J-REITs continue to drive transactions; value of industrial transactions increases
CBRE released today the results of its 43rd CBRE Quarterly Survey on Japanese Real Estate Investments along with the Q1 2014 edition of the CBRE Japan Investment MarketView. The objective of the survey is to collect and analyse data looking at the level of expected yields for real estate investments. The April 2014 survey polled 221 investors and had 148 respondents.
Noteworthy trends
- Expected yields have decreased in all sectors in major areas of Tokyo except for multi-room type apartments, where yields were flat quarter-on-quarter (q-o-q).
- The average expected yield for offices (Otemachi, Tokyo) declined by two basis points (bps) q-o-q compared to the previous survey in January 2014 to 4.13%, and by 14bps to 5.46% for multi-tenant industrial facilities.
- The CBRE Tankan survey continued to show bullish investor sentiment
Expected yields: Decline continues in major areas of Tokyo
The latest quarterly survey for April 2014 showed average expected yields (based on NOI*1 ) in major areas of Tokyo declining in all sectors except for multi-room type apartments, which were flat q-o-q. Yields for Otemachi offices fell by 2bps q-o-q to an average yield of 4.13% and yields for Ginza high-street retail fell by 5bps to 4.35%. Industrial facilities (multi-tenant in the Tokyo Bay Area) saw a 14bps decline to 5.46%, with the rate of decline accelerating from 5bps in the previous quarter. Osaka offices saw a 15bps decline to 6.08% and Nagoya offices saw a 10bps decline to 6.35%. During the quarter the lower limit for Osaka office yields fell below 6% for the first time since 2008, implying rising investor interest on the back of signs that office rents are bottoming out.
CBRE Tankan survey: Investor sentiment continues to improve
In the first quarter of 2014 CBRE conducted a survey of Grade A offices and logistics facilities, with respondents asked to compare current conditions with three months ago (with results collected as Diffusion Indices*2). Topics included: 1) real estate trading volume, 2) sales prices, 3) NOI (rents and vacancy rates for logistics facilities), 4) expected yields, 5) lending attitude of financial institutions, and 6) stance on investment and loans. For Grade-A offices, the responses for NOI improved by seven points, but other categories showed a slight deterioration. However, this was due to an increase in the number of respondents seeing no change over the last three months. The majority of responses still indicated an improving trend.
Multi-tenant logistics facilities exhibited a similar trend as offices. However, there was a slight increase in respondents saying that vacancy rates will rise, which is perhaps due to the large volume of new supply completed in the first quarter. The DI consequently deteriorated by 5 points. It should be noted, however, that the vacancy rate in the first quarter was 4.5%, as mentioned in the Q1 2014 CBRE Japan Investment MarketView. This figure is well below CBRE’s prior estimate of 7%, implying continued strong demand.
When asked to comment on the situation six months from now, respondents indicated that they expected to see an improving trend for both the office and industrial sectors. In particular, the improvement in NOI for Grade A office buildings is becoming more pronounced.
Transactions: Still driven by J-REITs; industrial deals increase
Data collected by CBRE involving transactions by J-REITs and other published deals (those worth at least ¥1 billion, excluding acquisitions due to IPOs) show that the total value of investment real estate transactions in Q1 2014 was ¥1 trillion, a fall of 9.1% q-o-q. J-REITs accounted for ¥376bn or 38% of this total, a rise of 9.8% q-o-q.
Total transaction volume in Q1 2014 declined by 23% y-o-y but deals involving J-REITs were nearly flat, down 3.5% y-o-y. A decline in transactions by Japanese investors other than J-REITs, particularly for those with a transaction value of ¥10 billion or less, was the main factor behind the y-o-y decline in total value.*3 Transaction volume declined y-o-y for all asset types, with the exception of industrial which saw an 11% y-o-y rise as activity in this sector continued to intensify.
A detailed discussion of the Japan investment market can be found in the Q1 2014 edition of the CBRE Japan Investment MarketView.
*1 NOI ： Net income before depreciation and income taxes; total revenues from real estate less total expenses (excluding depreciation).
*Diffusion index (DI) 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).” Topics of the office survey include: 1) 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. Topics of the industrial survey include 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. *3 Because deals are mostly reported after the contract date, these figures may increase in the future.
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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.
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