CoStar Group's Study on Green Buildings Wins Award

Strategic Insights -

Researchers at CoStar Group, Inc., a leading provider of commercial real estate information, have made a groundbreaking discovery on the economic benefits of green buildings. The study, "Does Green Pay-off?", co-authored by Andrew Florance, CEO of CoStar Group, and Jay Spivey, Senior Director of Research and Analytics, found that energy-efficient and sustainable buildings in the United States operated at higher occupancies, achieved higher rents, and sold for a higher price per square foot compared to their non-green counterparts.

The study, published in the Journal of Real Estate Portfolio Management (JREPM) in November 2008, was recognized as the "Best Paper" by the American Real Estate Society (ARES) in 2008. To arrive at their conclusions, the researchers analyzed data from CoStar's comprehensive database of U.S. commercial property, using a hedonic multiple regression model to compare buildings with the ENERGY STAR label or LEED certification with a peer group of like-kind, non-labeled/certified office buildings.

The study found that green buildings achieved higher occupancy rates, averaging 86.5% compared to 78.4% for non-green buildings. Similarly, green buildings commanded higher rents, averaging $77.74 per square foot compared to $61.43 per square foot for non-green buildings. Notably, green buildings sold for a higher price per square foot, averaging $159.85 per square foot, compared to $122.85 per square foot for non-green buildings.

The study's findings were corroborated by subsequent research, including studies conducted by Franz Fuerst of the Henley Business School, John Quigley of the University of California at Berkeley, and Piet Eichholtz and Nils Kok of Mastricht University in the Netherlands.

The researchers attributed the income premiums associated with green properties to various factors, including:

  • Incidental property amenities and construction quality that are often afforded to tenants
  • Incentives and benefits related to the potential for environmentally friendly or green roofs
  • Access to technology or energy-efficient features that are not the direct result of a green building or sustainable operation
  • Presumptive comparative value creation through the leasing process versus an explicit comparison of actual values

"The 'Does Green Pay-off?' study addresses one of the key issues regarding sustainable real estate development and management by showing that economic benefits accrue to the owners of green buildings," noted William G. Hardin III, Director of Real Estate Programs, Florida International University.

Andrew Florance, CEO of CoStar Group, emphasized that the study highlights the substantial income premiums associated with energy efficiency and sustainable development, which not only benefit the environment but also increase profitability.

The researchers have donated the prize money from the award to the James R. Webb Foundation of the American Real Estate Society, an organization dedicated to supporting students pursuing a Ph.D. degree in real estate studies.

Key Takeaways:

  • The study found that green buildings in the United States operated at higher occupancies, averaging 86.5% compared to 78.4% for non-green buildings.
  • Green buildings commanded higher rents, averaging $77.74 per square foot compared to $61.43 per square foot for non-green buildings.
  • Green buildings sold for a higher price per square foot, averaging $159.85 per square foot, compared to $122.85 per square foot for non-green buildings.
  • The study's findings were corroborated by subsequent research, including studies conducted by Franz Fuerst of the Henley Business School, John Quigley of the University of California at Berkeley, and Piet Eichholtz and Nils Kok of Mastricht University in the Netherlands.
  • CoStar Group's comprehensive database of U.S. commercial property was used to analyze the data.
  • The study used a hedonic multiple regression model to compare buildings with the ENERGY STAR label or LEED certification with a peer group of like-kind, non-labeled/certified office buildings.

Statistics:

  • 86.5%: Average occupancy rate for green buildings
  • 78.4%: Average occupancy rate for non-green buildings
  • $77.74: Average rent per square foot for green buildings
  • $61.43: Average rent per square foot for non-green buildings
  • $159.85: Average price per square foot for green buildings
  • $122.85: Average price per square foot for non-green buildings
  • 2006: Year in which CoStar began flagging ENERGY STAR and LEED-certified buildings in its database
  • 2008: Year in which the study, "Does Green Pay-off?", was published in the JREPM
  • 2009: Year in which the study's findings were corroborated by subsequent research

Sources:

  • CoStar Group, Inc. (Nasdaq:CSGP)
  • Journal of Real Estate Portfolio Management (JREPM)
  • American Real Estate Society (ARES)
  • Burnham-Moores Center for Real Estate at the University of San Diego
  • GlobeNewswire