Lease structures and occupancy costs in eco-labeled buildings. Issue 1 (3rd October 2019)

• Record Type: Journal Article
• Authors: Gabe, Jeremy; Robinson, Spenser; Sanderford, Andrew; Simons, Robert A.
• Is Part Of: Journal of property investment & finance. Volume 38:Issue 1(2020)
• Page Start: 31
• Page End: 46
• Publication Date: 2019-10-03
• Subjects: Commercial real estate -- Energy efficiency -- Green building -- Real estate investment -- Split incentive -- Sustainable real estate; Real estate investment -- Great Britain -- Periodicals; Real property -- Valuation -- Great Britain -- Periodicals; Real estate development -- Great Britain -- Finance -- Periodicals; 332.6324094105
• DOI: 10.1108/JPIF-07-2019-0098
• Languages: English
• ISSNs: 1463-578X

Abstract

Abstract : Purpose: The purpose of this paper is to investigate whether energy-efficient green buildings tend to provide net lease structures over gross lease ones. It then considers whether owners benefit by trading away operational savings in a net lease structure. Design/methodology/approach: Empirical models of office leasing transactions in Sydney, Australia, with wider transferability supported by analysis of office rent data in the USA. Findings: Labeled green buildings are approximately four to five times more likely than non-labeled buildings to use a net lease structure. However, despite receiving operational savings, tenants in net leases pay higher total occupancy costs (TOC), benefiting owners. On average, the increase in TOC paid by tenants in a net lease is equal to or greater than savings attributed to an eco-labeled building. Practical implications: A full accounting of TOC in eco-labeled buildings suggests that net lease structures provide numerous benefits to owners that offset the loss of trading away operational savings. Originality/value: The principal-agent market inefficiency, or "split incentive, " is a widely cited barrier to private investment in energy-efficient building technology. Here, a uniquely broad look at rental cash flows suggests its role as a barrier is exaggerated.