The impact of green premium on the development of green-labelled offices in the U.K.

Tunbosun Biodun Oyedokun, Neil Dunse, Colin Jones

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Abstract

The perceived wisdom in many studies is that the establishment of a premium value is an essential prerequisite for the promotion of green buildings. This green premium is then a driver of the development of new green buildings as well as an agent of the green transformation of the existing non-labelled properties. However, empirical evidence is limited in this regard especially with respect to the comparison of individual city office markets. In this study, green premium is assessed as a potential driver of labelled office property development using a case study approach. A total of thirty-two commercial real estate professionals, working for organizations that are involved in the development, sale, letting or management of green offices, were interviewed across four British cities, namely London, Manchester, Birmingham and Edinburgh. The study revealed that after fifteen years of an active development of green offices in these cities, the existence of a green rent premium remains elusive. Similarly, the study did not find any evidence of a willingness to pay more to occupy green-labelled offices in the case study cities. By examining underlying local market sentiment, the study suggests that green premium cannot be simply seen in terms of a headline rent but more widely by reference to future income streams. Consequently, the study proposes the concept of a ‘green letting premium’ as the primary motivation for the development of green offices with investors responding partly to expected government regulations on building standards and also to attract occupiers seeking high specifications. Local market factors such as planning policies and corporate social responsibility were found to have significant impact on the take up of green offices. Using an ‘unconventional’ research method, the study contributes significantly to how green premium is defined, understood and valued globally.
Original languageEnglish
Pages (from-to)81-108
Number of pages28
JournalJournal of Sustainable Real Estate
Volume10
Issue number1
Publication statusPublished - 2018

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