The Evolution and Impact of a Green Office Submarket: A Framework for Analysis and a Research Agenda

Tunbosun B. Oyedokun, Neil Dunse & Colin Jones

Institute for Housing, Urban and Real Estate ResearchSchool of Built EnvironmentHeriot-Watt University, EdinburghUnited Kingdom

Outline Introduction Motivation and Aim Review – Basic Evidences Preliminary Data Research Agenda

Introduction

Offices as important property sector Demand for office space prior ICT Impact of ICT: case of the UK Paradigm shift towards sustainability Emergence of “green office class”

Motivation and Aim

Replete of studies on: Sustainability and green premium Office submarket Rental depreciation in office market Dynamics of office market

Assess the evolution of green office submarket and its impact on non-green office sector

Review – Basic Evidences

Increasing level of acceptance BREEAM signals a new office submarket Green premium still elusive Increasing demand due to perceived benefit

(Eichholtz et al, 2009; BSRIA, 2012)

Increasing supply to meet demand level 4/5 star offices about 69% of London office stock 90% of transaction in London (CoStar, 2013)

Green Office as Investment Class

Review – Basic Evidences

Various studies, various methods Spatial Structural Nested (Watkins, 2001; Dunse & Jones, 2002)

Nature of demanders Intra-urban spatial migration pattern (Jones, et al, 2004)

Hedonic model and similar statistics mostly used Missing variables can mar hedonic output Non-substitutability potential is key in defining

submarket (White & Ke, 2014)

Office Submarket

Demand and supply as basic factors of equilibrium Endo/Exo-genous factors in turn affect the duo Office space models based on interaction between:

Occupier and investment markets (Dipasquale & Wheaton,1992)

Spatially segmented markets (Stevenson, 2007)

Review – Basic Evidences

Dynamics of Office Market

Review – Basic Evidences

Dynamics of Office Market Cont’d

Dipasquale and Wheaton (1992)

Review – Basic Evidences

Dynamics of Office Market Cont’d

Indication of interaction between green and non-green office sectors (Chegut et al, 2014)

Increasing green office supply has: Gentrifying effect on the entire market Reducing effect on green office value

Green premium has been the focus

Preliminary Data

BREEAM as the mark of greenness in the UK Data obtained from BREEAM and CoStar Data on London only as defined by CoStar Analysis based on 162 properties

London by Submarket Cluster - CoStarS/NSubmarket Cluster

1London City2London Docklands3London Fringe4London M25 Corridor NE*5London M25 Corridor NW6London M25 Corridor SE7London M25 Corridor SW8London Midtown9London Southbank

10London West End11London Western Corridor

These are further divided in submarkets.

*No data

MertonBarnet

Richmond uponThamesDocklands Fringe

KnightsbridgeSouthbank West

PaddingtonHammersmith

BrentEalingSoho

BloomsburyClerkenwell

WestminsterNoho

Western FringeSt James's

Northern FringeEastern Fringe

VictoriaMarylebone

HounslowCroydon

HillingdonCovent Garden

MayfairHolborn

City Core WestSouthbank East

City FringeDocklands Core

City Core EastCity Core North

0 2000000 4000000 6000000 8000000 10000000 12000000 14000000 16000000

 RBA Total

 RBA BREEAM

Rentable Building Area (SF)

London by Submarkets: BREEAM vs Total

BREEAM - London Submarket Clusters

London Southbank

London West End

London Docklands

London City

London Midtown

London M25 Corridor SW

London Fringe

London M25 Corridor SE

London Western Corridor

London M25 Corridor NW

0 5 10 15 20 25 30 35 40

% BREEAM

Status Area (SF)BREEAM 25694206All market 95017697

Total Rentable Building Area: BREEAM vs Total

Approximately 27%

Growth of green office rentable space in London

Using 162 office properties from CoStar Beginning from 1997 Year of construction or refurbishment used as year

greenness was achieved

Green office rentable space in London

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

0

5000000

10000000

15000000

20000000

25000000

BREEAM C-BREEAM

Research Agenda

Green office submarket development Identification of green office submarket Dynamics of green office submarket

Green office submarket development

Trend in flow and volume of investment in green offices

Trend in green office space supply using BREEAM certification as benchmark

Identifying Green Office Submarket

Nature of occupiers

Non-substitutability

potential

GREEN OFFICE

SUBMARKET

Office relocation

pattern

Identification matrix

Dynamics of Green Office Submarket Modeling based on:

Endogenous variables from both submarkets

- demand, supply and rent Exogenous variables: macroeconomic indicators

Expectations In the short-run, rental depreciation in the non-

green sector will be determined by stock, completions and occupancy in the green submarket

In the long-run, green office supply will be influenced by refurbishment/redevelopment in the non-green market.

More results are possible

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