Operating Expenses and the Rent Premium of Energy
Star and LEED Certified Buildings in the Central
and Eastern U.S.
Published online: 1 September 2013
Springer Science+Business Media New York 2013
Abstract This paper investigates the relationship between operating expenses and rents of
Energy Star and LEED certified buildings in the Central and Eastern United States. Several
studies have shown that sustainable buildings command a rent premium compared to
comparable conventional buildings. Lower operating expenses are expected to be a major
source of the rent premium that sustainable buildings command. This is especially the case
for buildings with triple-net leases, where tenants directly benefit from savings in operating
costs. For a large dataset of U.S. office buildings this study finds significantly lower
operating expenses in LEED certified buildings. However, savings in operating expenses
only explain part of the rent premium. Additional factors must be at work. Surprisingly, we
find significantly higher operating expenses in Energy Star rated buildings. Hence, intangi-
ble benefits appear to be the major source of rental premiums of Energy Star rated buildings.
Keywords Rent premium
Sustainable real estate
JEL codes M14
Sustainability has become an important topic in the real estate industry over the last
years. This is reflected in the emergence and rapid growth in the number of Energy
Star and LEED certified buildings.
A number of prominent pricing studies of green
J Real Estate Finan Econ (2014) 49:413–433
Energy Star is a federal program by the U.S. Environmental Protection Agency (EPA) and the U.S.
Department of Energy and has been available for commercial buildings since 1999. The LEED certification
system has been introduced by the U.S. Green Building Council in 1999. The number of Energy Star rated
and LEED certified office buildings in the U.S. has increased from 1,514 buildings in December 2007 to
5,344 buildings in July 2011. Data collected by the U.S. Green Building Council (USGBC) indicate that in
December 2005 a total of 468 office buildings had been LEED certified and 1,903 were registered for
certification. By mid-2009, 3,073 buildings had been certified and 27,066 had been registered. By July
2011, these numbers had increased to a total of 4,406 certified and 41,080 registered office buildings.
A. Reichardt (*)
Real Estate Management Institute, EBS Universität für Wirtschaft und Recht, Gustav-Stresemann-Ring
3, 65189 Wiesbaden, Germany