Good News from Japan - Overcoming market barriers
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Good News from Japan - Overcoming market barriers
- 1. Good News from Japan -Overcoming market barriers- Masato Ito The Sumitomo Trust and Banking Co., Ltd.
- 2. Breakdown of Office Building Inventory by Age More than 70% of office buildings in Japan would stand long use, through proper maintenance and retrofitting. Tokyo Osaka Nagoya Sapporo Sendai Saitama Chiba Completion Before 1981 1,527 531 185 106 64 10 41 After 1982 3,461 814 327 141 147 92 153 Unknown 20 18 6 1 2 0 0 Proportion of "Before 30.5% 39.0% 35.7% 42.6% 30.1% 9.4% 20.9% 1981" Yokohama Kyoto Kobe Hiroshima Fukuoka Total Completion Before 1981 88 43 57 57 153 2,861 After 1982 386 68 126 104 191 6,012 Unknown 1 0 2 6 0 56 Proportion of "Before 18.5% 38.9% 30.7% 34.3% 44.5% 32.0% 1981" Quoted from ; The Annual Japanese Office Survey(At the end of Dec. 2010), Japan Real Estate Institute About 30% of office buildings: About 70% of office buildings: Completed before 1981 when earthquake Completed after 1981. resistance standard was reinforced; They stand long use through proper They need to be rebuilt or retrofitted maintenance and retrofitting. to be earthquake-proof. (except for skyscrapers) 2
- 3. Finance approaches to encourage energy efficiency Offering preferential interest rates for companies promoting initiatives such as global warming countermeasures and biodiversity friendliness CSR Report 2010 The Sumitomo Trust & Banking Co., Ltd. 3
- 4. Overcoming market barriers (1) - Investor’s view on environmental issues “Survey of Responsible Property Investment(RPI) – Summary Report”, March/2010, Ministry of Land, 4 Infrastructure, Transport and Tourism
- 5. Overcoming market barriers (2) - Investor’s view on barriers “Survey of Responsible Property Investment(RPI) – Summary Report”, March/2010, Ministry of Land, Infrastructure, Transport and Tourism 5
- 6. Overcoming market barriers (3) 6 - Is demand really insufficient? The Sumitomo 賃貸オフ スビルに入居する場合の環境配慮項目の重要度（ ィ 重要度DI ） N=148 Trust’s Research 0 10 20 30 40 50 60 70 80 90 100 (Entrusted to STB High-speed 環境配 慮 1 ）遮音配慮 61.5 72.0 Research Institute, Communications lines 2）室温ゾーン別制御 3）湿度制御 58.1 68.9 July 2009) 室内環境の 4）自然光の利用（採光） 41.9 快適性 5）照明（照明器具がまぶしくない・室内の明るさが均一） 65.5 6）自然換気 38.5 Tenants place much importance on 7）タバコの煙やにおいの拡散防止 67.6 “Energy Saving”, “CO2 Reduction” 8）高速ネット回線 78.7 Electrical 9）コンセント容量 75.3 Socket Capacity and “Reducing Garbage” as well as 1 0） フロア OA 76.7 “High-speed Communications Lines”, 1 1 ）バリアフリー 47.0 OA Floors サービス性能 1 2）広さ感（天井高等） 40.2 “OA Floors” and “Electrical Socket 1 3）リフレッシュスペース 30.1 Capacity”. 1 4）免震・制振性能 73.0 1 5）室内空間の形状・レイアウトのしやすさ 75.0 1 6）床荷重のゆとり 43.6 Energy 1 7）生物環境の保全と創出 6.8 室外環境 Saving （ 敷地内） 1 8）まちなみ・景観への配慮 22.3 1 9）省エネルギー性能（断熱性・高効率の設備） 76.7 エネルギー 削減効果 20）自然エネルギー利用（太陽光・風力等） 43.2 21 ）節水設備の導入 52.4 CO2 22）雨水の利用・雑排水の再利用 20.3 資源 マテリアル利用 Reduction 23）再利用可能な建築材料の利用 14.2 24） O2 発生量の削減 C 2 64.2 25）ヒートアイランド進行の防止（緑化・風通し・日陰） 56.8 Reducing 26）雨水浸透 敷地外環境 36.8 Garbage 27）ゴミの分別・減量対策 64.2 6
- 7. Recent Survey- Conducted by Mori Building 1 ． Impact on Office Needs in Tokyo’s 23 Wards ○“Intent to lease new premises (21%) remains over 20%. ○Regarding the timing of leasing of new premises, “within one year” (36%⇒60%) increased sharply. ○“Desire to move to building with superior seismic performance” rose dramatically (15 ％⇒ 45 ％ ) to the top reason for leasing new office space, overtaking “Lower rent”. ○Regarding the importance of an office in Tokyo, almost all respondents indicate that importance will remain “unchanged” with 6% indicating it will “increase”. 2011 Survey of Office Needs in Tokyo’s 23 Wards (Special Edition) Mori Building Co., Ltd. 7
