Risk and Return of Green Buildings—Equally Low Vacancies and Higher Rents in MINERGIE-Certified Apartments in Switzerland

Abstract

This study examines whether MINERGIE-certified multifamily houses exhibit higher occupancies in Switzerland; that is, better rentability and less risk. Various studies have shown that green buildings exhibit higher rents and sales prices than conventional properties. However, a risk–return-conscious investor needs to consider both dimensions. Thus far, little empirical research has been conducted concerning the risk side; that is, the occupancies of green residential buildings. This study estimates rents and occupancies in a structural simultaneous equation system. The regression results show robust estimates for the two-stage least squares instrumental variables approach and the ordinary least squares regressions. The hedonic regression results reveal no statistically significant effect on occupancies, though they show a green rent premium of approximately 3% to 5%. Against the background of a lessor market with demand exceeding supply, the advantages of a MINERGIE-certified house—that is, lower energy costs and better living quality and comfort—yield an increased willingness to pay. Given the excess demand in the Swiss housing market, no green risk-mitigating advantages in rentability—that is, an increased occupancy premium—could be identified.

Keywords

• Green buildings
• hedonic regression
• risk return
• MINERGIE
• occupancy premium