Xymax Real Estate Institute

RESEARCH REPORT

Building Owner Survey 2015
Discover the mindset and challenges of the small-medium building owners

November 26, 2015
*1

In April 2014, Xymax Real Estate Institute released a report "Office Stock Pyramid 2014" in which we picked up
the fact that the small and medium buildings have reached 90% of the entire buildings in Tokyo 23 Wards interms of number of buildings and that such buildings are aging. This means that a large part of the buildings inTokyo's office market will get old and see an increase of maintenance costs and owners will sooner or later
decide to sell them or demolish them and construct a new building. However, there is almost no study focusing
on the owners of these buildings, such as their age, number of buildings they have, their way of thinking andchallenges they face.
For this study, we worked jointly with the laboratory of Professor Yukio Komatsu of the Department of*2*3

Architecture at Waseda University and conducted surveys and interviews with owners who have buildings
mainly in central Tokyo. The results are compiled and summarized in this report.
*1 Office Stock Pyramid 2014 https://www.xymax.co.jp/english/research/images/pdf/140417_News-release.pdf*2 Laboratory of Professor Komatsu at Waseda University http://www.waseda.jp/sem-ykom/komindex.html*3 For the surveyed owners, see the survey overview at the end of this report.

Key Findings from Research | 333 owners responded (298 valid respondents), 40 owners were interviewed

1. 90% of owners are over 50 years old. 60% have one or two properties• About 90% of owners are over 50 years old. (Figure 1)• Over 60% of owners have one or two tenanted properties (Figure 2)

2. More than 70% fear future of the business. Challenges differ depending on owner's age.
• Many owners said stable income is the attractive part of the landlord business. However, 70% said
they fear the future of the business. (Figures 6 & 7)
• Young owners said lack of knowledge and difficulties of gathering information of legal changes areconcerns. Senior owners concern about business succession and inheritance strategy (Figure 8).

3. Majority of owners will continue to use the building.
• Over 60% of owners said they will continue to use the building either "as is" or after renovations(Figure 13).
• Owners start considering new construction when the building becomes 30 years of age (Figure 13).
• Only about 10% of owners of one or two properties consider new construction or disposal, lower
than that of owners of three or more properties. (Figure 14)

4. Interviews revealed owners' features and challenges• Features of owners by age group and by number of buildings. (Figures 17 & 18)• Different backgrounds of challenges and of not being able to decide future plans.

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute

1. Profile of Building Owners
Below is the profile of 298 owners, either an individual person or a representative of the company.

1) Owner's Age
The building owners over 50 years old accounted for nearly 90%, with about 30% for each age group (50s,
60s and 70s). (Figure 1)
Figure 1: Owner's Age
20s
0.3%

30s
2.3%

70 and up
27.2%

40s
9.7%
50s
26.5%

60s
33.9%

2) Tenanted Properties in Possession (Commercial Building, House, Retail, Parking
Lots, etc.)
Over 60 % of the owners have one or two properties, about 30% have three to nine properties and theremaining less than 10% have ten or more properties.* (Figure 2)
Figure 2: Tenanted Properties in Possession

10 or more
7.1%
3 to 928.9%

1 or 2
63.9%* We divided the result into three groups (one or two / three to nine / ten and more) because each of the groups
exhibits distinctive features. This division is applied from here on.
Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute3)

Owner's Main Business / Income from Landlord Business

The main business of more than half of the owners is "Real Estate / Goods Rental Business" (Figure 3). The
one-third of the owners said the income from the landlord business is over 90% of the total (Figure 4).
Figure 3: Owner's Main Business
0

50

100

Figure 4: Share of Landlord Business
150

200

(Owners)

Real Estate / Goods Rental Business

163

Wholesale / Retail

49

Other

22

Service

20

Manufacturing

16

Construction

10

Shipping / Postal Service

5

Education / Study Support

5

Information & Telecommunication

5

Financial / Insurance

2

1/10 of total
income
16%

10/10
21%

9/10
15%

2/10
8%

3/10
9%
4/10
8/10
3%
5/10
8% 7/10 6/10
9%
6%
5%

4) Experience of Landlord Business
The majority of the owners are doing the business for 21 years or longer (Figure 5).

Figure 5: Experience of Landlord Business(Owners)

60

60

63

63

56

50
40

34

34

30
20
10
0

0-10 years

11-20 years 21-30 years 31-40 years 41-50 years
Experience (in years)

51 yearsor longer

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute

2. Current Situations of Office Landlord Business
1) Attractiveness of Landlord Business (Multiple Answers)
More than 80% of the owners said stable income is the attractive part of the business, followed by 40% saying
it is the effective use of a space not used by the owner's company (Figure 6).

