Document Type

Honors

Department (Manual Entry)

Department of Economics and Finance

Abstract

This paper examines how obtaining Leadership in Energy and Environmental Design (LEED) affects the rent that market participants are willing to pay for commercial space. While recent studies have verified the existence of a rental premium for LEED certification in general, this paper provides a more precise analysis by focusing solely on one particular LEED subsystem, LEED for Existing Buildings (LEED-EB). Further, it examines the premiums associated with each of the four certification levels found within that subsystem, as well as regional differences to the premium for LEED-EB. Testable hypotheses are developed based on the Fuerst and McAllister (2011) study and empirically tested with a hedonic real estate pricing model using Ordinary Least Squares. Using data obtained from the CoStar Commercial Real Estate Database, this study find that tenants are willing to pay an effective rental premium of about 11% for space in buildings with LEED-EB certification over otherwise-comparable buildings. However, the results also show that tenants’ willingness to pay up does not increase as the certification level increases. The market does not appear to differentiate amongst the different iterations of LEED. Finally, results show that regional differences to the premium exist. Regions with higher premiums tend to have a smaller percentage of LEED-certified buildings, suggesting that the premium arises not only from increased demand for certified buildings, but a constrained supply as well.

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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