Operating Expenses and the Rent Premium of Energy Star and LEED Certified Buildings in the Central and Eastern U.S.

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, intangible benefits appear to be the major source of rental premiums of Energy Star rated buildings.