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Lease structures and occupancy costs in eco-labeled buildings

Jeremy Gabe (School of Business, University of San Diego, San Diego, California, USA)
Spenser Robinson (Central Michigan University, Mt. Pleasant, Michigan, USA)
Andrew Sanderford (College of Architecture, Planning, and Landscape Architecture, University of Arizona, Tucson, Arizona, USA)
Robert A. Simons (Cleveland State University, Cleveland, Ohio, USA)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 3 October 2019

Issue publication date: 23 January 2020

434

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.

Keywords

Citation

Gabe, J., Robinson, S., Sanderford, A. and Simons, R.A. (2020), "Lease structures and occupancy costs in eco-labeled buildings", Journal of Property Investment & Finance, Vol. 38 No. 1, pp. 31-46. https://doi.org/10.1108/JPIF-07-2019-0098

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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