The capitalization of sustainability within the Dutch office market
This paper examines the effect of energy efficiency on the prices of both rental and sales transactions within the office property market in the Netherlands. This is considered one of the most tangible elements of sustainability since it offers a crucial opportunity for conserving resources. The existing literature provides strong evidence for the claim that sustainability translates into positive price premiums. While the literature predominantly examines the green premium using the hedonic pricing method, the approach to control for one of the most important price determinants, location, did not find any consensus yet. This study pioneers by including urbanization into this research, resulting in a more parsimonious model. Overall, the findings in this paper provide strong evidence to affirm the prevailing green premium, provide no persuasive evidence – but does show potential – for a moderating effect of the prospective label-C restriction announced in October 2016, and shows the effectiveness of urbanization as an alternate approach to overcome common identification issues. The findings of this paper are relevant for investors that are confronted with required investments in energy improvements, as the importance of energy efficiency is bound to increase following stricter environmental regulations. For policymakers, the results provide an indication of the effectiveness of the EPC labeling system and further guidelines for accelerating the greening of the built environment.