CBRE Quarterly Investment Survey Finds Lower Expected Yields in Major Tokyo Districts

Survey shows improved investor sentiment across all sectors amid better economic conditions

​2013/02/21
CBRE released the latest results of its quarterly survey on Japanese real estate investment (CBRE Quarterly Survey: Japanese Real Estate Investment), which gauges expected yields by real estate investors. The findings of the January 2013 survey of 194people (with 158 respondents) follows.   

Noteworthy Trends

Expected yields have decreased in the office, multi-family residential, retail, hotel and industrial sectors in major areas of Tokyo compared to the previous quarterly survey in October 2012.

The upper limits for industrial facilities in the Tokyo Bay Area and studio type apartment sectors decreased by 20 basis points (bps) from the previous quarterly survey, reaching their lowest levels since the Lehman Shock spurred the global financial crisis.

CBRE’s Tankan survey for Tokyo Offices showed that most investors view the diffusion index as having improved for the sales prices of offices, especially those that are not large scale properties, as well as for lending attitudes among financial institutions.

Overview

During the quarter, expected yields (based on net operating income [NOI*1 ]) in each sector (office, multi-family residential, retail, hotel and industrial) within the major areas of Tokyo showed decreases of varying degrees in yields across all sectors compared to the previous survey period. The upper limits for the studio type apartment and industrial sectors (Tokyo Bay Area) decreased by 20bps, while the upper limits in the office, multi-room type apartment, and hotel sectors decreased by 10bps. A major factor in the decline of the expected yields in the industrial sector was that investors active in the industrial sector experienced declines in industrial yields. Following the Lehman Shock, yields in the multi-family residential sector began falling before other sectors, amid stable NOI, and these yields fell again during the most recent survey period. Reflecting a continued stable income environment in this sector, and the circumstances outlined below, investors who had been seeking higher yields appear to have somewhat lowered their expectations.

Overall, improvement in NOI is expected to accompany actual economic improvements anticipated from the implementation of Abenomics, which has already resulted in lower yen values and increases in stock prices. And given that real estate investment is now being used as a hedge against inflation following the introduction of inflation targets, these effects are being reflected in yields.

Outside Tokyo, the lower limit for Osaka Offices fell by 20bps quarter-on-qquarter, while the upper limit of the Nagoya Offices also fell by 20bps q-o-q. Additionally, the expectation for decline in yields in both cities may take into account the current declining vacancy in both cities.

CBRE Tankan: Office buildings in Tokyo

A survey was administered for large office buildings in Tokyo, with questions that focused on the current situation, and the expected situation one year from now. Question themes included: 1) the outlook of real estate trading volume, 2) sales prices, 3) NOI, 4) expected yields, 5) the lending attitude of financial institutions, and 6) stance on investment and loans. Compared to the previous survey in October 2012, the responses for the current situation (as of January 2013), improved across all categories.

When subjects were asked to forecast conditions for the coming year, the responses indicated that most investors expect continued improvement. Notably, the diffusion index *2 for the sales price of non-large scale office properties increased by 23 points, and the diffusion index for the lending attitudes of financial institutions for non-large scale offices improved by 15 points. The outlook for firmer sales prices is thought to reflect anticipation that amid expectations for economic recovery, the consistently desirable non-large scale market will increasingly induce buyers to expand their searches to other building classes, thus driving prices up among alternative grade investment options. With regard to attitudes toward lending, the relative buoyancy in the Japanese economy in contrast to other national economies around the world, and a more positive picture in the macro-economy, is thought to have helped foster a greater appetite for risk.

CBRE Tankan: large logistics facilities in Greater Tokyo

A survey was administered for large logistics facilities in Greater Tokyo, with questions asked regarding the current situation, and the expected situation one year in the future. Question themes included: 1) real estate trading volume, 2) sales prices, 3) rents, 4) vacancy rates, 5) expected yields, 6) the lending attitude of financial institutions, and 7) stance on investment and loans. For both single and multi-tenant facilities, diffusion index sentiment for the current situation indicated improvements across virtually all categories compared to the previous survey in October 2012.

The improvements in the diffusion index values for sales price, rents and the lending attitude of financial institutions each increased by more than 10 points. Regarding conditions one year in the future, the results showed that although improvements are expected in many categories, the overall diffusion index trended downward. The diffusion index for vacancy rates during the coming year was the only category which recorded a diffusion index of zero, with an even ratio of respondents expecting an increase and and a decrease. This is thought to be the result of a possible increase in the vacancy rate given the large new supply scheduled to come online during 2013.

*1 NOI：Net income before depreciation and income taxes; total revenues from real estate less total expenses (excluding depreciation).

*2 DI： Diffussion index (DI) that 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 prices 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).” This DI is not disclosed in the CBRE Quarterly Survey.

For detailed data, please review the "CBREQuarterlySurvey Vol.38".

About CBRE Gro​up, Inc.

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 (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.​