Tokyo, November 11, 2015 - CBRE released today its 49th Quarterly Survey on Japanese Real Estate Investment along with the Q3 2015 edition of its Japan Investment MarketView. (The methodology for the survey is detailed on page 7 of this release.)
Acquisitions by overseas investors increased by 61% y-o-y
Transactions in regional cities rose by 17% y-o-y; regional diversification continues
The expected yield for offices (Otemachi, Tokyo) declined by 3 basis points (bps) compared to the July 2015 survey, falling to 3.75%, marking a record low for the third consecutive quarter
The CBRE’s Tankan survey for Tokyo Grade A offices found that some Diffusion Indices have declined on the back of further drop in yields, but the appetite for investment remains strong
The Tankan survey for large multi-tenant logistics facilities in the Greater Tokyo Area found that the DIs for rent and vacancy rate have dropped, but investor sentiment remains positive
Transactions by overseas investors increase
The total value of real estate investment transactions (transactions of JPY1 billion or more) in Japan in Q3 2015 decreased 2.7% y-o-y to JPY 1.2 trillion. Acquisitions by J-REITs declined 10% y-o-y to JPY 394.1 billion, those by other Japanese investors fell 17% to JPY 487.9 billion, but acquisitions by overseas investors rose 61% to JPY 292.7 billion. J-REITs were somewhat subdued in terms of purchasing activity this quarter as share prices weakened. In contrast, overseas investors continued to be very active, completing several large acquisitions, including a number of office portfolios and retail malls.
Cap rates remained on a downward trend due to the lack of investment opportunities, while rents continued to rise, particularly for offices. It is no longer unusual to see transactions of prime offices and retail properties in central Tokyo at cap rates under 3%. Here onwards, however, yields are likely to decline further for assets in regional cities.
Expected yields hit record lows for Tokyo office, retail, and industrial sectors
CBRE's latest quarterly survey (October 2015) found that average expected yields (based on NOI ) have further declined for Tokyo office, retail, and industrial properties. Offices in Otemachi fell by 3 bps q-o-q to 3.75%, continuing the trend of a new low every quarter in 2015. In the Ginza Chuo Dori retail sector, expected yields dropped 14 bps to 3.80%, a record low. Yields for industrial properties also hit a record low (down 5 bps to 5.0%). However, yields were flat q-o-q for rental apartments (4.65% for studio-type and 4.75% for family-type) and for hotels (5.25%)
As they did in Tokyo, expected NOI yields also declined for office properties in regional cities. Osaka saw a 5 bps fall q-o-q to 5.50% and Nagoya a 3 bps fall to 5.80%. Yields in both cities are approaching the same levels as the last cyclical bottom in January 2008 (5.20% for Osaka and 5.33% for Nagoya). Yields also declined in other regional cities: Fukuoka was down 2bps to 5.63%, Sapporo was down 5bps to 6.10%, and in Sendai, where the market saw the transaction of the landmark AER building, yields fell 10 bps q-o-q to 6.05%
CBRE Tankan survey: Investors continue to display a healthy appetite for office and industrial assets
CBRE’s October 2015 Tankan survey asked respondents to compare current conditions to three months ago (with results collected as Diffusion Indices* ). Topics were: 1) trading volume, 2) sales price, 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 decreased for respondents’ stance on investment and loans (down 4 points q-o-q) and trading volume (down 2 points), whereas the lending attitude of financial institutions remained constant, and the remaining three questions showed improvement in DI figures. While there is still a shortage of investment properties and expected yields are falling, the funding environment is favorable. However, some investors have stated that for the first time this year, their stance on investment and loans are "cautious.” The external environment has changed significantly during the quarter, with growing uncertainty on how China’s economic slowdown will impact the Japanese economy. Although they accounted for only a small number of responses, some core investors displayed a rather cautious attitude.
The DI for logistics facilities (multi-tenant-type) in October improved only for respondents’ stance towards investment and loans (up 2 points q-o-q); the remaining five questions showed a decrease. This was due to a significant number of respondents answering "no change." For the one area where the DI improved, investment and loans, the number of positive responses show that investors’ appetite remains healthy. One concern is the large volume of pipeline supply, but the number of respondents who expect worsening conditions in six months' time was flat. For investment and loans in particular, the average forward-looking DI improved from 33 to 37. Although repondents expect rise in vacancy rate on the back of increase in new supply, sentiment remains positive thanks to solid demand for warehouses
*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). * DI：Diffusion index subtracts the ratio (%) of respondents that expected a “contraction (fall)” from the ratio (%) of respondents that expected an “expansion (rise)” for all six items, including expected yields, selling price and trading volume, for office buildings in the major areas of Tokyo. A positive DI means that the number of respondents that answered “expansion (rise)” exceeded the number that answered “contraction (fall).”
Covering transactions of at least JPY1bn, excluding acquisitions by J-REITs at IPO Source: RCA, CBRE
Changes in NOI Yield
Large office buildings in Tokyo
Large logistics facilities in Greater Tokyo
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 asked about the position in the investment market cycle "now" (as of the survey date) and "one year from now" in sixteen stages, covering three criteria (trading volume, transaction prices, and NOI) for each sector in Tokyo and the Greater Tokyo area: office buildings (large), multi-family residential (studio-type), retail (city center stores), hotels (based on lease contract), and industrial (multi-tenant).
Notes to Editors:
Objective The objective of the survey is to collect and analyze data looking at the level of expected yields for real estate investments.
Survey method and period Sent and received by e-mail primarily between September 24 and October 9, 2015.
Recipients surveyed and response rate ・Recipients: 184 individuals (166 corporations) ・Responses: 143 individuals (142 corporations) ・Response rate: 77.7% from individuals (85.5% from corporations)
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.
Policy regarding the release of survey results ・This report is an excerpt of the results from our quarterly survey.
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