Can Japan’s real estate practices further its sustainability goals?
Japan ranked second in sustainability in the JLL Global Real Estate Transparency Index, but significant obstacles still hinder.
The "Global Real Estate Transparency Survey" conducted by JLL biennially assess market transparency across 89 countries and territories and 151 cities globally. During these times of heightened uncertainty, transparency is more important than ever as the foundation which allows real estate occupiers, investors and lenders to operate and make decisions with confidence.
In comparison, real estate sustainability is a relatively new concept, and countries worldwide generally score low in this area. However, Japan, with its history of earthquakes and other disasters has made significant progress in resilience to climate change, sustainable architecture, and urban development. These areas are attracting particular attention globally, and this time Japan was ranked second after France.
France is another country that leads in environmentally friendly real estate in the world. It has an index that objectively measures the returns from owning and investing in green properties, which is unique to France. Moreover, "green lease" clauses in France require owners and tenants to collaborate on reducing energy and carbon dioxide emissions associated with real estate.
In Japan, rents are often "common charge inclusive", meaning they include a uniform common service fee in the monthly rent. This practice makes it difficult for tenants to track their own utility bills and understand their carbon dioxide emissions.
In highly transparent markets, owners disclose the buildings’ energy costs to tenants, aiming to reduce these expenses collaboratively. To accelerate efforts toward environmentally friendly real estate in Japan, owners will need to provide detailed disclosure of common area fees, and tenants will need to work on reducing these costs. After about 30 years of deflation, owners who profited from collecting common area fees across the board are now asking tenants for detailed breakdowns of these fees as energy costs rise and environmental initiatives become necessary. Disclosing and addressing these fees is expected to have positive effects from the perspective of economic rationality.
Figure 1: Sustainability index
Source:JLL Global Real Estate Transparency Index 2024