The Impact of Energy Performance Certificates on the Rental and Capital Values of Commercial Property Assets

27 Pages Posted: 20 May 2011 Last revised: 18 Jun 2011

See all articles by Franz Fuerst

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning

Date Written: 2011

Abstract

This paper focuses on the effect of energy performance ratings on appraised capital values, rental values and equivalent yields of UK commercial property assets. The study is based upon 708 commercial property assets held in the IPD UK Universe. Incorporating a range of potential confounding factors such as unexpired lease term, vacancy rate and tenant credit risk, hedonic regression procedures are used to estimate the effect of EPC rating on rental and capital values. The study finds no evidence of a significant relationship between environmental and/or energy performance and rental and capital value. We also test a small group of 24 BREEAM-rated assets and find a statistically significant effect on equivalent yield only. Similarly, there was no evidence that the EPC rating had any effect on Market Rent or Market Value with only minor effects of EPC ratings on equivalent yields. The preliminary conclusion is that energy labelling is not yet having the effects on Market Values and Market Rents that would be expected if good EPC ratings were either associated with substantial cost savings that are fully reflected in capital values and/or readily available and taken into account by prospective tenants and buyers.

Keywords: Energy Performance Certificates, commercial property values, real estate appraisal

JEL Classification: Q40, R33

Suggested Citation

Fuerst, Franz and McAllister, Patrick M., The Impact of Energy Performance Certificates on the Rental and Capital Values of Commercial Property Assets (2011). Available at SSRN: https://ssrn.com/abstract=1839429 or http://dx.doi.org/10.2139/ssrn.1839429

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

Patrick M. McAllister

University of Reading - Department of Real Estate and Planning ( email )

Reading RG6 6AW
United Kingdom

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