Green performs better! - Economic impact of energy performance certificates in germany
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The purpose of this paper is to investigate the effect of energy consumption on the financial performance of German residential buildings in a large panel framework. The authors provide evidence that energy efficiency in the residential sector is a relevant factor affecting both tenant investment decisions and consequently the performance of investor portfolios.
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Green performs better! - Economic impact of energy performance certificates in germany
- 1. The Effect of Environmental Performance on the Value of Buildings Marcelo Cajias and Daniel Piazolo European Real Estate Society ERES – Conference 2012 Edinburgh, Scotland – June 2012 Supported by:
- 2. 2 Agenda 1. Introduction 2. Sample Description 3. Hedonic Regression Results 4. Summary and Conclusions
- 3. 3 • The European Union aims to reduce its CO2-Emissions by 20% until 2020 • The real estate industry plays a important role given its intergenerational impact, long life building cycle and high energy consumption. • The European legislation supports “the transition of the real estate sector towards energy efficiency” and states that “all EU Member States must implement mandatory certification of new and existing buildings”1 . • The Energy Performance Certificates (EPC) enhance the transparency within investment decisions in providing potential buyers and occupiers detailed information about the energetically quality of the building and possible energy-saving potential. 1. Introduction Sustainable Development and Real Estate 1) Energy Performance of Buildings Directive, 2012: http://www.epbd-ca.eu/themes/certification-schemes
- 4. 4 1. Introduction Development of legal frameworks in the German real estate industry Source: IRE|BS Competence Center of Sustainable Real Estate 2012 © 1st Energy Saving Ordinance EnEV 2001 2007 2nd EnEV 3rd EnEV Renewable Energies Heat Act - EEWärmeG 4th EnEV Fukushima Requirements Increasingdemands German Sustainability Strategy ·Reduction of heat demand by 20% ·Rate of modernisation to double to 2% ·Reduction of primary energy demand by 80% ·Nearly carbon-neutral buildings Year 2008 2009 2010 2011 2012 2013 2020 2050 EPBD Energy Performance of Buildings Directive Significant impact on economic factors and real estate (investment) decisions
- 5. 5 2. Sample Description 6 8 10 12 48505254 OMEGA_Wohnen$Latitude Residential Office+Retail 8 10 12 Residential Office+Retail 70% 75% 80% 85% 90% 95% 100% Thuringia Schleswig- Holstein North Rhine- Westphalia Lower Saxony Hesse Bremen Berlin Bavaria Baden- Wuerttemberg 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Thuringia Schleswig-Holstein Saxony-Anhalt Saxony Saarland Rhineland-Palatinate North Rhine- Westphalia Lower Saxony Mecklenburg-Hither Pomerania Hesse Hamburg Bremen Brandenburg Berlin Bayern • Geo-referenced data from: • Investment Property Databank IPD-Germany • Destatis: Federal Statistical office • Thomson Reuters Datastream • 920 Residential buildings and 150 office and retail buildingsfrom 2008 until 20102 • Concentration in the west /south-west of Germany, specially in the states: Baden-Wurttemberg and North Rhine-Westphalia and Bavaria • 90% of the sample obtained an EPC due to rent or buying contracts. Sample Description Source: IRE|BS Competence Center of Sustainable Real Estate 2012 © 2) Varying sample over time
