The Evolution and Impact of a Green Office Submarket: A Framework for Analysis and a Research Agenda Tunbosun B. Oyedokun, Neil Dunse & Colin Jones Institute for Housing, Urban and Real Estate Research School of Built Environment Heriot-Watt University, Edinburgh United Kingdom

Outline Introduction Motivation and Aim Review – Basic Evidences Preliminary Data Research Agenda

Introduction Offices as important property sector Demand for office space prior ICT Impact of ICT: case of the UK Paradigm shift towards sustainability Emergence of “green office class”

Motivation and Aim Replete of studies on: Sustainability and green premium Office submarket Rental depreciation in office market Dynamics of office market Assess the evolution of green office submarket and its impact on non-green office sector

Review – Basic Evidences Green Office as Investment Class Increasing level of acceptance BREEAM signals a new office submarket Green premium still elusive Increasing demand due to perceived benefit (Eichholtz et al, 2009; BSRIA, 2012) Increasing supply to meet demand level 4/5 star offices about 69% of London office stock 90% of transaction in London (CoStar, 2013)

Review – Basic Evidences Office Submarket Various studies, various methods Spatial Structural Nested (Watkins, 2001; Dunse & Jones, 2002) Nature of demanders Intra-urban spatial migration pattern (Jones, et al, 2004) Hedonic model and similar statistics mostly used Missing variables can mar hedonic output Non-substitutability potential is key in defining submarket (White & Ke, 2014)

Review – Basic Evidences Dynamics of Office Market Demand and supply as basic factors of equilibrium Endo/Exo-genous factors in turn affect the duo Office space models based on interaction between: Occupier and investment markets (Dipasquale & Wheaton,1992) Spatially segmented markets (Stevenson, 2007)

Review – Basic Evidences Dynamics of Office Market Cont’d Dipasquale and Wheaton (1992)

Review – Basic Evidences Dynamics of Office Market Cont’d Indication of interaction between green and non-green office sectors (Chegut et al, 2014) Increasing green office supply has: Gentrifying effect on the entire market Reducing effect on green office value Green premium has been the focus

Preliminary Data BREEAM as the mark of greenness in the UK Data obtained from BREEAM and CoStar Data on London only as defined by CoStar Analysis based on 162 properties

London by Submarket Cluster - CoStar S/N Submarket Cluster 1 London City 2 London Docklands 3 London Fringe 4 London M25 Corridor NE* 5 London M25 Corridor NW 6 London M25 Corridor SE 7 London M25 Corridor SW 8 London Midtown 9 London Southbank 10 London West End 11 London Western Corridor These are further divided in submarkets. *No data

London by Submarkets: BREEAM vs Total

BREEAM - London Submarket Clusters

Approximately 27% Status BREEAM Area (SF) All market 25694206 Total Rentable Building Area: BREEAM vs Total Status Area (SF) BREEAM 25694206 All market 95017697 Approximately 27%

Growth of green office rentable space in London Using 162 office properties from CoStar Beginning from 1997 Year of construction or refurbishment used as year greenness was achieved

Green office rentable space in London

Research Agenda Green office submarket development Identification of green office submarket Dynamics of green office submarket

Green office submarket development Trend in flow and volume of investment in green offices Trend in green office space supply using BREEAM certification as benchmark

Identifying Green Office Submarket Nature of occupiers Non-substitutability potential GREEN OFFICE SUBMARKET Office relocation pattern Identification matrix

Dynamics of Green Office Submarket Modeling based on: Endogenous variables from both submarkets - demand, supply and rent Exogenous variables: macroeconomic indicators

Expectations In the short-run, rental depreciation in the non-green sector will be determined by stock, completions and occupancy in the green submarket In the long-run, green office supply will be influenced by refurbishment/redevelopment in the non-green market. More results are possible

THANKS FOR LISTENING