require a lower risk premium. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that, compared to buildings in the same metropolitan region, certified buildings have a rental premium and that the more highly rated that buildings are in terms of their environmental impact, the greater the rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find price premia of 10% and 31% respectively compared to non-certified buildings in the same metropolitan area

Linking energy and maintenance management for sustainability through three American case studies

Purpose – The purpose of this paper is to present the findings and lessons learned from three case studies conducted for facilities located in California, North America. The findings aim to focus on energy and maintenance management practices and the interdependent link between energy and maintenance. Design/methodology/approach – The research is based on a positivist epistemological philosophical approach informed by action research. The research cycle was completed for each case study. A case study report was provided to each facility management team to foster collaboration with the researcher and to document case study process and results. Findings – Composite findings of the case studies include: there is an interdependent link between energy and maintenance management; reactive maintenance and energy management methods are commonly used; and more proactively operated and managed buildings require the interdependent link between energy maintenance management to be better understood. Research limitations/implications – The three case studies were located in California. Although the case study results can be generalized, determination of how to generalize and apply the results to commercial buildings outside of the USA is beyond the scope of this paper. Practical implications – Detailed discussion of the needs of the three facility management teams are discussed by identifying a current challenge, developing a solution and documenting lessons learned using the research cycle. Originality/value – The paper seeks to demonstrate the interdependencies of energy and maintenance management, two topics which are often researched interdependently. Additionally, the paper provides insight about maintenance management, a topic often cited as being under researched.

An integrated dynamic whole life costing analysis for air distribution systems

Air distribution systems are one of the major electrical energy consumers in air-conditioned commercial buildings which maintain comfortable indoor thermal environment and air quality by supplying specified amounts of treated air into different zones. The sizes of air distribution lines affect energy efficiency of the distribution systems. Equal friction and static regain are two well-known approaches for sizing the air distribution lines. Concerns to life cycle cost of the air distribution systems, T and IPS methods have been developed. Hitherto, all these methods are based on static design conditions. Therefore, dynamic performance of the system has not been yet addressed; whereas, the air distribution systems are mostly performed in dynamic rather than static conditions. Besides, none of the existing methods consider any aspects of thermal comfort and environmental impacts. This study attempts to investigate the existing methods for sizing of the air distribution systems and proposes a dynamic approach for size optimisation of the air distribution lines by taking into account optimisation criteria such as economic aspects, environmental impacts and technical performance. These criteria have been respectively addressed through whole life costing analysis, life cycle assessment and deviation from set-point temperature of different zones. Integration of these criteria into the TRNSYS software produces a novel dynamic optimisation approach for duct sizing. Due to the integration of different criteria into a well- known performance evaluation software, this approach could be easily adopted by designers in busy nature of design. Comparison of this integrated approach with the existing methods reveals that under the defined criteria, system performance is improved up to 15% compared to the existing methods. This approach is interpreted as a significant step forward reaching to the net zero emission building in future.

Is there a demand for sustainable offices? An analysis of UK business occupier moves (2006–2008)

‘Sustainable’ or ‘green’ commercial buildings are frequently seen as a growth sector in the property investment market. This research examines the emergence of sustainable commercial buildings in both the UK and overseas. The empirical part of the paper is based on a telephone survey of 50 UK corporate (private sector) occupiers taking leased and owner–occupied office space, which was carried out during the period of April to November 2008. The survey focused on actual moves made within the previous two years, or moves that were imminent during 2006–2008. The research suggests that although there is an emerging and increasing demand for sustainable offices in the UK, other factors such as location and availability of stock continue to remain more important than sustainability in determining occupiers’ final choice of office. Occupiers who moved to a Building Research Establishment Environmental Assessment Method (BREEAM)‐rated building, and were in business sectors with strong environmental and corporate responsibility policies, placed more emphasis on sustainability than other groups in the final choice of office, but location and availability remained paramount.

