Commentary

Is Japan's real estate green enough?

The low share of green building-certified properties indicated that current efforts in greening Japan’s real estate may fall short of target.

September 30, 2024

Japan aims to reduce greenhouse gas emissions by 46% compared to 2013 levels by 2030, with further efforts towards a 50% reduction. This goal is a part of the Nationally Determined Contributions (NDC) based on the Paris Agreement on climate change. Real estate is crucial in this effort as it accounts for about one-third of CO2 emissions in Japan. As green building certification is considered to be an objective way to measure the greenness of real estate, a survey was conducted on the green building certification status of domestic properties owned by the top 15 J-REITs by asset size, out of a total of 58 J-REITs*. These top 15 J-REITs can be a snapshot of the overall greenness of real estate in Japan.

Offices are more likely to acquire green building certification than other sectors. Although preferences for CASBEE (CASBEE for Buildings and CASBEE for Real Estate) or DBJ-GB vary depending on J-REITs, the majority of properties (66% by number, 81% by area, and 79% by asset acquisition price) have obtained some certifications. For retail, the certification acquisition rate is lower, at 43% by number and 68% by area.

Logistics facilities have even lower rates, with 48% by number and 57% by area, but notably, some logistic properties have acquired LEED, an international certification. Another characteristic for logistics facilities is that improving energy-saving performance is more important than overall environmental performance. As a result, the number of properties certified by BELS, which evaluates energy-saving performance, is overwhelmingly higher than in other sectors. This leads to certification acquisition rates (including BELS) of 71% by number and 85% by area.

For residential properties, CASBEE for Real Estate operation only started in 2021. As a result, the certification acquisition rates are 27% by number and 53% by area. As for hotels, CASBEE for Real Estate is not applicable and DBJ-GB certification only began in April 2024. Consequently, the certification acquisition rates are only 4% by number and 13% by area.

* Based on information obtained from each J-REIT's website in mid-June. The total number of domestic properties owned by the top 15 J-REITs is 1,886: 498 office properties, 266 retail properties, 336 logistics properties, 139 hotels, and 647 residential properties. The area is a reference value as some properties are listed with GFA, and others are listed with NLA.

Figure 1: Share of green-building-certified properties among top 15 J-REITs’ properties

Source: JLL Japan Research, June 2024

* For properties that have acquired multiple certifications, if they have LEED, they are counted as LEED-certified, if they do not have LEED but have CASBEE, they are counted as CASBEE-certified, and if there is neither LEED nor CASBEE, they are counted as DBJ-GB-certified.

Many of the 15 J-REITs are promoting the greening of their portfolios by setting numerical targets for the share of their properties with green building certification as a KPI. However, only 40% of 1,886 properties have acquired green building certification, and just over 10% have achieved the highest rank (LEED Platinum, CASBEE S, or DBJ-GB 5-star) as of June 2024. In addition, most certifications are domestic, such as CASBEE and DBJ-GB, which are easier to obtain than LEED. Accelerating the greening of real estate is required to reduce greenhouse gas emissions and meet the 1.5℃ target of the Paris Agreement. One quick way to achieve this is by aiming for more and higher ranking rewards in a stricter green building certification system.