Tunbosun B. Oyedokun , Neil Dunse & Colin Jones

1. 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

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

3. 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”

4. 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

5. 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)

6. 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)

7. 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)

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

9. 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

10. 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 162properties

11. London by Submarket Cluster - CoStar • These are further divided in submarkets. • *No data

12. London by Submarkets: BREEAM vs Total

13. BREEAM - London Submarket Clusters

14. Total Rentable Building Area: BREEAM vs Total • Approximately 27%

15. 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

16. Green office rentable space in London

17. Research Agenda • Green office submarket development • Identification of green office submarket • Dynamics of green office submarket

18. 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

19. Identifying Green Office Submarket Identification matrix

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

21. 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

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