Market Responses to the Sustainability and Energy Performance of Commercial Property

Abstract

Energy consumption within commercial property is associated with a number of significant, variable risks. Incorporating an assessment of the sustainable use of energy into property valuation and investment appraisals is an essential step towards addressing these risks in this sector, leading to the introduction of labeling and certification of offices in many countries. This paper discusses the consequences of these programs in the UK, Australia and USA through a literature review. It examines the predicted impact of labeling and certification in the UK, surveys of market sentiment throughout the world, methodologies for incorporating energy efficiency and sustainability into property valuations and price comparisons of market responses to labeling and certification in the USA. Surveys suggest that a significant proportion of occupiers have been willing to pay above average rents for sustainable property. Studies of price comparisons find that there is some consensus supporting the existence of real asking rent and transaction premiums for offices labeled energy efficient in the USA and that property investors have viewed labeled property as being of lower risk. It appears that the labeling and certification of office energy performance programs has a substantial influence on stakeholders in the property market. Further implementation could have a considerable effect on mitigating the environmental and social costs of buildings and their occupants, as well as reducing consumption of the Earth’s finite resources.