- 8. Overcoming market barriers (4) - Simplifying environmental metrics to inform Making Simple, Comparable and Compatible Systems Sharing “Common Metrics” in the world Including each country’s particular items Connecting to property appraisal Coexisting of “For DfE” version and “For Investors” version Rating CASBEE Common Systems Rating Systems CASBEE for DfE for Metrics for for DfE Investors Investors in the World 8 1/10/2010 Masato Ito
- 9. Overcoming market barriers (5) - Investors require such concise systems This study argues that environmental property metrics users and suppliers must bridge the gap that separates them to successfully measure the environmental performance of property portfolios and related improvement activities. In Japan CASBEE is beginning to discuss with market participants a short form version of CASBEE metric (the CASBEE for Market Promotion tool.) In the US and Europe, LEED and BREEAM are also beginning to roll out ‘short-form’ versions of their better known measurement schemes, for existing stock. 9
- 10. Good point of simplified environmental metrics Tokyo Green Building Program taught us that simplified metrics help to encourage building owners to carry out voluntary environment-conscious efforts. Tokyo Green Building Program Tokyo Apartment Environmental Performance Indication Program The Sumitomo Trust is offering preferential rate loans based on Tokyo Apartment Environmental Performance Indication Program. 10
- 11. Overcoming market barriers (6) - Showing the way to increased net income Value added by Increasing Net Income If the total income Conventional Sustainable increases by Properties quality Properties improvement, Net income carbon credit.. Net Income … Gross Income Net Income Added value Taxes & Increases Insurance Cash Expenses If there is a Maintenance Taxes & reduction of Insurance property taxes, or Maintenance carbon credit… Leasing & Mgt Leasing & Decreases Mgt by Utilities Utilities Improvement of Durability Cost of New Cost of New Tenants Tenants Decreases by Energy Saving “A note on environmental value added for real estate” (Masato Ito) On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005 11
- 12. Overcoming market barriers (7) - Showing the way to reduced risks Environmental value-added means risk premium reduction Conventional Sustainable Properties Properties environmental Added When Durability value of a building increases Depreciation Capitalization rate Environmental Risk premium Green Real depreciation Estate will not be Marketability affected by future marketability taxation ,regulations and Other Other carbon credits thanks to its environmental Risk Free Risk Free nature. Rate Rate “Image Improvement Effect” thanks to “A note on environmental value added for real estate”(Masato Ito) environmental On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, consideration 2005 12
- 13. Fujisawa Sustainable Smart Town Aiming to realize Panasonic' concept of a safe, secure and sustainable smart town. Aiming to reduce carbon dioxide emissions by 70 percent, compared to the 1990 levels. Developing real estate assessment indices that facilitate market acceptance of environmentally- conscious urban development as real estate value. ( News Release by Panasonic Corporation, May 26, 2011) 13
Editor's Notes
- Good evening everyone. Today I would like to offer some efforts to overcome market barriers in the build area of Japan.
