GREEN PREMIUMS OR BROWN DISCOUNTS: WHAT IS THE EFFECT OF GREEN MARK ON OFFICE BUILDINGS?

Abstract

Singapore is one of the greenest cities in the world. With BCA reporting more than 40% of Singapore total gross floor area has been certified by the BCA Green Mark Scheme as of December 2019. However, as more buildings get certified, discussions of a “brown discount” emerges. Will the market reach a point where green premiums cease to exist? This paper acts as a temporal study to identify the existing green premium, and the trend of building-level price premiums between green certified and non-green certified commercial office properties by analysing commercial office building transactions from 2007 to 2020. Furthermore, spatial regressions will be carried out to ascertain whether there is a clustering of green buildings in Singapore. Hedonic regressions confirmed the existence of a 20% green sales price premium after controlling for property, time and locational attributes, with varying premiums across certification bands of Platinum, Gold Plus, Gold and Certified ranging from 11-34%. The empirical results also suggest an increasing green premium trend as of 2020 that has yet to reverse toward a “brown discount”. Lastly, spatial regressions did not identify significant spatial correlation among green buildings, but confirmed the robustness of the 20% green sales price premium from the hedonic regression. This provides evidence that green certification still yields benefits such as a sales premium, and a unique selling point in the locality; rationalising the business case for the greening of office buildings. The paper also recommends bolder green policies whilst green premiums still exist to incentivise building owners on the support of greening actions.