Published the research report "Toward Promoting Environmental Renovation Investments in the Real Estate Stock"
PRESS RELEASE
2023.06.06
Development Bank of Japan, Inc. (Headquarters: Chiyoda-ku, Tokyo; Representative Director President and CEO: Seiji Chika; hereinafter “DBJ”), DBJ Asset Management Co., Ltd. (Headquarters: Chiyoda-ku, Tokyo; Representative Director President and CEO:Ken Kusagi, hereinafter “DBJAM”), Nikken Sekkei Ltd. (Headquarters: Chiyoda-ku, Tokyo; Representative Director: President and CEO: Atsushi Omatsu, hereinafter “Nikken Sekkei”), and Value Research Institute Co., Ltd. have jointly published a research report titled “Toward Promoting Environmental Renovation Investments in the Real Estate Stock.”
In November 2022, DBJ, DBJAM, and Nikken Sekkei launched a collaboration (hereinafter referred to as “this collaboration”) aimed at strengthening each company’s real estate-related businesses and establishing, promoting, and disseminating an environmental retrofit model to achieve carbon neutrality in the domestic real estate industry.This survey was conducted as one of the initiatives under this collaboration.
Amid the global trend toward achieving carbon neutrality by 2050, efforts to meet domestic targets are accelerating across various industrial sectors, and environmental awareness is changing on both the supply and demand sides—including investors, lenders, and tenants—within the real estate industry.In addition to these changes, the diversification of work styles and locations in the post-COVID era, coupled with a massive supply of office buildings in city centers, has intensified competition among relatively older small- and medium-sized buildings.Going forward, to maintain competitiveness in the existing building market—given the current difficulty in making decisions to replace buildings with new construction due to factors such as population decline, excess building stock, soaring construction costs, and environmental impact—it will be necessary to improve environmental performance (*) through renovation. Consequently, attention is likely to focus particularly on the renovation of older small- and medium-sized buildings, which account for a large portion of the overall building stock.
* “Environmental performance” refers to performance related to environmental considerations, such as energy efficiency.
The key points of this survey report are as follows:
Against the backdrop of expanding corporate responsibility among large companies—including demands for environmental considerations and the disclosure of related information across the entire supply chain—environmental awareness is also growing among small and medium-sized enterprises (SMEs).In response to this trend, as the number of tenant companies prioritizing environmental performance increases, replacing existing buildings with new ones would generate construction waste and require a large amount of materials, resulting in a certain level of environmental impact. Furthermore, due to dwindling demand caused by population decline, a surplus of existing buildings, andso the decision to replace a building with a new one is difficult to make. Consequently, renovation projects aimed at improving environmental performance—known as “environmental renovations”—are becoming necessary. In particular, small and medium-sized buildings (with a gross floor area of less than 10,000 square meters) account for 40% of the total building stock (by gross floor area) in Tokyo’s 23 wards,and more than 60% in regional cities. Furthermore, since the proportion of environmentally compliant buildings is lower compared to new construction, environmental retrofitting of older small and medium-sized buildings is a critical issue for achieving sector-specific targets toward carbon neutrality.
On the other hand, since improving environmental performance entails a significant cost burden, the challenge lies in balancing the environmental benefits of reducing environmental impact with economic benefits by implementing appropriate rent increases.To achieve this, it is essential to conduct environmental retrofits by combining optimal component technologies—tailored to the design and specifications of each individual property and verified for cost-effectiveness—while simultaneously implementing comprehensive renovations that enhance the space’s appeal to increase property value. Alternatively, if a project is deemed economically unfeasible, it is crucial to maintain the building’s profitability by considering flexible changes in use.Furthermore, by quantitatively visualizing the added value of a building’s environmental performance and utilizing this as an engagement tool, we can enhance the appeal of rent to tenants and improve operational efficiency;and, by extension, prepare for trends toward the standardization of disclosure and rating criteria related to environmental performance, as well as the potential future harmonization of multiple environmental certification systems.
To sustainably promote investment in environmental retrofits within the real estate investment market, it is necessary to advance improvements in environmental performance while ensuring economic rationality, with a view toward selecting target buildings based on market principles and allowing for flexible changes in use.Furthermore, since it is necessary to improve the environmental performance of the existing building stock to support regional and urban development aimed at achieving carbon neutrality, policy-level support is also anticipated. Specifically, it is considered effective to bolster the growth of the environmental retrofit market through support measures—such as deregulation, tax breaks, and subsidies—designed to ensure economic viability.
The DBJ Group will leverage its track record and expertise in real estate securitization, including investment and financing, to advance business development with Nikken Sekkei and promote the widespread adoption and expansion of environmental retrofit models. At the same time, in collaboration with private financial institutions and other partners, we will respond to client needs and support the further revitalization of the real estate finance market.
