Effect of "Green" (LEED and ENERGY STAR) Designation on Prices/sf and Transaction Frequency: The Chicago Office Market

Executive Summary. This is an empirical study of the economics of green (LEED and ENERGY STAR) designation among all downtown Chicago office transactions spanning 12 years. Green properties achieve on-average higher occupancies and prices / sf compared to non-green properties. The hedonic, repeat-sale, and transaction frequency models applied provide evidence of the price "bubble" in 2006–07 and the importance of green designation. LEED properties sold for a 23% price / sf premium, while an ENERGY STAR designation had no effect. Also, LEED Class A properties transacted 68% less than non-LEED, while ENERGY STAR Class B properties transacted 23% more than non-ENERGY STAR. These findings are consistent with the hypothesis that significant capital expenditures for achieving a greener property require longer cost recovery holding periods.