How transaction costs affect real estate developers entering into the building energy efficiency (BEE) market?

Buildings account for 40% of global energy consumption and nearly one-third of global CO2emissions; and the resulting carbon footprint significantly exceeds that of all forms of transportation combined. Attractive opportunities exist to reduce buildings' energy use at lower costs and higher returns than in other sectors. This paper analyzes the concerns of uncertainty, in terms of transaction costs, to the real estate developers when they make decisions about investing in Building Energy Efficiency (BEE). To solicit views of developers regarding BEE investment, in-depth interviews were conducted with 15 executives and architects who work in big real estate development firms covering 80% of real estate activities in Hong Kong. This research applies transaction cost economics (TCE) to study the underlying reasons resulting from uncertainty that cause market reluctance to accept BEE by choice. It provides a detailed analysis of the current situation and future prospects for BEE adoption through studying the impacts from three aspects: economic, market and policy uncertainties. It delineates the market and suggests possible policy solutions to overcome the uncertainties and to attain the large-scale deployment of energy-efficient building techniques. The findings establish the groundwork for future studies on how to choose a particular policy package and what roles government should play to solve the existing problems in BEE development.

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Drivers of Investment in Commercial Real Estate Sustainability: 2006–2018

Journal of Sustainable Real Estate ◽

10.22300/1949-8276.11.1.130 ◽

2019 ◽

Vol 11 (1) ◽

pp. 130-155

Author(s):

Michael Brooks ◽

J.J. McArthur

Keyword(s):

Energy Efficiency ◽

Real Estate ◽

Public Relations ◽

Building Energy ◽

Business Case ◽

Commercial Real Estate ◽

Building Energy Efficiency ◽

Number Of Factors ◽

Near Future ◽

Asset Managers

We investigate the factors (“drivers”) that motivated investment in energy efficiency in commercial real estate office buildings over the 2006–2011 and 2012–2017 period, and looking forward from 2018 in the context of growing concern over carbon emissions around the world. These insights were collected from large Canadian asset managers through interviews conducted in 2017 and 2018. Key findings were that (1) organizations noted an increasing number of factors driving investment decisions over the three periods; (2) cost drivers (payback period and anticipated financial returns) were the top two drivers in 2006–2017; (3) public relations factors became significantly more important looking forward, with brand (reputational impact) as the top-ranked driver and tenant attraction tied for third place; and (4) mitigation against risks such as resilience and anticipated compliance consistently increased in importance. This study contributes to a comprehensive understanding of past, present, and near-future sustainable real estate investment priorities, changing owner behaviors, and the perceived business case for building energy efficiency investments.

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A Conceptual Benefits Realization Model for Minimization of Transaction Costs in Building Energy Efficiency (BEE) Affordable Housing Delivery

MATEC Web of Conferences ◽

10.1051/matecconf/201926603013 ◽

2019 ◽

Vol 266 ◽

pp. 03013

Author(s):

Abdulazeez U. Raji

Keyword(s):

Energy Efficiency ◽

Transaction Costs ◽

Affordable Housing ◽

Building Energy ◽

Project Team ◽

Building Energy Efficiency ◽

Housing Projects ◽

Specific Investment ◽

Benefits Realization ◽

Key Dimensions

Energy efficiency is fundamental to enhancing homes affordability. There are several unique challenges to affordable housing that owner-developers need to address in order for energy efficiency to make significant economic sense. Issues such as Transaction Costs (TCs) plays a significant role in achieving building energy efficiency (BEE) for affordable housing delivery. It is evident that split incentives, information asymmetry, institutional transition, opportunistic behavior, and ill-informed users incur different levels of TCs and affect stakeholder’s willingness to take part in BEE for affordable housing. A better understanding of the nature and structure of TCs is indispensable to enhance the market-drive and investment for BEE affordable housing. Uncertainty, specific investment, frequency, and bounded rationality seen as the key dimensions of TCs. The research focuses on how to minimize TCs involve in BEE affordable housing delivery. It was found in the literature that, the level of TCs for building energy efficiency estimated at 20.5% of total project costs. A conceptual competency-driven benefits realization model is proposed for minimizing TCs taking into consideration the peculiarities of the current housing projects delivery. This research aims to establish the significance of leveraging on BEE project team-competency and commitment organized within a strategic Benefits Realization Management framework to optimize client‘s benefits regarding minimizing TCs. The focus is on the aspect of a developer’s competencies and their project team commitment concerning minimizing TCs that structured within a Benefits Realization Management (BRM) practice. This model is proposed as a pro-active enabler tool to achieve Value for Money in BEE affordable housing projects. This paper is part of a series of publications.

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