- To start with, I would like to talk about the breakdown of office building inventory by age. Japanese Construction Standard law was amended in 1981, when the earthquake resistance standard was reinforced. As I showed on this page, about 30 % of office buildings are completed before 1981, but skyscrapers built in that age are said to meet the current standard. It means that more than 70% of office buildings in Japan would stand long use, through proper maintenance and retrofitting. (Kasumigaseki Building, which is completed in 1968 as the first skyscraper in Japan, is now famous for its retrofitting to keep value. ) (Especially now, earthquake resistance is one of the most important issues in Japan.)
- Actually, some major banks in Japan are trying to encourage the uptake of efficiency measures by providing Environmental Rating Loans. In February 2010, we began providing “Environmental Rating Loans,” which offer preferential interest rates for companies promoting initiatives such as global warming countermeasures and biodiversity friendliness. ( This product applies a rating based on Sumitomo Trust’s own comprehensive evaluation, providing loans at preferential interest rates at a maximum of 0.6% below the standard interest rates.) (For reference) In addition to general evaluation items such as environmental management and global warming countermeasures, Sumitomo Trust’s ratings feature an emphasis on biodiversity and environmentally-friendly properties, for which increasing efforts are needed from Japanese companies. Specifically, regarding environmental initiatives by client companies, we perform a questionnaire survey with about 60 questions for manufacturing companies, and about 50 items for non-manufacturing companies. Based on the response, each company’s environmental initiatives are evaluated and rated, using six ranks (ranging from “AAA” to “D”). A company given an environmental rating in the top four ranks is provided with a preferential interest rate corresponding to its rank. A company obtaining an environmental rating loan can raise capital at a low rate of interest, and can also expect results from enhanced recognition and status as a company with excellent initiatives which meet Sumitomo Trust’s environmental rating criteria for environmental and biodiversity problems. We also provide a service which reports on our comprehensive evaluation and each item’s point rating and evaluation content and issues. The borrowing company can use this for understanding and analyzing its own strengths and weaknesses. Moreover, Sumitomo Trust’s environmental rating criteria incorporate the latest information each year, and the borrowing company’s environmental rating is also updated based on new criteria. Therefore, a company can check its relative environmental friendliness each year.
- Then I would like to introduce a couple of surveys conducted in Japan. MLIT conducted the Japanese RPI Survey collaborating with UNEP FI. According to the survey, 85% of respondents are “strongly agree” or “relative agree” that “Social and environmental issues will become more important in the future” (i.e., 60% and 25% replied “6” and “5” respectively, for a total of 85%). (It is worth mentioning that more than 90% “Strongly agree” with this idea in the Developer/General Contractors/CRE Owners sector.) These results show that many respondents already acknowledge the importance of environmental issues, and believe it will become more critical in the future.
- On the other hand, the majority of investors think that “Lack of information”, “Lack of products to invest in”, “Insufficient financial performance”, and “Insufficient demand” are tough or relatively tough to overcome. We need to think about how to overcome these barriers.
- However, I wonder if demand is really insufficient. In another survey, the Sumitomo Trust & Banking asked tenants how they place importance on each environmental issues. This survey shows that tenants place much importance on “Energy Saving”, “CO2 Reduction” and “Reducing Garbage” as well as “High-speed Communications Lines”, “OA Floors” and “Electrical Socket Capacity”. After conducting the survey, we thought Japanese investors might be able to invest in environmentally properties more aggressively. Moreover, tenant’s demand on energy saving and natural disaster resistance is increasing after the nuclear power plant incident.
- In the wake of the Great East Japan Earthquake, Mori Building undertook this special edition of their questionnaire survey to obtain a grasp of its impact on the Tokyo office market. They asked 3,400 companies headquartered in Tokyo’s 23 wards about office space demand including future plans to lease new premises . Regarding the importance of an office in Tokyo, the survey shows that almost all respondents indicate that importance will remain “unchanged” with 6% indicating it will “increase”.
