PurposeThe purpose of this paper is to investigate the effect of energy consumption on the financial performance of German residential buildings in a large panel framework. The authors provide evidence that energy efficiency in the residential sector is a relevant factor affecting both tenant investment decisions and consequently the performance of investor portfolios.Design/methodology/approachBased on the IPD Database and information from the German statistical office, the authors create portfolios of buildings across several energy consumption levels in order to describe the energy pricing mechanism in the context of total return and rent price. Furthermore, the authors apply conditional and unconditional regressions over the period of 2008 and 2010, to accurately quantify the energy price premium in the German residential market.FindingsThe descriptive portfolio results show that energy‐efficient buildings yield an up to 3.15 percent higher return and 0.76 €/m2 higher rent than inefficient buildings. Furthermore, the regression results indicate that a one percent decline in energy consumption affects the total return of buildings positively by +0.015 percent. The hedonic results additionally show that one percent energy conservation boosts rent prices by +0.08 percent and market value by +0.45 percent, ceteris paribus.Originality/valueOverall, the study presents an alternative methodology for describing and estimating hedonic datasets and offers some initial empirical evidence on the energy price premium in German residential markets. The paper contributes to prior European studies regarding the use and implications of energy performance certificates and confirms their significant impact on residential housing performance variables.
This paper investigates the relationship between corporate social and environmental performance and financial performance for a sample of publicly traded US real estate companies. Using the MSCI ESG (formerly KLD) database on seven Environmental, Social & Governance dimensions in the 2003-2010 period, and weighting the dimensions according to prominence in the real estate sector, we model Tobin's Q and annual total return in a panel data framework. The results indicate a positive relationship between ESG rating and Tobin's Q but this effect is driven by ESG concerns rather than strengths. Consistently across all model specifications, overall ESG ratings are associated with lower returns. Negative scores appear to result in higher returns, at least in the short run, but positive scores have no significant impact on returns. REFERENCE to this paper should be made as follows: Cajias, M.; Fuerst, F.; McAllister, P.; Nanda, A. 2014. Do responsible real estate companies outperform their peers?, International Journal of Strategic Property Management 18(1): 11-27.
Purpose The purpose of this paper is to test the asymptotic properties and prediction accuracy of two innovative methods proposed along the hedonic debate: the geographically weighted regression (GWR) and the generalized additive model (GAM). Design/methodology/approach The authors assess the asymptotic properties of linear, spatial and non-linear hedonic models based on a very large data set in Germany. The employed functional form is based on the OLS, GWR and the GAM, while the estimation methodology was chosen to be iterative in forecasting, the fitted rents for each quarter based on their 1-quarter-prior functional form. The performance accuracy is measured by traditional indicators such as the error variance and the mean squared (percentage) error. Findings The results provide evidence for a clear disadvantage of the GWR model in out-of-sample forecasts. There exists a strong out-of-sample discrepancy between the GWR and the GAM models, whereas the simplicity of the OLS approach is not substantially outperformed by the GAM approach. Practical implications For policymakers, a more accurate knowledge on market dynamics via hedonic models leads to a more precise market control and to a better understanding of the local factors affecting current and future rents. For institutional researchers, instead, the findings are essential and might be used as a guide when valuing residential portfolios and forecasting cashflows. Even though this study analyses residential real estate, the results should be of interest to all forms of real estate investments. Originality/value Sample size is essential when deriving the asymptotic properties of hedonic models. Whit this study covering more than 570,000 observations, this study constitutes – to the authors’ knowledge – one of the largest data sets used for spatial real estate analysis.
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