CBRE Quarterly Investment Survey Finds Continued Stability in Expected Yields in Major Areas of Tokyo

Expected Yields in Sendai Largely Return to Pre-Earthquake Levels

​2012/05/23

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 April 2012 survey of 211 people (with 161 respondents) follows. (An overview of the survey can be found on PDF.)

Noteworthy Trends

• Expected yields were down slightly or remained unchanged in major areas of Tokyo
• Expected yields for both multi-family residential buildings and roadside shopping centers in Sendai largely returned to pre-earthquake levels
• Short-Term Observation for Market Survey (CBRE Tankan: Diffusion Index – Tokyo Offices) indicated an increase over last quarter in the percentage of investors who anticipate improvement within one year of the time of the survey

Overview

During the quarter under review, 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 a second consecutive quarter of unchanged expected yields (as indicated in the January 2012 survey) for the office sector, and a fourth consecutive quarter of unchanged expected yields for the multi-family residential building sector. While declines were seen in all sectors, the extent of the declines were minor, ranging from 5-10 basis points (bps), and in each case, the decline was in either the upper or the lower limit of the expected yield, but not both.

Expected yields in the office sector in major cities other than Tokyo in the lower and upper limits of expected yields saw declines by 10 bps and 5 bps in Osaka, respectively, with expected yields for Nagoya remaining unchanged.

Following the earthquake, expected yields in Sendai rose by 20-50 bps in each sector, after which they have all seen continual declines. Among these, expected yields for the multi-family residential and roadside shopping center sectors have fallen by 10-30 bps from the previous quarter, each returning largely to pre-earthquake levels. This quarter’s expected yields in the studio-type multi-family residential sector ranged from 7.5% to 8.0%, and 7.6% to 8.0% in the family-type multi-family residential building sector. Expected yields in the roadside shopping center sector this quarter ranged from 8.0% to 8.7%.

Nobuya Nomoto, CBRE Sendai Branch Office Senior Director, commented on the results: “Investment activity by general business firms with office locations in Tohoku has returned to pre-earthquake levels. This year we have seen multiple instances of investment sales at multi-family residential buildings, where a general shortage of vacant dwellings has existed. This number has already exceeded that of last year following the earthquake. These developments seem to have left a favorable impression on investors.”

The survey results showed an increase in the proportion of investors who foresee improvement across all survey question categories when comparing the one-year forecasts from last quarter's survey. This observation is based on answers to questions about: 1) the outlook of real estate trading volume, 2) sales prices, 3) NOI, 4) expected yields, 5) lending attitude of financial institutions, and 6) the stance on investment and loans for office buildings in Tokyo, as compiled in the CBRE Tankan’s DI*2 . Among these results, there was a 20-25-point quarter-on-quarter increase in the one-year forecast DI for sales price and NOI in the most recent survey. In addition, there were increases ranging from around 10 points in figures related to real estate trading volume, expected yields, and lending attitude among financial institutions. Sentiment improved among investors, indicating yet stronger anticipation of recovery in real estate market conditions. The survey was administered at a time when certain factors, including anxiety over a possible re-ignition of the Euro crisis, were deemed to have little influence on the results.

Simultaneously, a survey was administered with regard to large logistics facilities in Greater Tokyo, aimed at producing findings (aggregated as DI data) related to the categories: 1) real estate trading volume, 2) sales prices, 3) rents, 4) vacancy rates, 5) expected yields, 6) lending attitude of financial institutions, and 7) stance on investment and loans. The DI figures for “recent” sales prices and expected yields (as of the time of survey) for both multi-tenant and single-tenant properties had improved by 10-20 points, compared to the previous quarter. With high occupancy levels continuing, it is clear that market conditions conducive to forecasts of stable revenues, have made a favorable impression on an increasing number of investors.

For detailed data, please review the "CBRE Quarterly Survey vol.35".

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

*2DI: Diffussion index 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.

Attachment: Press Release | CBRE Quarterly Survey vol.35

Related Links: CBRE Quarterly Survey

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