Nikken Sekkei will utilize the environmental retrofitting expertise accumulated through this collaboration to lead the way toward carbon neutrality in cities and buildings, thereby promoting the creation of diverse value that meets new societal needs.
Amid the global trend toward achieving carbon neutrality by 2050, efforts to meet domestic targets are accelerating across various industrial sectors, and environmental awareness is changing on both the supply and demand sides—including investors, lenders, and tenants—within the real estate industry.In addition to these changes, the diversification of work styles and locations in the post-COVID era, coupled with a massive supply of office buildings in city centers, has intensified competition among relatively older small- and medium-sized buildings.Going forward, to maintain competitiveness in the existing building market—given the current difficulty in making decisions to replace buildings with new construction due to factors such as population decline, excess building stock, soaring construction costs, and environmental impact—it will be necessary to improve environmental performance (*) through renovation. Consequently, attention is likely to focus particularly on the renovation of older small- and medium-sized buildings, which account for a large portion of the overall building stock.
* “Environmental performance” refers to performance related to environmental considerations, such as energy efficiency.
The key points of this survey report are as follows:
Against the backdrop of expanding corporate responsibility among large companies—including demands for environmental considerations and the disclosure of related information across the entire supply chain—environmental awareness is also growing among small and medium-sized enterprises (SMEs).In response to this trend, as the number of tenant companies prioritizing environmental performance increases, replacing existing buildings with new ones would generate construction waste and require a large amount of materials, resulting in a certain level of environmental impact. Furthermore, due to dwindling demand caused by population decline, a surplus of existing buildings, andso the decision to replace a building with a new one is difficult to make. Consequently, renovation projects aimed at improving environmental performance—known as “environmental renovations”—are becoming necessary. In particular, small and medium-sized buildings (with a gross floor area of less than 10,000 square meters) account for 40% of the total building stock (by gross floor area) in Tokyo’s 23 wards,and more than 60% in regional cities. Furthermore, since the proportion of environmentally compliant buildings is lower compared to new construction, environmental retrofitting of older small and medium-sized buildings is a critical issue for achieving sector-specific targets toward carbon neutrality.
On the other hand, since improving environmental performance entails a significant cost burden, the challenge lies in balancing the environmental benefits of reducing environmental impact with economic benefits by implementing appropriate rent increases.To achieve this, it is essential to conduct environmental retrofits by combining optimal component technologies—tailored to the design and specifications of each individual property and verified for cost-effectiveness—while simultaneously implementing comprehensive renovations that enhance the space’s appeal to increase property value. Alternatively, if a project is deemed economically unfeasible, it is crucial to maintain the building’s profitability by considering flexible changes in use.Furthermore, by quantitatively visualizing the added value of a building’s environmental performance and utilizing this as an engagement tool, we can enhance the appeal of rent to tenants and improve operational efficiency;and, by extension, prepare for trends toward the standardization of disclosure and rating criteria related to environmental performance, as well as the potential future harmonization of multiple environmental certification systems.
To sustainably promote investment in environmental retrofits within the real estate investment market, it is necessary to advance improvements in environmental performance while ensuring economic rationality, with a view toward selecting target buildings based on market principles and allowing for flexible changes in use.Furthermore, since it is necessary to improve the environmental performance of the existing building stock to support regional and urban development aimed at achieving carbon neutrality, policy-level support is also anticipated. Specifically, it is considered effective to bolster the growth of the environmental retrofit market through support measures—such as deregulation, tax breaks, and subsidies—designed to ensure economic viability.
The DBJ Group will leverage its track record and expertise in real estate securitization, including investment and financing, to advance business development with Nikken Sekkei and promote the widespread adoption and expansion of environmental retrofit models. At the same time, in collaboration with private financial institutions and other partners, we will respond to client needs and support the further revitalization of the real estate finance market.
Nikken Sekkei will utilize the environmental retrofitting expertise accumulated through this collaboration to lead the way toward carbon neutrality in cities and buildings, thereby promoting the creation of diverse value that meets new societal needs.
Contact information for inquiries regarding this press release
株式会社日本政策投資銀行 アセットファイナンス部 電話番号 03-3244-1714
DBJアセットマネジメント株式会社 不動産投資部 電話番号 03-3241-5307
株式会社日建設計 広報室 電話番号 03-5226-3030
DBJアセットマネジメント株式会社 不動産投資部 電話番号 03-3241-5307
株式会社日建設計 広報室 電話番号 03-5226-3030
Contact Information for Inquiries Regarding the Survey Report
株式会社価値総合研究所 不動産投資調査事業部 電話番号 03-5205-7903
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