- Then I would like to mention environmental metrics as a key driver to overcome market barriers. In order to inform environmental performance of properties, simple, comparable and compatible metrics would be essential. That’s why we are launching “CASBEE for Market Promotion” in Japan. It also aim to share common metrics in the world in order to be understood by investors overseas.
- Last year, UNEP FI PWG published “An Investors Perspective on Environmental Metrics for Property”. Our activity for launching very simple version of CASBEE (“CASBEE for Market Promotion”) was introduced on this publication. Investors who are taking environment issues into consideration would require such concise systems.
- The Tokyo Green Building Program shows a good point of simplified environmental metrics. Tokyo Metropolitan Government launched its Green Building Program in 2002. It also launched the Tokyo Apartment Environmental Performance Indication Program based on the Green Building Program. These programs are simple enough to see the environmental performance at a glance and help to encourage building owners to carry out their voluntary environment-conscious efforts. In addition, the Sumitomo Trust & Banking has introduced preferential rate loans based on the Tokyo Apartment Environmental Performance Indication Program. ( We can offer a preferential interest rate of no more than 1.5%, which is below our regular rate, based on the environmental efficiency of newly built apartments. Preferential rate is a sort of “Risk Reduction Effect”, as I described in Page 12. It is important that banks offer preferential rates for loans for sustainable real estate.) I hope the Tokyo Green Building Program will share the idea of common metrics, keeping its good point of simplified programs.. (References) -Tokyo Green Building Program Building owners who intend to newly construct or expand buildings with total floor space exceeding 1,000sqm are required to submit the Tokyo Green Building Plan and announce the submitted plan on TMG’s website. -Tokyo Apartment Environmental Performance Indication Program Owners of specified apartments are required to indicate in sales advertisements labels that show the apartment’s eco-friendliness in one to three stars according to the four criteria of “insulation,” “energy efficiency,” “longevity” and “greening”. The assessment of the five criteria is based on Tokyo Green Building Plan. Apartment Environmental Performance Indication label of each apartment will be posted on TMG’s Internet website. -Tokyo Green Building Program Building owners who intend to newly construct or expand buildings with total floor space exceeding 1,000sqm are required to submit the Tokyo Green Building Plan and announce the submitted plan on TMG’s website.
- We could overcome market barriers by showing the way to reflect added value of properties. The next two slides will show the idea of value-added green real estate. The graph on the left side represents conventional real estate and its net income and the expenses. The graph on the right shows those of sustainable properties. As for Sustainable properties, the utilities and the repair costs will decrease compared to those of conventional real estate thanks to energy savings and improvement of durability. So it follows that net income increases. Additionally, if there are reductions to property taxes as part of an incentive plan, this will also contribute to increased net income . If owners are freed from buying carbon credit, it will also contribute to increased net income. And if the total income increases by the quality improvements, or by selling carbon credits, the net income will also increase. In this way, I think that sustainable properties have the potential for value-added qualities thanks to increases in net income.
- The graph of the next slide shows how capitalization rates of sustainable properties are different from those of conventional properties. When the durability of a building increases, it is thought that the depreciation ratio reduces. In addition, I can express the value-added qualities as a “risk premium reduction" in a capitalization rate of real estate which will not be adversely affected by future taxation and regulation reinforcement as well as burdens of carbon credit, thanks to the environmental nature of the property. And I believe sustainable properties has a kind of “Image Improvement Effect” thanks to its environmental consideration. In this way, I think that sustainable properties have the potential for value-added qualities by increasing net income and reducing capitalization rate.
- Lastly I would like to introduce a recent project in Japan. Fujisawa Sustainable Smart Town project is one of the flagship projects in Japan to innovate Japanese property market . This project is located in the former industrial area owned by Panasonic and it’s aiming to realize Panasonic' concept of a safe, secure and sustainable smart town. Their goal is to reduce carbon dioxide emissions by 70 percent, compared to the 1990 levels. I work with this project in developing real estate assessment indices that facilitate market acceptance of environmentally-conscious urban development as real estate value, by utilizing added-value approach as I showed before. That concludes my speech. Thank you for your attention.