FV-79 Swiss Investors' Decidion-Making in the Field of Energy Effient Real Estate
Third-party funded project
Project title FV-79 Swiss Investors' Decidion-Making in the Field of Energy Effient Real Estate
Principal Investigator(s) Gantenbein, Pascal
Kachi, Aya
Organisation / Research unit Departement Wirtschaftswissenschaften / Finanzmanagement (Gantenbein),
Departement Wirtschaftswissenschaften / Political Economics of Energy Policy (Kachi)
Project start 01.01.2020
Probable end 31.12.2021
Status Active
Abstract

The building sector accounts for 50% of energy consumption in Switzerland. Therefore, it is vital to analyse drivers for the supply of low-energy-consuming properties; e.g., buildings with Minergie labels. Our 2019 WWZ-FV project has focused on a price-oriented driver; namely rent premiums linked to Minergie labels. Using data of 370,000 properties (12,500 are Minergie labelled), we found a 3-5% rent premium for residential real estate in Switzerland which is attributable to the label itself. Due to the (very) large dataset with a richer set of property features we compiled, our findings are novel and far more reliable than those of existing studies that attempted similar estimation. Yet, from property investors’ perspective, identifying opportunities for higher rental income from Minergie buildings is only one aspect of their investment decisions. For them, the real question is if investments in energy efficient buildings (incl. renovations & retrofits) pay off; i.e., profitability of the investment. Thus, we must consider the extra building costs that arise from upgrading energy efficiency. Furthermore, investment decisions depend also on investors’ knowledge or perceptions about profitability.

Despite the criticality of profitability for property investors, the only type of profitability considered in empirical literatures is a vacancy rate. After all, a building with an eco label that lacks tenants brings no profit. However, the Swiss residential rental market exhibits close to 100% occupancy. Instead, the real costs incurred by green building investments are more salient factors of profitability in our context. Despite the seeming conceptual clarity of integrating costs and assessing profitability, it is anything else than trivial to integrate upfront investments (e.g., isolation, ventilation, solar PV, and non-fossil-fuel heating systems) as well as to calculate the annual (periodic) cost difference between operating a green versus a non-labelled property. Moreover, even if profitability can be measured and is known, there are some more crucial empirical questions to be answered: (1) if investors are aware of these facts (knowledge/perceived costs), and (2) if their investment decisions depend only on “economic benefits” or also on factors like “sustainability branding” supported by certificates.

Hence, investigating the effect of both actual and investors’ perceived profitability on the respective decision-making regarding green buildings is a logical next step following from our previous rent premium analyses. In other words, to understand the supply-side of sustainable real estate, we draw on our latest findings on the market implications of eco labelling and now ask investors’ decision-oriented research questions: RQ1: What are best estimates for the upfront and periodic costs of operating green buildings? / RQ2: How do the rent premiums for Minergie labels translate to investors’ effective profitability? / RQ3: Do investors’ knowledge about rent premiums, costs, and profitability in the Swiss real estate market diverge from the actual measures? Which drives investment decisions?

Financed by Foundations and Associations
   

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12/08/2020