The Price of Performance: A Causal Decomposition of Sustainability Value in Commercial Real Estate

This study challenges the static treatment of the "green premium" in commercial real estate. We introduce and empirically test the Sustainability Value Decomposition Framework, which disaggregates sustainability-related valuation effects into signalling, performance, and market-access components: Signalling (the value of the label), Performance (the value of operational efficiency), and Market Access (the value of regulatory compliance). Using a mixed-methods approach that combines econometric analysis of 111 institutional office transactions in London with an instrumental-variable strategy, we strengthen identification of the certification effect while recognising the remaining assumptions required for causal interpretation. Our 2SLS model estimates an IV-based premium of 9.5% for top-tier BREEAM certification, conditional on the validity of the local planning-authority instrument. Mediation analysis suggests that EPC ratings, interpreted as market-perceived energy-performance and compliance proxies, statistically account for approximately 65.2% of the observed BREEAM-value association. We also provide a sizeable "brown discount" in a major European market, documenting a 24.7% valuation penalty for assets non-compliant with minimum energy standards, consistent with a Market Access effect. These findings suggest that sustainability-related pricing in mature office markets increasingly reflects market-perceived performance and regulatory risk, rather than certification labels alone.