The impact of building location on green certification price premiums: Evidence from three European countries

Green building certification has gained global prominence in the wake of the recent calls for ensuring the sustainable development of expanding urban areas. This trend rooted in the fact that buildings are among the main sources of energy consumption and CO2 emissions. Green certification therefore emerged in response to sustainability concerns throughout the building sector. Nonetheless, the significant costs required by green investments have elicited scholars' attention, in an attempt to determine if the benefits of green certification outweigh its costs. This study uses a proprietary data-set of office building transactions from three major European countries - Finland, France, and Germany - in order to analyze the price premium of green certification over the 2010-2015 period. Considering the increasing demand for certification in the European Union (EU) after 2010, it is expected that green office buildings would sell at higher prices relative to non-green buildings. Empirical tests suggest that office buildings with green certification have a 19 percent higher price relative to non-certified buildings. Further, the study aims to assess whether the premium varies with the location of the green buildings within the urban area. Given the price premium brought by a central location - irrespective of green certification - it is expected that the price premium of green investments would incrementally increase in non-central locations. The distance variable is hand-constructed based on geocoding all properties in the dataset - empirical results indicate that the green certification price premium incrementally increases by 10.5 percent for 1-km distance from the city center. Further tests show that the distance effect becomes insignificant in both (i) large cities and (ii) cities of under 200,000 inhabitants. In these two contingencies, the price premium associated with central locations is reduced - which also diminishes the relevance of the green buildings' location. The empirical results are robust to eliminating 2010 and 2011 from the sample and to employing a propensity score matching approach, aimed at increasing the similarity of the treatment and control groups. This paper adds to the rising literature on the topic of green buildings, as it is the first international study to assess the price impact of green certification as a function of office building location