A Decade of NABERS Energy: The effect of public energy performance rating disclosures on office asset energy consumption and rental prices

Abstract

Market differentiation of property assets on the grounds of environmental attributes, particularly energy efficiency, is becoming a common activity aimed at mitigating greenhouse gas emissions and other environmental ills. Existing assets have largely been omitted from this differentiation strategy despite their importance in models of environmental impacts. In the first comprehensive quantitative examination of the environmental effects of an intervention to differentiate existing commercial office assets based on energy consumption characteristics in Australia, this thesis finds that repetitive participation in the energy performance rating scheme NABERS [National Australian Built Environment Rating System] Energy, is strongly associated with improvement in asset energy efficiency and, by extension, mitigation of greenhouse gas emissions. Further study of the motivation to participate in asset energy consumption differentiation finds no statistical difference between early voluntary adopters and later adopters forced into participation through mandatory disclosure regulations. This thesis then explores the property market effects of asset differentiation by testing the common assumption that tenants are willing to alter rent bids as a function of energy consumption. After constructing a database of lease transactions directly from hundreds of registered lease contract dealings in central Sydney, empirical models of the market demonstrate that there is no consistent signal of tenants willing to pay higher rent for accommodation in an energy efficient asset, all else being equal. If the Sydney market analysis is segmented to only include prime assets, a weak signal of a positive association between energy efficiency and rent emerges, suggesting that asset energy efficiency behaves like a luxury good in the Sydney market; only wealthy tenants are willing to pay for energy efficiency. In comparison with the existing literature on asset-scale effects of energy efficiency, it appears that private investments in energy efficiency affect capital returns, not income returns. This finding has a number of implications for the industry, most notably an argument that split incentives – where owners invest but tenants benefit from the operational improvements – are not a significant barrier to capital investment in greenhouse gas mitigation. A new theory of tenant indifference to energy costs is presented to integrate these results with the existing literature.