Properties located in areas with lower household car-related emissions tend to outperform those in higher-emission regions, according to new academic research. A study published in the Journal of Real Estate Research found that commercial real estate assets in lower-emission areas generated average annual returns of 1.5% above their counterparts, suggesting that long-term values are linked not just to building characteristics but to the surrounding community’s sustainability.
The paper was co-authored by Hainan Sheng, an assistant professor of real estate at Virginia Tech. Sheng’s analysis covered commercial property performance between 2002 and 2019, excluding the pandemic years that saw unprecedented property price gains. The findings held firm even after controlling for factors such as local economic conditions, property attributes, environmental regulations and public transit use.
Sheng concluded that high automobile-related greenhouse gas emissions in a community affect commercial real estate through their impact on long-term price growth rather than on immediate operating income.
“This research shows that the sustainability of a property’s external environment matters,” Sheng said in a statement published by Virginia Tech News. “It isn’t just about whether a building has a green certification. The broader community context, in this case, emissions from transportation, directly affects how investors view long-term value.”
The link between emissions and property performance also varied by political environment. According to Sheng, the return premium for assets in lower-emission areas was most pronounced in states with stronger environmental policies, often aligned with Democratic-led jurisdictions. That suggests regulatory context may amplify the financial impact of sustainability factors.
While developers and investors have traditionally emphasized on-site certifications and building-level sustainability measures, the study indicates that such efforts are not sufficient on their own. Sheng noted that property stakeholders should also look beyond individual assets to evaluate external environmental quality and compare the sustainability of surrounding areas.
The mechanisms behind these trends remain somewhat unclear. Sheng suggested that investors may already account for environmental risks in their strategies, anticipating potential policy shifts, evolving market preferences or consumer-driven pressures. That anticipation could influence investment behavior, reinforcing the very market outcomes observed in the study.
The research also points to broader takeaways for community planning and transportation policy. Efforts to reduce dependence on cars powered by internal combustion engines may offer not only environmental benefits but also measurable financial advantages for the real estate market, according to Sheng.
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