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|Title||How Green Buildings Mitigate Risk|
|Institution||University of Zurich|
|Faculty||Faculty of Economics, Business Administration and Information Technology|
|Number of Pages||80|
|Abstract Text||Since its launch in 1998, the Swiss Minergie label for energy-efficient and sustainable buildings is on its road to success. Thereby, Minergie certifies different kinds of constructions and sets new standards in the building industry. Building according to Minergie standards entails extra costs for certification, planning and building materials, which will cost up to 10% more than conventional buildings. However, as the surge of new Minergie certifications points out, there seems to be a significant demand for Minergie buildings on the Swiss real estate market. Moreover, there is academic evidence that the residential real estate market rewards Minergie buildings with higher sales prices and rents compared to conventional counterparts. This difference is also called a green premium and expresses the higher willingness to pay for a green building than for a conventional building exhibiting the same characteristics and location. The study of Salvi et al. (2008) shows by means of hedonic regression analysis, that there exists a green premium of transaction prices for single-family homes of 7% and for condominiums of 3.5% in the canton of Zurich. Therefore, the premium prices for Minergie at least break even with the up-front additional costs paid of 5 to 10% on average. In a more recent study, Salvi et al. (2010) examines the residential rental market in Switzerland, more specifically in Zurich. The authors again run hedonic regression models and the results reveal a nationwide green premium for net rent of 6.0% and for the canton of Zurich a premium for net rent of 6.2% in the residential real estate sector. As the two leading Swiss studies from above show, research has been mainly focused on the residential sector, whereas little research exists for the commercial sector. This might be mostly explained by the fact that 87% of all definite Minergie certified buildings are single- and multi-family homes. Moreover, data availability for sensitive property information is scarce. Thus, these circumstances led to a research gap on green premia in the commercial sector of Switzerland. Additionally, the existing studies concentrate exclusively on premia on sales prices and rents, whereas risk-mitigating factors as higher occupancies are left out. However, a risk-return conscious investor will need to asses both dimensions in order to take an educated investment decision. Hence, the question arises if and to what extent Minergie-certified commercial offce buildings show premia in sales prices and rents compared to their non-certified counterparts. Moreover, the question remains if and how green buildings affect occupancy rates in the residential as well as commercial market.|