Transaction Volume in 2015 Falls 28% y-o-y to JPY 3.5 Trillion
Investors Increasing Hotel Acquisitions and Diversifying into Regional Cties
Negative Interest Rates May Lead to Further Real Estate Capital Inflow
Tokyo, February 18, 2016 - CBRE today released its 50th Quarterly Survey on Japanese Real Estate Investment along with the Q4 2015 edition of its Japan Investment MarketView. (The methodology for the survey is detailed on page 7 of this release.)
Investment transactions in 2015 fell 27.9% y-o-y to JPY 3.5 trillion
Central Tokyo's share of transactions dipped below 40% for the first time as investors continue to diversify into regional cities
Acquisitions of hotels, mainly by J-REITs, rose 50% y-o-y to JPY 376 billion
CBRE's investor survey found that expected yields in Tokyo were flat q-o-q for offices (Otemachi) and retail (Ginza Chuo Dori)
Total real estate investment in 2015 totaled JPY 3.5 trillion; hotel acquisitions increase; regional diversification continues
The total value of real estate investment transactions (transactions of JPY 1 billion or more) in Japan in Q4 2015 decreased 59.1% y-o-y to JPY 677 billion, while the full-year total was down 27.9% to JPY 3.5 trillion. The decline was mainly due to fewer large transactions being completed than 2014 (especially in Tokyo) and also because the average value per transaction was lower.
At 48% of the overall total (JPY 1.6 trillion), offices accounted for the largest share of acquisitions; retail followed with 21% (JPY 709 billion). There was a big jump in investment in hotels, which became the third largest asset type with an 11% share (JPY 376 billion) of all acquisitions in 2015. Investor interest in hotels continued to grow over the course of 2015 amid the rising number of inbound tourists to Japan, which marked a historical high in 2015 at 19.7 million, up 47% y-o-y. Hotel acquisitions were dominated by a handful of domestic investors, including J-REITs, whose investment in hotels increased 2.5x to JPY 166 billion. Foreign investors’ appetite for hotels were as strong as, if not stronger than, the domestic investors; however, the increase in the number of domestic investors (mainly J-REITs), as well as shortage of existing assets being offered to the market, have intensified competition, and led to drop in acquisitions by foreigners. Interest in development opportunities are thus likely to continue to increase in future, spurred also by demand from foreign tourist arrivals, which are starting to play an important role in supporting consumption.
Investor interest in regional cities has grown due to the shortage of properties for sale in central Tokyo and declining cap rates. In 2015, Tokyo's central five wards accounted for 38% of all investments by value, meaning that their share fell below 40% for the first time since CBRE's surveys began. Meanwhile, acquisitions in regional cities, including Osaka and Nagoya, increased by 8.9% y-o-y to JPY 931 billion, representing 29% of the total, up from 18% in 2014.
Expected yields: Tokyo offices and retail flat; all sectors at record lows
CBRE's latest quarterly survey (January 2016) found that average* expected yields (based on NOI* ) declined for Tokyo real estate in all sectors in Q4 2015, with the exception of office and retail properties. All sectors that saw a decline recorded new lows. For hotels, expected yields declined by 20 bps to 5.05% and for industrial properties, by 10 bps to 4.90%. Yields for residential apartments, which were flat the previous quarter, resumed their decline to 4.58% for studio apartment and 4.70% for multi-room apartment. Expected yields for office and retail properties were flat q-o-q. Expected yields for central Tokyo offices hit their lowest since the quarterly survey began in 2003. The general opinion is that there is only limited scope for them to decline further. It will be interesting to see in the next survey, which is schedule for release in April 2016, how the Bank of Japan's adoption of negative interest rates will affect investors' views.
Expected yields for office properties in regional cities continue on a downward trajectory. Osaka saw a 7 bps fall q-o-q to 5.43% and Nagoya, a 5 bps fall to 5.75%. Expected yields also declined in all other regional cities. As competition intensifies in central Tokyo, and yields decline, the investors have broadened their scope to include regional cities.
CBRE Tankan survey: All DIs lower, but appetite for investment is strong; office NOI yields expected to improve in next six months
CBRE's January 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 six questions. DI figures were 10 points or lower for sales prices (down 18 points), trading volume (down 13 points) and expected yields (down 10 points). It is important to highlight that the deterioration was mostly due to a rise respondents answering "no change." Meanwhile, the DI for NOI improved for the next six months, indicating that the prevailing view is still that income is likely to improve. For logistics facilities (multi-tenant-type) too, the DI for current conditions deteriorated for all questions. However, as was the case for offices, this was mostly because a higher number of respondents answered "no change." That said, the DI for vacancy rates deteriorated by 9 points q-o-q, reflecting concerns about the expected large volume of supply. In all sectors there was no change for the lending attitude of financial institutions, showing that the funding environment is still positive. However, there was a slight increase in the number of respondents describing their strategy for investment and loans as "cautious.” It seems that increasing uncertainty over the macroeconomic outlook since H2 2015 has had an impact on investor sentiment.
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 topics for the Real Estate Investor Survey on overseas investment, which is carried out by CBRE Asia Pacific Research.
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 January 8-22, 2016.
Recipients surveyed and response rate - Recipients: 183 individuals (164 corporations) - Responses: 134 individuals (132 corporations) - Response rate: 73.2% from individuals (80.5% 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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