How Green is Overtaking the Commercial Property Market
Repetition is the master of learning. Or so they say. In 2010, I analyzed the uptake of “green” certification in the US commercial property market, explaining the differences in diffusion across markets and over time (the short version of that paper is here). But during the past four years, much has happened. The economy started to recover (in most places), and construction has picked up again. Also, the appetite for energy efficiency and sustainability in the real estate sector hasn’t abated (Google now gives 344,000,000 hits for a simple search on “green” “building”).
The EPA recently published their ranking of “Top 25 cities with most Energy Star certified buildings,” (including nearly 7,000 Energy Star rated buildings), while the USGBC has released an annual list of “Top 10 States in Nation for LEED Green Building” (Illinois is leading). But these rankings are mostly determined by city and state size, rather than reflecting true “greenness” of real estate markets.
I therefore revisited the uptake of green building certification in the commercial office sector, this time in collaboration with my colleague Rogier Holtermans and CBRE (with help from the USGBC and the EPA). We picked the top-30 largest markets (by floor area), geocoded their boundaries, and filtered out all Energy Star and LEED-certified office buildings from the USGBC’s GBIG database (a pretty cool tool by the way). For the denominator, CBRE Research provided the stock of space (number of buildings and square footage) for each of the markets. We then took particular care to make sure that non-competitive space (e.g., single-tenant, owner-occupied buildings) was excluded from the sample, as not to inflate the numerator. Also, we assume that labels depreciate: an Energy Star label is valid for 2 years, while a LEED label is valid for five years. (In fact, we found in previous research that the financial value of an Energy Star label seems to last a little longer, some 5 years.)
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