CBRE Quarterly Investment Survey Finds Continuing Fall in Expected Yields

Survey shows improvement in sentiment on weaker yen and rising stock prices thanks to Abenomics

​2013/05/23

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 2013 survey of 181 people (with 154 respondents) follows.  

Noteworthy Trends

• Expected yields have decreased in all sectors in major Tokyo areas compared to the previous quarterly survey in January 2013, except for industrial facilities in the Tokyo Bay Area.
• The upper limit for retail properties on Ginza’s Chuo Street fell to 4.75%, the lowest level on record since our January 2009 survey.
• The upper limit for offices in Osaka, as a whole, fell to its lowest level in over four years.
• In CBRE's Tankan survey for Tokyo Offices, the diffusion indices for both Grade A and non-Grade A buildings showed a major improvement in market outlook from investors, especially with regard to real estate trading volume, sales prices, and expected yields.
• The survey for Tokyo Metropolitan Area large multi-tenant logistics facilities also showed improvement in all diffusion indices, but less so than for the office sector.

Overview

During the quarter, expected yields (based on net operating income [NOI* ]) in the office, multi-family residential, retail, and hotel sectors in Tokyo continued to decline compared to the previous survey period (January 2013). The exception was industrial facilities in the Tokyo Bay Area. The upper and lower limits for retail (Ginza Chuo Dori) and multi-room apartments in the Jonan/Josai area both fell by 10 to 15 basis points (bps). This is the lowest level retail has seen since our survey began, and the lowest level in five years for the multi-room apartment category. In Nagoya, no change was identified since the last survey, but in Osaka the upper limit fell by 10bps and the lower limit fell by 20bps. This is the lowest level on record in over four years.

With improved corporate earnings, rising consumption on the back of the weaker yen, and higher stock prices, occupancy levels across all sectors improved. Following these occupancy improvements, rents are forecast to rise, which contributed to the lowering of expected yields.

CBRE Tankan:Office buildings in Tokyo

A survey was administered for large office buildings in Tokyo, with questions that focused on current conditions, and the expected situation one year from now (with results collected as the CBRE Tankan Diffusion Indices* ). Topics included: 1) the outlook for 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 January 2013, the responses for current conditions (as of April 2013), improved across all categories, with particularly large improvements in trading volume, sales prices and expected yields. The NOI diffusion index for Grade A buildings turned positive for the first time this quarter. The survey also showed that many investors still expect the situation one year from now to improve on the current situation. For NOI and trading volume in particular, there has been a large increase in the proportion of investors expecting an improvement in one year's time, for both Grade A and non-Grade A buildings. It would seem that many investors are now able to foresee a real sense of improvement in NOI.

CBRE Tankan: Large logistics facilities in Greater Tokyo

A survey was administered for large logistics facilities in Greater Tokyo, with questions regarding current conditions, and the expected situation one year from now. Topics included: 1) the outlook for 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 multi-tenant facilities, the responses for current conditions (as of April 2013), indicated improvements across all categories compared to the previous survey in January 2013. However, the improvements were smaller than for offices, and were particularly limited with rent and vacancy rates. By contrast, with regard to conditions one year from now, the proportion of investors expecting improvement declined across almost all categories. This is likely because investors estimated that planned new supply in 2013, which is predicted to be relatively large, would reduce average occupancy levels, and slow rental and sales increases, and trading volume.

"This quarter's survey results show that many investors are expecting a positive effect on the real economy from Abenomics, and they are already seeing an upturn in the current market environment,” said CBRE Senior Director of Research Hironori Kato. “What stands out is that, in the major areas of Tokyo, only industrial facilities failed to see a decline in expected yields. Furthermore, in the CBRE Tankan there was a major discrepancy between the office and industrial sectors in the proportion of investors expecting improvement. While the proportion of investors thinking positively about the office sector is much higher than the industrial sector, the outlook for both the office and industrial sectors are positive."

*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.39".

Attachment: Press Release | CBRE Quarterly Survey Vol.39

Related Links: CBRE Quarterly Survey

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