Transaction Volume in Q1 2016 Falls 40.8% y-o-y to JPY 778.9 Billion
Expected Yields for Tokyo Offices Decline Again After BoJ Adopts Negative Interest Rates Policy
Tokyo, May 19, 2016 - CBRE today released its 50th Quarterly Survey on Japanese Real Estate Investment along with the Q1 2016 edition of its Japan Investment MarketView. (The methodology for the survey is detailed on page 7 of this release.)
Investment transactions in Q1 2016 fell 40.8% y-o-y to JPY 778.9 billion
Acquisitions of hotels rose 63.7% y-o-y
CBRE's investor survey found expected yields in Tokyo at record lows for all sectors
Trading volume DI deteriorated; very few investment opportunities in core sectors
The total value of real estate investment transactions (transactions worth JPY 1 billion or more) in Japan in Q1 2016 declined 40.8% y-o-y to JPY 778.9 billion. Acquisitions by J-REITs increased 6% y-o-y to JPY 529.7 billion, accounting for 68% of the total. However, acquisitions by other Japanese investors declined 71.3% to JPY 161.9 billion, and acquisitions by oversease investors fell 65.5% to JPY87.4 billion. With overall transaction volume shrinking, only J-REITs increased their acquisitions.
Hospitality assets showed the largest y-o-y increase in acquisitions. Transactions rose by 63.7% y-o-y to JPY 126.3 billion, most of which involved acquisitions by J-REITs. The largest share of transactions was still accounted for by offices and retail, which together made up half of the total. However, transactions in both sectors were far below Q1 2015 levels, reflecting the limited number of investment opportunities for core assets. Offices experienced a decline of 58.5% y-o-y to JPY 284.8 billion and retail suffered a decline of 36.4% to JPY 151.4 billion.
Transactions in Tokyo's 23 wards declined by 58.4% y-o-y and their share of total transaction volume fell below 50% for a second consecutive quarter. Meanwhile, regional cities continued to enjoy a rising share of overall investment. Regional cities, including Osaka and Nagoya, accounted for 32% of all transactions, up from 22% in Q1 2015.
J-REIT share prices rose following the implementation of the negative interest rate policy by BoJ. The purchase of J-REIT stocks by both domestic and foreign investors has boosted their competitiveness, encouraging them to bid aggressively on opportunities including regional properties.
Expected yields: All sectors in Tokyo decline to record lows
CBRE's latest quarterly survey (April 2016) found that average* expected yields (based on NOI* ) declined for Tokyo real estate in all sectors in Q1 2016, reaching record lows. The largest decline was in hotels (Tokyo central five wards, management contract), for which expected yields fell by 9 bps q-o-q to 4.96%. Even offices (Otemachi), which saw no change in Q4 2015, resumed their decline, with a 5 bps fall to 3.70%. Osaka and Nagoya both saw a decline in expected yields for offices. They fell by 8 bps q-o-q to 5.35% in Osaka and by 10 bps to 5.65% in Nagoya.
Investors seem to have lowered yield expectations even further, especially as JGB yields dropped into negative territory. Yields declined not only for the hotel sector, which is benefiting from inbound tourism, but also for the office sector, where the decline in yields had previously appeared to had come to an end.
CBRE Tankan survey: Trading volume continues to decline; few investment opportunities in core sectors
CBRE's April 2016 Tankan survey asked respondents to compare current conditions to three months ago (with results collected as Diffusion Indices*3). Topics were: 1) trading volume, 2) sales prices, 3) NOI (or rents and vacancy rates for logistics facilities), 4) expected yields, 5) lending attitude of financial institutions, and 6) strategies for investment and loans. For Grade A office buildings, the DI dropped for all questions except expected yields. The DI for trading volume was 11 points lower q-o-q, the second consecutive double-digit fall, reflecting the impact of the property shortage. Consequently, the DI for expected yields rose 5 points, the only question to show an improvement (indicating lower expected yields). For logistics facilities (multi-tenant-type),the DI for current conditions fell for six questions this quarter. In particular, the DI for trading volume was 20 points lower q-o-q, slumping as it did for offices. Nevertheless, unlike offices, the DI for expected yields was 5 points lower (indicating a rise in yields), but this was mainly because of a rise in the number of respondents answering "no change."
A decline in expected yields was also seen in this survey. However, DI figures were 10 points or lower for the key questions on vacancy rates and rents, suggesting a gradual increase in concern over the large volume of new supply.
Since the funding environment was already favorable, the adoption of a negative interest rates policy seems not to have had a great impact on the lending attitude of financial institutions. The "strategy for investment and loans" DI also found very few respondents expecting to reduce investment, showing that investors are still very keen to invest.
*1 Average: Average figure of the median of lowest/highest yield each *2 NOI：Net income before depreciation and income taxes; total revenues from real estate less total expenses (excluding depreciation). *3 DI: Diffusion index subtracts the ratio (%) of respondents that expected a “contraction (fall)” from the ratio (%) of respondents that expected an “expansion (rise).”
As the survey goes beyond the scope of this publication, full results are only provided to respondents. Please refer to the following list for all surveyed items.
*1 Cap Rate
NOI cap rate: Minimum and Maximum of the range of Median, Average, Highest, Lowest and Standard deviation
NCF cap rate: Minimum and Maximum of the range of Median, Average, Highest, Lowest and Standard deviation
Some of the questions include result by respondent type.
*2 Questions Polled
Questions were asked on investors' strategy for investment and loans following the Bank of Japan's adoption of negative interest rates.
Notes to Editors:
The objective of the survey is to collect and analyze data looking at the level of expected yields for real estate investments.
2. Survey method and period
Sent and received by e-mail primarily between March 28 and April 20, 2016.
3. Recipients surveyed and response rate
Recipients: 181 individuals (164 corporations)
Responses: 136 individuals (134 corporations)
Response rate: 75.1% from individuals (81.7% from corporations)
4. Type of respondents
Arrangers, Lenders (senior), Lenders (mezzanine), Developers, Real property lessors, Asset managers (mainly for J-REITs), Asset managers (mainly for non J-REITs), and Equity investors, among other respondents.
5. Policy regarding the release of survey results
This report is an excerpt of the results from our quarterly survey.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.co.jp