Determinants of green building adoption

In this paper we investigate variations in the adoption of LEED-certified commercial buildings across 174 core-based statistical areas in the United States. Drawing upon a unique database and using a robust analytical framework, the determinants of the proportion LEED-certified space are modeled. We find that, despite high growth rates, LEED-certified stock accounts for a relatively small proportion of the total commercial stock. The average proportion is less than 1%. A further contribution of the paper is that our concentration measure avoids the biases associated with simple percentage measures that were used in previous studies of this topic. Strongest predictors of the proportion of LEED-certified commercial space in a local market are market size, educational attainment and economic growth. In terms of policy effectiveness, it is found that only a mandatory requirement to obtain LEED certification for new buildings has a significant positive effect on market penetration.

Exposing the myth of the 1:5:200 ratio relating initial cost, maintenance and staffing costs of office buildings

In an attempt to focus clients' minds on the importance of considering the construction and maintenance costs of a commercial office building (both as a factor in staff productivity and as a fraction of lifetime staff costs) there is an often-quoted ratio of costs of 1:5:200, where for every one pound spent on construction cost, five are spent on maintenance and building operating costs and 200 on staffing and business operating costs. This seems to stem from a paper published by the Royal Academy of Engineering, in which no data is given and no derivation or defence of the ratio appears. The accompanying belief that higher quality design and construction increases staff productivity, and simultaneously reduces maintenance costs, how ever laudable, appears unsupported by research, and carries all the hallmarks of an "urban myth". In tracking down data about real buildings, a more realistic ratio appears to depend on a huge variety of variables, as well as the definition of the number of "lifetime" years. The ill-defined origins of the original ratio (1:5:200) describing these variables have made replication impossible. However, by using published sources of data, we have found that for three office buildings, a more realistic ratio is 1:0.4:12. As there is nothing in the public domain about what comprised the original research that gave rise to 1:5:200, it is not possible to make a true comparison between these new calculations and the originals. Clients and construction professionals stand to be misled because the popularity and widespread use of the wrong ratio appears to be mis-informing important investment and policy decisions.

Designer buildings: an evaluation of the price impacts of signature architects

This study investigates whether commercial offices designed by signature architects in the United States achieve rental premiums compared to commercial offices designed by nonsignature architects. Focusing on buildings designed by winners of the Prizker Prize and the Gold Medal awarded by the American Institute of Architects, we create a sample of commercial office buildings designed by signature architects drawing on CoStar's national database. We use a combination of hedonic regression model and a logit model to estimate the various rent determinants. While the first stage measures the typical rental price differential above the typical building in a particular sub-market over a specific timeframe, the second stage identifies a potential price differential over a set of buildings closely matched on important characteristics (such as age, size, location etc.). We find that in both stages offices design by signature architects exhibit a premium. However these results are preliminary. The premium could be indeed an effect of the name of the architect, but others factors such as micro-market conditions might be the cause. Further tests are needed to confirm the validity of our results.

Rental depreciation and capital expenditure in the UK commercial real estate market, 1993–2009

This paper identifies the long-term rental depreciation rates for UK commercial properties and rates of capital expenditure incurred to offset depreciation over the same period. It starts by reviewing the economic depreciation literature and the rationale for adopting a longitudinal method of measurement, before discussing the data used and results. Data from 1993 to 2009 were sourced from Investment Property Databank and CB Richard Ellis real estate consultants. This is used to compare the change in values of new buildings in different locations with the change in values of individual properties in those locations. The analysis is conducted using observations on 742 assets drawn from all major segments of the commercial real estate market. Overall rental depreciation and capital expenditure rates are similar to those in other recent UK studies. Depreciation rates are 0.8% pa for offices, 0.5% pa for industrial properties and 0.3% pa for standard retail properties. These results hide interesting variations at a segment level, notably in retail where location often dominates value rather than the building. The majority of properties had little (if any) money spent on them over the last 16 years, but those subject to higher rates of expenditure were found to have lower depreciation rates.

