Japan Report Japan Green Building Certification Trends Jun 2023

Environmental measures assume increasing importance in corporate settings.
This report attempts to understand and analyse how buildings with superior environmental performance indicators are valued in the rental office marketplace in an objective and quantitative manner.

Key findings include:

• The presence of green buildings in Japan’s office leasing market has risen sharply since 2011, with environmentally certificated properties accounting for 44% of total office building floor space across the 13 major cities as of Q1 2023.
• As newer and larger buildings typically have higher rates of environmental certification, the presence of green buildings is higher in cities that have seen significant new supply of large office buildings in recent years.
• As of Q1 2023, green buildings in Japan commanded an average rent premium of 5.4% to 6.4% over uncertified office buildings. While rent premiums in value terms tend to be significant for competitive buildings commanding high rents, they are relatively small as a percentage of total rent. As cheaper and relatively smaller buildings are less likely to have green certification, those that possess these attributes can command a more significant rent premium in percentage terms.
• Since 2010, average occupancy rates have been 0.9 to 3.3 percentage points (pp) higher for green buildings. No statistically significant trends are identified with respect to building size or age.
• Green buildings have been shown to be less susceptible to recent spikes in energy prices affecting utilities expense. As tenants normally pay utilities as part of cost-plus contracts, this is a significant factor which should encourage tenants to lease green buildings.
• Green buildings possess significant merits for owners in terms of both rent levels and occupancy rates, meaning they can be expected to contribute to increased profits. Green buildings’ high occupancy rates suggest there are also benefits for tenants. Green buildings also provide significant benefits in terms of their environmental impact and continue to be beneficial to landlords, tenants and society.