Figure 6: Attractiveness of Landlord Business (Multiple Answers)

Stable income

86.2%

Effective use of unoccupied space

36.9%

As loan collateral

14.4%

Status / Satisfaction / Improve credit

13.1%

Contribution to the local community

11.7%

Expectations for capital gain in the future

9.7%

Benefits from depreciation

8.7%

None in particular

3.0%

Other

2.7%
0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2) Outlook of Landlord Business
About 70% of the owners said they have fears of some kinds (Figure 7). In the interviews, some owners
mentioned that it is difficult to have a long-term business plan because of the market uncertainty caused byshrinking population and oversupply of buildings in addition to the concerns for the aged buildings that may
decrease the rent and affect the profitability of the business.

Figure 7: Outlook of Landlord Business

17.1%

0%

51.7%

20%
Strong fear

40%
Some level of fear

7.5%

60%

23.6%

80%

Don't know

100%
No fear

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute3) Current Challenges in Landlord Business (Multiple Answers)
Young owners raised "Lack of knowledge and information updates" and "Difficult to gather information of legal
changes" as their current challenges, whereas senior owners are more concerned on "Business succession" and"Inheritance strategy" (Figure 8). The interview revealed that young owners, many of who are second or third
generation, are keen to gather information to fill the lack of experience, while senior owners are concerned
about when to hand over the business to a son or a daughter, how to transfer the knowledge and technique ofthe business and about whether the son or the daughter has intention to do the business.
Figure 8: Current Challenges in Landlord Business by Owner's Age (Multiple Answers)

70 and up

22.2%

60s

23.8%

50s

9.9% 6.2% 21.0%
10.9% 8.9% 14.9%

35.4%

40s

31.0%

30s
and below

22.8%
20.7%

0%

20%

25.9%

21.8%

12.9% 11.9%

10.1% 17.7%

17.2%

57.1%

38.3%

20.7%

12.3% 13.6%
28.7%

20.3%

13.9% 12.7%

21.5%

24.1%

6.9% 20.7%

24.1%

14.3% 14.3% 14.3% 14.3%

Lack of knowledge and information updates
Difficult to secure workers
Business succession
Otner

40%

60%

42.9%
80%

100%

Difficult to gather information of legal changes
Running costs (profitability of business)
Inheritance strategy
None in particular4) Physical Life Expectancy of Typical Buildings
When asked about a physical life expectancy of a typical building, 50 years was the most popular response.
Over 80% of the respondents think the life expectancy is 50 years or longer (Figure 9).
Figure 9: Physical Life Expectancy of Typical Buildings

80 or
70-79 years longer
13.3%
6.1%

60-69 years
22.1%

40-49 years
9.5%

less than 40
7.1%

50-59 years
41.8%

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute

3. Now & Future of Buildings Over 20 Years of Age
We divided the buildings into two groups: those over 20 years and those less than 20 years of age and asked
the owners the same questions for the oldest building of each group. For the oldest building of the group ofless than 20 years, the most popular response was "No concerns in particular". However, for the oldest buildingof the group of over 20 years, the owners responded with different opinions and aspects. In this section, we will
focus on the oldest building of the group of over 20 years (295 owners were surveyed).

1) Age & Size of Building
About 70% of the owners said the oldest building they have is over 31 years of age (Figure 10). About 30% areless than 300 tsubo in size (Figure 11).

1 tsubo = 3.3 sqm

Figure 10: Building's Age (Oldest Building)Figure 11: Gross Floor Area (Oldest Building)61 years andup
2.2%
51-60 years
11.0%(Buildings)

117
100

20-30 years
28.6%

68
50

41-50 years
31.5%
31-40 years
26.7%

37

36

0
300 tsubo 301-500 tsubo
and below

501-1,000
tsubo

1,001 tsubo
and up2) Renovation History & Plan
Nearly 90% of the owners said they have completed major renovations (Figure 12). Many owners responded in
our interview that they have completed improvements to maintain the function of the building such as
replacing the air conditioning system, renovating the exterior walls or replacing the rooftop waterproofing.
Some of them also have replaced the substation facilities and the water supply/drainage system. As renovations
responding to tenants' needs, many owners have renovated the toilets and other water-related facilities. Not
many of the owners, however, have renovated the entrance area which gives visitors a good impression if
renovated. As energy-saving renovations, some owners used "green lease programs", which benefit both theowner and the tenant, to replace the old lights with LED lights. Some owners applied for subsidies for therenovations.
Figure 12: Renovation History & Plan

