Nils Kok

The Economics of Green Building

We analyze the economics of green building, finding that recent increases in the supply of green buildings and the volatility in property markets have not affected the returns to green buildings. We then analyze a large cross-section of office buildings, demonstrating that economic returns to energy-efficient buildings are substantial. Finally, we relate the economic premiums for green buildings to their relative efficiency in energy usethe attributes rated for thermal efficiency, as well as sustainability, contribute to premiums in rents and asset values. Among green buildings, increased energy efficiency is fully capitalized into rents and asset values.

On the Economics of Energy Labels in the Housing Market

The residential housing market can play an important role in the reduction of global carbon emissions, and the information conveyed by energy labels may help to encourage energy conservation among private consumers. This paper reports the first evidence on the market adoption and economic implications of energy performance certificates implemented under a large energy-labeling program in the European Union. The results show that adoption rates are low and declining over time. Labels are clustered among homes and neighborhoods where there is less competition among buyers. We also document that adoption rates of energy labels are positively related to the fraction of �?green�? voters during national elections. The energy label seems to create transparency in the energy performance of dwellings and our analysis shows that consumers capitalize this information in the price of their prospective home. The size of the energy-efficiency increment is positively related to the label outcome.

Corporate Governance and Performance: The REIT Effect

Real estate investment trusts (REITs) offer a natural experiment in corporate governance due to the fact that they leave little free cash flow for management, which reduces agency problems. We exploit a unique and leading corporate governance database to test whether corporate governance matters for the performance of U.S. REITs. We document for a sample including governance ratings of more than 220 REITs that firm value is significantly related to firm-level governance for REITs with low payout ratios only. Repeating the analysis with the complete database that includes more than 5,000 companies and a control sample of firms with high corporate real estate ratios, we find a strong and significantly positive relation between our governance index and several performance variables, indicating that the partial lack of a relation between governance and performance in the real estate sector might be explained by a REIT effect.

Why Do Companies Rent Green? Real Property and Corporate Social Responsibility

This paper provides the first systematic analysis of the choice by organizations to occupy green office space. We develop a framework of ecological responsiveness, and we formulate five propositions to explain why specific firms and industries may be more likely to lease green space. We test these propositions by analyzing the decisions of more than 11,000 tenants to choose office space in green buildings or in otherwise comparable non-green buildings located nearby. We find that corporations in the oil and banking industries, as well as government-related and non-profit organizations, are among the most prominent green tenants. After appropriately controlling for building quality and for location within one quarter mile, our empirical analysis shows that firms in mining and construction and organizations in public administration are relatively more likely to lease green rather than conventional office space. Furthermore, organizations employing higher levels of human capital (as measured by skills and compensation) are more likely to lease green office space.

Green certification and building performance: Implications for tangibles and intangibles

Commercial buildings represent a significant share of global energy consumption. In the general absence of regulation, voluntary labeling and green building certification schemes have been introduced to reflect this externality to building owners and tenants. The implications of such schemes have previously been documented to affect building financial performance. However, existing studies have focused mostly on the U.S. market and, more importantly, generally include only a limited set of performance metrics. Using a rich, proprietary dataset from one of the largest building owners/managers in North America, the authors investigate the effects of green building certification on non-financial metrics, such as tenant satisfaction, incentives, and lease renewal. Their empirical results show that buildings certified through voluntary labeling schemes generally have a higher probability of lease renewal, offer lower incentives, and have more satisfied tenants. They then study the effects of green building certification on financial metrics, such as rents and occupancy levels. The findings for the U.S. sample unambiguously confirm previously documented results—LEED and ENERGY STAR certified buildings command a small rent premium and have a lower vacancy risk. For Canada, the effects for LEED certified buildings are consistent with U.S. results. The results show that the national green building scheme is not priced in, but that these buildings still offer greater overall stability versus non-certified buildings through increased releasing rates, lower incentives, and substantially higher tenant satisfaction levels. The findings reported in this article provide an important contribution to the understanding of underlying value drivers in more efficient, sustainable buildings and offer some first evidence for the international validity of otherwise mostly U.S.-based studies on the financial performance of more efficient, “green” commercial buildings.