- 6. 6 2. Sample Description Descriptive Statistics of the Energy Performance Certificates Residential Buildings Office + Retail Buildings Energy Class A B C D E F G A B C D E F G Total Return / 9.64% 8.51% 8.04% 3.72% 4.59% 5.92% -0.06% 3.98% 4.71% 0.54% -0.33% 0.50% 2.74% Market Value / 1289.2 Tsd. € 904.2 Tsd. € 1436.7 Tsd. € 857.5 Tsd. € 662.7 Tsd. € 361.6 Tsd. € 8591.5 Tsd. € 6745 Tsd. € 13279.4 Tsd. € 13989.5 Tsd. € 15571.0 Tsd. € 9330.0 Tsd. € 10483.9 Tsd. € Income Return / 4,78% 4,99% 4,94% 4,55% 3,89% 3,28% 3,88% 5,64% 6,65% 3,88% 3,55% 4,34% 3,04% No. Obs. 0 15.9% 38.2% 15.0% 11.9% 9.1% 9.9% 3.1% 19.3% 43.9% 8.5% 7.6% 5.6% 11.9% A B C D E F G A B C D E F G
- 7. 7 2. Sample Description Mean Total Return by Market Value and Energy Performance Energy Performance [kWh/qm/a] MeanTotalReturn[%] Q[MarketW] 1 Q[MarketW] 2 Q[MarketW] 3 Q[EPC] 1 Q[EPC] 2 Q[EPC] 3 Q[EPC] 4 Q[EPC] 5 Q[EPC] 6 -30%-24%-18%-12%-6%0%6%12% • The graph shows the mean of building´s total return of portfolios formed across ascending market values and ten energy performance categories. • Thus, buildings with low energy consumption show on average higher total returns than buildings with low energy efficiency. • Within small assets (Q1), the premium between high and low energy efficiency is 3.423%, whereas within large assets (Q6), the premium is only 0.602%. • Overall, energy consumption has on average an positive impact on the invested capital of residential buildings. Portfolio of Buildings across Energy Categories: Residential Sample Low Market Value Low Efficiency High Market Value Mean Total Return by Market Value and Energy Performance Energy Performance [kWh/qm/a] MeanTotalReturn[%] Q[MarketW] 1 Q[MarketW] 2 Q[MarketW] 3 Q[MarketW] 4 Q[MarketW] 5 Q[MarketW] 6 Q[EPC] 1 Q[EPC] 3 Q[EPC] 5 Q[EPC] 7 Q[EPC] 9 0%2%4%6%8%10%12%14% High Efficiency
- 8. 8 2. Sample Description • The graph shows the mean of building´s total return of portfolios formed across ascending market values and across six energy performance categories. • Office and retail buildings don't show a common pattern • Between 2008 and 2010 large and mid assets with low energy performance obtained 2.243% and 1.214% more return than high efficiently assets. • Thus, energy efficiency seems not to affect the performance of office and retail assets in Germany Portfolio of Buildings across Energy Categories: Office/Retail Sample Low Market Value High Market Value High Efficiency Low Efficiency Mean Total Return by Market Value and Energy Performance Energy Performance [kWh/qm/a] MeanTotalReturn[%] Q[MarketW] 1 Q[MarketW] 2 Q[MarketW] 3 Q[EPC] 1 Q[EPC] 2 Q[EPC] 3 Q[EPC] 4 Q[EPC] 5 Q[EPC] 6 -30%-24%-18%-12%-6%0%6%12% Mean Total Return by Market Value and Energy Performance Energy Performance [kWh/qm/a] MeanTotalReturn[%] Q[MarketW] 1 Q[MarketW] 2 Q[MarketW] 3 Q[EPC] 1 Q[EPC] 2 Q[EPC] 3 Q[EPC] 4 Q[EPC] 5 Q[EPC] 6 -30%-24%-18%-12%-6%0%6%12%
- 9. 9 Hedonic OLS-Panel-Regression Linear-Log-Linkage between Total Return and Energy Efficiency 2. Sample Description Econometrical Methodology TRi,j,t = Xi,tβ + Zj,tδ + Wiθ + EPCi,tα + Lati ∙ αX + Long ∙ αY + μt αt + μj αj + εi,j,t Building Attributes Regional Macroeconomical Factors Building Age Distance CBD Energy Efficiency Year Dummies State Dummies Latitude Longitude Total Return i = Buildings j = Region t = Year Compound Error Term
- 10. 10 3. Results • 1% increase in the energy consumption decreases building´s total return by +0.019%. (column 1) • A significant effect up to +0.059% and +0.026% return p.a. for 2008 and 2010 respectively. (column 2,4) • In 2009 assets with high energy efficiency presented a - 0.018% lower total return on average. (column 3) • The return of buildings with abnormal EPC-values is 0.020% higher than low energy efficient assets. (column 5) • The hedonic regressions explain about 20% of the sample variation and reject the F-Overall Test. Dependent Variable: Total Return Log (Energy Performance) EPC Binary Energy Measurement All Sample Sample 2008 Sample 2009 Sample 2010 All Sample Variables Coeff t-Value Coeff t-Value Coeff t-Value Coeff t-Value Coeff t-Value Intercept 92.290 2.196 69.414 0.914 176.221 2.670 281.941 4.314 85.419 2.059 Log ( EPC ) [kWh/qm/a] -1.875 -2.916 -5.855 -4.350 1.829 1.978 -2.588 -2.697 EPC high? -1.989 -3.659 Population -0.438 -1.287 1.164 1.867 -0.791 -1.441 -0.865 -1.679 -0.452 -1.337 GDP Region 1.302 0.377 6.536 1.214 -1.666 -0.300 -31.290 -4.791 0.975 0.282 Control Variables 26 Included 24 Included 24 Included 24 Included 26 Included R² 16.99% 28.94% 17.04% 9.40% 17.07% OLS – Regression Residential Sample
