Delivering Value
Added Value of Environmentally Friendly Property 1
Added Value Derives from Property Profitability
- It is often said environmental friendly property "costs more than usual and is difficult to invest in," but price theory in real estate investment suggests such buildings are able to generate added value equal to or greater than their additional cost.
- From the perspective of profitability (how much and how long do properties generate steady profits), a property’s price derives from net income (revenue minus costs) divided by the real estate capitalization rate. The greater gross income including rents is, and the lower the costs of utilities, maintenance, and building management are, the higher net income is, and so the higher the valuation of a property. In addition, stable properties with less income fluctuation risk are awarded higher valuations as investors require a lower yield from them.
- Environmentally friendly property can earn higher net income by reducing utility expenses via energy savings and maintenance and operating expenses via the enhanced durability of parts and materials. Furthermore, such buildings can also generate higher gross income on higher rents stemming from higher productivity enabled by their enhanced office environments and the cachet boost from their environmental credentials.
- Furthermore, environmentally friendly property is less exposed to future environment-related tax hikes or tougher regulations, so the capitalization rate for such buildings factors in less environmental risk. A lower depreciation rate resulting from a longer life span as well as enhanced appeal as environmentally friendly can also lower the capitalization rate.
For the reasons above, SuMi TRUST Bank believes that environmentally friendly property will realize added value.
Conceptual diagram of environmental added value (1) Prices focused on the "profitability" of real estate
Conceptual diagram of environmental added value (2) Reflection in net income
Conceptual diagram of environmental added value (3) Reflection in capitalization rate
Added Value of Environmentally Friendly Property 2
Helping to Make Added Value Visible
Study on Economic Impact of Buildings with CASBEE Evaluations
Given the paucity of research in Japan showing a correlation between the environmental performance of buildings and economic benefits, SuMi TRUST Bank implemented a study into the economic impact of buildings with CASBEE® evaluations as the leader of a working group examining economic benefits under the aegis of the Japan Sustainable Building Consortium’s Smart Wellness Office Research Committee. The study analyzed buildings with CASBEE® certification and non-evaluated buildings and found average market rents in buildings with CASBEE certifications or applications were about 3.6% higher. This suggests each point in the CASBEE scoring system (adjusted so 100 points is the maximum score) equates to a market rent 0.5% higher than the average. These results were announced at symposiums, the Architecture Institute of Japan convention, and other events.
Correlation between CASBEE Score and Market Rents (Single regression analysis)
Comparison of average rents: Yen per 3.3m2
Summary of multiple regression analysis results for CASBEE buildings
| CASBEE evaluations, etc. | Sample size | Coefficients | Differential in average rent |
|---|---|---|---|
| CASBEE flag (whether or not buildings have CASBEE evaluations) | 517 | 564.160 | +3.64% |
| CASBEE rank (five-level evaluation rankings) | 517 | 263.525 | ＋1.70% |
| CASBEE score (evaluation score with a maximum score of 100) | 183 | 78.974 | ＋0.46% |
| Service performance (Q2) score | 183 | 1702.667 | +9.9% |
| Intellectual productivity evaluation | 180 | 319.318 | +1.86% |
Source:Data is from a fiscal year 2014 report issued by Japan Sustainable Building Consortium’s Smart Wellness Office Research Committee.