Not renovated.
Have no plan

6.6%

Not renovated but
have a plan

5.1%

Renovated
88.3%

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute3) Future Plan
About future plans of the oldest building, over 60% of the owners said they will continue to use it either after
renovations or "as is" (Figure 13).
By Building's Age
The owners start considering a demolition and new construction when the building is 30 years old. However,more than half of the owners said they plan to continue to use the over-31-year-old building either after
renovations or "as is" (Figure 13).
Figure 13: Future Plan by Building's Age

All

26.9%

Over 51 years

25.7%

25.7%

20.0%

41-50 years

24.7%

29.4%

16.5%

31-40 years

26.0%

30.1%

13.7%

20-30 years

33.9%

20%

Renovate and use

19.6%

5.7%

22.9%

40%

Use "as is"

3.5%

20.5%

8.2%

1.4%

12.8%

9.0%

60%

Tear down and build up

1.8%

23.5%

2.4%

44.9%

32.1%
0%

11.4% 6.3%

80%

Sell

1.3%
100%

Not decided

Other

By Number of Buildings
Owners having one or two properties are less motivated in demolition and new construction and lessmotivated in selling the building "as is" (Figure 14).
Figure 14: Future Plan by Number of Buildings
10 or more
properties

3 to 9properties

1 or 2
properties

17.9%

28.2%

19.2%

35.7%

31.0%

0%
Renovate and use

20%
Use "as is"

40%

4.8%

14.3%

38.1%

28.6%

10.3%

23.1%

1.3%

8.3% 4.2%

18.5%

2.4%

60%

Tear down and build up

14.3%

Sell

80%

100%

Not decided

Other

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute
By Owner's Age
The owners in their 20s to 40s are more likely to have a plan to construct a new building than owners over 50
years old (Figure 15).
Figure 15: Future Plan by Owner's Age
70 years old
and up50s to 60s

25.5%

20s to 40s

23.5%

Renovate and use

8.3%

18.1%

2.8%

8.5% 5.5%

21.8%

1.8%

12.5%

26.4%

31.9%

37.0%

Use "as is"

5.9% 11.8%

23.5%

35.3%

Tear down and build up

Sell

Not decided

Other4) Reasons for Not Having Future Plan (Multiple Answers)
About 20% (53 owners) of the owners said they have not decided what to do with the building in the future. We
asked them the reasons. Over 60% said they would like to know the redevelopment trends in the neighboringarea before deciding their own plan, followed by about 40% saying because they do not know how much themaintenance costs will be in the future, another 40% saying they do not know whether demolition and new
construction will be profitable, and about 30% saying they will let the successor to decide (Figure 16).
Regarding the new construction, our interviews found that some owners think they have no idea what theintended use of the new building should be and also they think negotiating with tenants require time andmoney.
Figure 16: Reasons for Not Having Future Plan (Multiple Answers)
Would like to know the redevelopment
trends in the area

62.3%

Don't know the future maintenance costs

41.5%

Don't know whether the new construction
on the site brings profit or not

37.7%

Let the successor decide

28.3%

Never thought about it

17.0%

If I sell it, the price may beless than expected

17.0%

Difficulties of negotiation andarrangement between co-owners

13.2%

Don't want to sell the land which
was inherited from ancestors

13.2%

Matters related to borrowings
Other

1.9%
5.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute

4. Specific Features of Owners from Interview
We had interviews with the owners based on the results of the survey and asked them about their attitude on
actual landlord business. The owners reacted differently depending on their age and number of buildings they
have. The interviews revealed a variety of backgrounds such as their current challenges and why they are notable to decide to do renovations or decide to go for a new construction.

1) By Owner's Age (Figure 17)
The owners in their 20s to 40s have a short experience after having inherited the business. The interview foundthat they are actively collecting knowledge and information related to the real estate business while runningthe business based on the predecessor's strategy. Many of them have plans for future renovations.
The owners in their 50s and 60s have accumulated experience. The interview found that they are positive forrenovations which will contribute to income growth, such as improving the appearance of the building to
attract potential tenants. The owners in this group use outside professionals for operation, management,
cleaning and other works relatively more often than owners in other groups.
Many of the owners over 70 years old do the landlord business as their main business. They provide careful andthorough management such as responding promptly to requests and complaints from tenants and regularly
communicating with the tenants aiming to increase their satisfaction. This has contributed to the longer stay of
the tenants. Our interviews found that owners in this group do not have a particular plan for renovations.
Figure 17: Specific Features of Owners by Age

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate Institute2) By Number of Properties (Figure 18)
The more the number of buildings in possession, the more likely that the owner outsources some works tooutside companies aiming to run the business functionally and effectively. The owners of fewer buildings tend
to have inherited the property from their ancestors and may have a property that is used also as their own
residence or office. These owners tend to operate the business by themselves and communicate closely withtenants.
Figure 18: Specific Features of Owners by Number of Properties