- 11. 11 3. Results • The impact of energy efficiency is not plainly. • An insignificant effect of -0.002% on average was to observe. (column 1) • Of great interest: The development of the energy coefficient between 2008 until 2010. (column 2,3,4) • Nevertheless, a portfolio of buildings with abnormal EPC-values generated +0.023% return. (column 5) • The hedonic regressions explain about 30% of the sample variation and reject the F-Overall Test. OLS –Regression Office/Retail Sample Dependent Variable: Total Return Log (Energy Performance) EPC Binary Energy Measurement All Sample Sample 2008 Sample 2009 Sample 2010 All Sample Variables Coeff t-Value Coeff t-Value Coeff t-Value Coeff t-Value Coeff t-Value Intercept 18.567 0.308 -39.098 -0.393 230.410 2.275 -137.756 -1.636 21.529 0.357 Log ( EPC ) [kWh/qm/a] -0.207 -0.290 6.881 1.930 1.140 0.994 -0.813 -0.866 EPC high? -2.270 -1.896 Population 0.181 0.246 -0.361 -0.292 1.895 1.428 -0.706 -0.634 0.159 0.219 GDP Region -8.464 -2.151 -0.120 -0.022 -20.507 -3.037 -1.515 -0.270 -8.369 -2.101 Control Variables 29 Included 27 Included 27 Included 27 Included 29 Included R² 25.58% 50.20% 36.21% 34.68% 26.18%
- 12. 12 3. Results Energy Performance Categories and Total Returns _= -1.88*** 0% 1% 2% 3% -1% -2% -3% A CB D E F G +0.41% +1.03% Total Return Energy Performance -2.67% +1.57% -0.81% -2.60% -3.38% -1.57% Residential Buildings R²=17.07% Office+Retail Buildings R²=27.49% +2.84%** +2.02%** +2.41%** The Effect of Energy Performance Categories on Building´s Total Return p-V <0.01 *** _= -0.21 Coefficients multiplied by 100
- 13. 13 4. Summary and Conclusions • A market response to climate change has been observed since the establishment of certification labels. • In Europe and Germany, the requirements concerning the energy performance of buildings have been increasing continuously across the last 10 years. • Energy potentials pay off whenever the financial benefits are higher than the lost investment opportunities. • Thus, the willingness to pay for energy savings may be transferred to diminished operational costs affecting the property value positively. • In the case of residential buildings, our results show that 1% energy savings lift building´s performance by ca. 0.02% on average. However, the link between efficiently usage of energy and performance of office and retail buildings still a potential challenge. The Effect of Energy Performance on the Value of Buildings
- 14. The Effect of Environmental Performance on the Value of Buildings Marcelo Cajias and Daniel Piazolo European Real Estate Society ERES – Conference 2012 Edinburgh, Scotland – June 2012 Supported by:
- 15. 15 Contact Details Marcelo Cajias IRE|BS Competence Center of Sustainable Real Estate University of Regensburg Universitätsstraße 31 / Vielberth Building VG308 D-93040 Regensburg Tel.: +49 (0) 941 943-6012 Fax: +49 (0) 941 943-816013 Mail: marcelo.cajias@irebs.de
- 16. 16 3. Results Energy Performance Categories and Income Returns 0% 1% 2% 3% -1% -2% -3% A CB D E F G +1.46%*** +1.03%*** Income Return Energy Performance -1.03% +1.22%* 0.70% -0.25% -0.07% 0.80% Residential Buildings R²=16.21% Office+Retail Buildings R²=35.23% +1.47%*** +1.69%*** +1.64%*** The Effect of Energy Performance Categories on Building´s Income Return p-V <0.01 *** _= -0.79*** _= -0.17