More than a Green Certificate : Green Leases and Investment Return in Commercial Real Estate

Green leases in commercial real estate have gained widespread attention from real estate investors in recent years. As an appendix to the lease contract, a green lease is designed to reduce energy consumption in buildings and ensure compliance with climate targets in their markets. Using a unique database, we study 7,246 leases in 376 commercial assets to determine whether green leases lead to higher investment returns. We find significant green lease premiums on investment returns in commercial assets. A 1% increase in green leases raises the rent by 0.29% and the net asset value by 0.38% and decreases the operational expenditure ratio by 0.03% on average. The results are robust with the propensity score matching method and using an instrumental variable to address the unobserved confounding factors