3) Challenges Facing Building Owners
Our surveys and interviews found that the owners of small and medium buildings think twice before deciding
renovations or deciding a demolition and new construction. As reasons, they mentioned that a new
construction does not make the building larger because of the floor-area ratio regulation, and also that theycannot estimate whether the construction or renovation project will pay or not due to the recent surge inconstruction costs. Some owners said they do not know how to negotiate with the tenants in relation with suchproject. Some noticeable comments include they have no idea what the intended use of the new building
should be.
In particular, the owners over 70 years old with one or two properties tend to be unable to decide future plans
because the rental income will be zero during the construction period and also because they have not yet
started the actual preparations for the business succession.

Extracts of Comments from Building Owners


Under the current law, only a smaller floor-area-ratio is allowed, so the new building will besmaller than the current building after a new construction. I cannot judge whether the current
building should be torn down and replaced with a new one or should be sold "as is".



If it is a residential building, additional floor-area ratio is possible in this zone, but no such
addition for commercial buildings. I have no experience of the apartment business, so I will
wait and see what my neighbors will do.

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜Xymax Real Estate InstituteA new construction will not make the building larger. It is desirable that the demolition andnew construction should be performed when the neighboring area is being redeveloped. My
neighbors and I keep in touch with each other but we never talk about redevelopments. There
will be no progress unless a leading developer or authority steps in and takes the lead.

I joined a redevelopment project. I feel comfortable because the project association takes careof all the maintenance and management of the property.



There is no way but to continue to use the building "as is".



As the building gets older, more repairs and costs are necessary but the rent will eventually
decrease. I cannot decide whether I should maintain the existing building or demolish it andconstruct a new one.



I have no idea how to raise money for the renovations or for the new construction.



I would like my building to have seismic enhancement but it is expensive. No subsidies fromthe government. I sometimes consider a new construction but cannot decide.



I would like to replace the supply-drainage water pipe, but, since the building is old, the space
for the new pipe will reduce the tenant space. I am unable to decide it.



I do not know what the intended use of the building should be after a new construction;commercial building, residential building or hotel building? I will just wait and see for a while.



A new construction is almost impossible because the building is now occupied by tenants. In
the past, I asked a tenant to leave and negotiated. It was finally taken to the court and I spentan enormous amount of time and money.

The building will be torn down and replaced with a new one but after all the tenants vacate
the building. It will be probably something like more than 10 years.

The law protects the tenant but not the owner. Even if there are fair reasons to replace thebuilding with a new one, the owner must pay money to existing tenants if they want thetenants to leave. There is no consideration for financial situations of the owner, which is the
obstacle in demolition and new construction. Therefore, I will just keep the existing building.

I sold the building because my main business was not doing well. I thought about demolitionand new construction, but I did not do that because it will not pay.



I have no child, so no one to take over the landlord business.

The demolition and new construction influences the inheritance. If I borrow money for it, mychild is the one who has to repay the debt. That means I may leave my child some unwanted
business and unwanted loan.



The fixed asset tax is too high. All the earnings from the landlord business go to the paymentof the tax and repairs of old buildings.



I have a concern that the street may lose its brand value if there will be more buildings withnot good appearance.

Buildings in Japan seem to have a short life. We should consider a system that enables along-term use and constructions with focus on future maintenance.

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

11

RESEARCH REPORT｜Xymax Real Estate Institute

Survey Overview
PeriodSurveyed
Building
OwnersJuly – October 2015
Companies or individual owners holding buildings mainly in central seven wards in Tokyo(Chiyoda, Minato, Chuo, Shibuya, Shinjuku, Shinagawa and Toshima).
3,728 owners in total.
(Institutional investors such as leading real estate companies, J-REITs and insurancecompanies are excluded.)

Responses

Survey:333 owners (valid respondents: 298)
Response rate: 8.9%
Interview: Of the owners responded to the survey, 40 owners were interviewed.

Methods

Online survey and survey by post
I. Landlord Business• Type of ownership• Number and size of buildings
II. Office Landlord Business• Owner's experience and management system• Attractiveness of landlord business (Upside)

Contents• Future outlook• Current problems
III. Buildings in Possession (buildings over 20 years and less than 20 years of age)
• Renovation history• Current problems• Future plan
IV. Anything you feel about the landlord business recently (open ended question)

For questions on this report, please contact us.
Xymax Real Estate Institute
PHONE: +81 3 3596 1477 FAX: +81 3 3596 1478 info-rei@xymax.co.jp

Building Owner Survey 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real
Estate Institute Corporation.
Copyright © 2015 Xymax Real Estate Institute Corporation. All rights reserved.

12