Building communities: reducing energy use in tenanted commercial property

Reducing energy use in tenanted commercial property requires a greater understanding of ‘buildings as communities’. Tenanted commercial properties represent: (1) the divergent communities that share specific buildings; and (2) the organizational communities represented by multi-site landlord and tenant companies. In any particular tenanted space the opportunity for environmental change is mediated (hindered or enabled) through the lease. This discussion draws on theoretical and practical understandings of (1) the socio-legal relationships of landlords, tenants and their advisors; (2) the real performance of engineering building services strategies to improve energy efficiency; (3) how organizational cultures affect the ability of the sector to engage with energy-efficiency strategies; and (4) the financial and economic basis of the relationship between owners and occupiers. The transformational complexity stems from: (1) the variety of commercial building stock; (2) the number of stakeholders (solicitors, investors, developers, agents, owners, tenants and facilities managers); (3) the fragmentation within the communities of practice; and (4) leasehold structures and language. An agenda is proposed for truly interdisciplinary research that brings together both the physical and the social sciences of energy use in buildings so that technological solutions are made effective by an understanding of the way that buildings are used and communities behave.

Facing the future: energy performance certificates and commercial property

Purpose – The paper aims to present the findings of a “situation review” of the Energy Performance of Buildings Directive (EPBD), focusing on energy performance certificates (EPCs) to highlight areas of specific importance for the UK property investment community. The paper is based on research commissioned by the Investment Property Forum (IPF) and funded through the IPF Research Programme (2006-2009). Design/methodology/approach – Interviews were undertaken with experts from the fields of property investment and building engineering. The interviews were undertaken with to identify: the current knowledge of EPCs in the property investment sector; key issues with practical implementation of the legislation; and perceptions of the potential impacts of legislation, particularly in relation to value stakeholder and behaviour. Findings – The paper finds that, although the regulations have been published, there is still a need for clarification in the marketplace with regard to some of the detail of regulations and the certification process. The following areas are of most concern to property investors: costs of surveys; potential difficulties with the process; and a shortage of assessors. With respect to these impacts it is becoming clear that investors who have not yet started considering the EPBD and its requirements within their strategy are likely to face difficulties in the short term. The most significant value-related impacts of EPBD are expected to be value differentiation of properties and “price chipping” against the rental or capital value of the property, where an occupier or potential purchaser will use the recommendations contained within an EPC to force a reduction in value. The latter is expected to emerge in the short term, whereas the former is expected to be realised over the medium to long term. Both these impacts have potentially significant implications for property investment holdings and also future investment behaviour.

Does connectivity add value to commercial real estate? The case of managed and conventional offices

This research is a preliminary study which examines the impact of connectivity on value in the managed office and conventional office sectors. The research is based on an extensive literature review, online survey and case studies carried out during 2005. The research shows, for the first time in the UK, how connectivity can increase value in office buildings, and how technology is priced in the market place.

Cool Roofs for improving thermal performance of EU office buildings: an investigation for different climates and building layouts

Cool materials are characterized by having a high solar reflectance r – which is able to reduce heat gains during daytime - and a high thermal emissivity ε that enables them to dissipate the heat absorbed throughout the day during night. Despite the concept of cool roofs - i.e. the application of cool materials to roof surfaces - is well known in US since 1990s, many studies focused on their performance in both residential and commercial sectors under various climatic conditions for US countries, while only a few case studies are analyzed in EU countries. The present work aims at analyzing the thermal benefits due to their application to existing office buildings located in EU countries. Indeed, due to their weight in the existing buildings stock, as well as the very low rate of new buildings construction, the retrofit of office buildings is a topic of great concern worldwide. After an in-depth characterization of the existing buildings stock in the EU, the book gives an insight into roof energy balance due to different technological solutions, showing in which cases and to what extent cool roofs are preferable. A detailed description of the physical properties of cool materials and their availability on the market provides a solid background for the parametric analysis carried out by means of detailed numerical models that aims at evaluating cool roofs performance for various climates and office buildings configurations. With the help of dynamic simulations, the thermal behavior of representative office buildings of the existing EU buildings stock is assessed in terms of thermal comfort and energy needs for air conditioning. The results, which consider several variations of building features that may affect the resulting energy balance, show how cool roofs are an effective strategy for reducing overheating occurrences and thus improving thermal comfort in any climate. On the other hand, potential heating penalties due to a reduction in the incoming heat fluxes through the roof are taken into account, as well as the aging process of cool materials. Finally, an economic analysis of the best performing models shows the boundaries for their economic convenience.