Environmental Performance of Commercial Real Estate: New Insights into Energy Efficiency Improvements

Abstract

This article provides new insights into the performance of commercial real estate, focusing on the environmental performance of institutional assets. The authors employ a proprietary dataset of energy consumption data that includes more than 26,000 buildings between 2009 and 2018. They document that, in their sample of commercial real estate, the median energy intensity decreased by more than 40% over the decade. Using a difference-in-difference analysis, the authors find that adoption of environmental building certification (Leadership in Energy and Environmental Design) is associated with significantly lower energy consumption and that there is substantial variation in these effects, depending on certification level and program, and label tenure. Moreover, specific interventions aimed at improving the energy efficiency of buildings considerably reduce ex post energy consumption, with effects varying based on local climatic conditions.

TOPICS: Real estate, ESG investing

Key Findings

• • Real estate investors and lenders have started to consider environmental certification and/or energy efficiency in financing and underwriting decisions.

• • We find that green building certification and investments in energy efficiency lead to significant reductions in building energy consumption.

• • The median energy consumption of commercial real estate decreased by 42% over the past decade.