Energy Efficiency and Green Building Markets in Japan

Abstract

This study presents a review of the extant studies on Japanese green buildings and a new empirical analysis of the relation between office rent, green building labels, and actual energy use. We provide evidence as to what causes the positive association between green building labels and office rents. We first show that sustainability related features of building are effective in reducing the actual consumption of electricity and water. After controlling for the effect of these observed sustainability features, we find that green labels have separate effects on the reduction of the consumption of electricity and water. Thus, various green features required by green building labels are effective in saving energy and water usage. However, green labels do not have a direct effect on office rents once we control for the effect of electricity and water usage. Thus, tenants pay a rent premium to green buildings not for a brand associated with green building labels but for material benefits of green buildings regarding lower costs of energy and water.

Keywords: sustainability, green buildings, branding, hedonic pricing, office rents, Japan

JEL Classification: Q51, R21, R31