A Global Perspective on Pension Fund Investments in Real Estate

Real estate is the third-largest asset class for institutional investors, but research into the performance of pension fund investments in real estate is scant. This article employs a unique set of data, the CEM database, to study the real estate investment approach, cost, and performance for a global panel of almost a thousand pension funds. The results show that smaller pension funds invest primarily in direct real estate, through external managers and fund-offunds, and are likely to disregard listed property companies in their real estate allocation. Larger pension funds are more likely to invest in real estate internally, exhibit lower costs, and achieve higher net returns. Internal real estate investment management is associated with lower costs and disproportionally higher returns. Finally, we document that U.S. pension plans’ real estate investments significantly underperform both their benchmarks and their foreign peers.

Energy efficiency and household behavior : The rebound effect in the residential sector

Over the years, various efficiency policies have been designed and implemented to reduce residential energy consumption. However, it is very common that the policy expectations that are based upon engineering calculations do not come true. The widely accepted explanation for the gap between expectation and the realization is the change of household behavior, as the energy efficiency gains change the perceived cost of energy services and thereby generate shifts in consumption patterns – the rebound effect. The real controversy about the rebound effect lies in the identification of its magnitude. In this paper, we estimate the rebound effect in residential energy consumption by comparing the actual gas consumption levels with the ex-ante predictions within a sample of well over 600,000 Dutch dwellings and households. We find a significant deviation between the engineering predictions and the households’ actual energy consumption, a difference which varies by ownership, wealth, income and the actual gas use intensity. Our results show a rebound effect of 26.7 percent among home-owners, and 41.3 percent among tenants. Moreover, we find that these effects are greatest among the lower income-wealth groups, and among households that tend to use more gas than average.

Ecological Responsiveness and Corporate Real Estate

Firms’ real estate choices significantly affect their sustainability, due to real estate’s impact on the natural environment. This paper investigates the ecological responsiveness of firms in specific industries by analyzing the decisions these firms make in occupying office space. We analyze the decisions of more than 11,000 tenants to choose office space in green buildings or in, otherwise comparable, conventional buildings nearby. Controlling for building quality and location, we find that corporations in the oil and banking industries, as well as non-profit organizations, are among the most prominent green tenants. Furthermore, measures of an industry’s human capital intensity are positively related to the propensity to lease green office space. These empirical findings confirm the theoretical framework on economic advantage and institutional pressure as important determinants for the ecological responsiveness of firms.

On the Value of Environmental Certification in the Commercial Real Estate Market

A significant part of the global carbon externality stems from the real estate sector. Environmental certification is often hailed as an effective means to resolve the information asymmetry that may prevent markets from effectively pricing the energy performance of buildings. This study analyzes the adoption and financial outcomes of environmentally certified commercial real estate over time. We document that nearly 40% of space in the 30 largest U.S. commercial real estate markets holds some kind of environmental certification in 2014, as compared to less than 5% in 2005. Tracking the rental growth of 26,212 office buildings, we measure the performance of environmentally certified real estate over time. We document that certified office buildings, on average, have slightly higher rental, occupancy and pricing levels, but do not outperform non‐certified buildings in rental growth over the 2004–2013 period. Further performance attribution analysis indicates that local climate conditions, local energy prices and the extent of certification lead to significant heterogeneity in market pricing. On aggregate, these findings provide some evidence on the efficiency of the market in the adoption and capitalization of environmental characteristics in the commercial real estate market.

Big Data in Real Estate? From Manual Appraisal to Automated Valuation

Real estate is the third-largest asset class for institutional investors, but determining the value of commercial real estate assets remains elusively hard. In this article, the authors provide a practical application of big data by employing a unique set of data on U.S. multifamily assets, in combination with sophisticated modeling techniques, to develop an automated, machine-based valuation model for the commercial real estate sector. The authors find strong evidence of the superiority of automated valuation models over traditional appraisals: The absolute error of the automated model is 9%, which compares favorably against the accuracy of traditional appraisals, and the model can produce an instant value at every moment in time at a very low cost. The authors also provide evidence of the importance of using hyperlocal information on the location of an asset. The model developed in this article is directly applicable for real estate lenders and investors and has important implications for the traditional appraisal industry.