Expected real estate yields for Oct. 2013 shows another q-o-q drop
Expected real estate yields for Oct. 2013 shows another q-o-q drop
November 21, 2013
CBRE survey shows investor confidence still high
CBRE released today the latest results of its 41st quarterly survey on Japan real estate investment. The objective of the survey was to collect and analyze data looking at the level of expected yields for real estate investments. The October 2013 survey polled 242 investors and had 146 respondents.
The lower end of expected yields for offices (using Otemachi, Tokyo as the benchmark) fell by 20 basis points (bps) q-o-q, while the upper end fell by 10bps to an average of 4.20%
Expected yields also fell for multi-family residential, retail, and hotels in central Tokyo, but were flat for industrial facilities
The survey showed that sentiment remains positive for office buildings and large multi-tenant logistics facilities
Expected yields: Downward trend continues in central Tokyo
During Q3, expected yields (based on net operating income [NOI*1]) in the multi-family residential, retail, and hotel sectors in central Tokyo continued to decline compared to the previous survey period (April 2013). Office yields (Otemachi), which were flat in the previous quarter, saw a 20bps decline in the lower end and a 10bps decline in the upper end, with the average at 4.20% (down 15bps quarter-on-quarter), the lowest level since the July 2008 survey (4.10%). However, expected yields for industrial (multi-tenant, Tokyo Bay Area), which hit a record low (5.65%) in the previous quarter, was flat this quarter.
Expected yields (based on NOI) for top grade new office buildings in Tokyo (by area) saw falls of around 10bps in several districts.
The downward trend in expected yields in central Tokyo is now not only in prime locations such as Otemachi, but is gradually spreading to other areas as well.
Expected yields: Nagoya sees second consecutive quarterly decline
Expected yields (based on NOI) on office buildings in Osaka and Nagoya were flat q-o-q in Osaka (6.25%), but declined by around 10bps in Nagoya (6.46%). Expected yields in Osaka, which began to decline significantly in 2012, had been flat since the previous quarter, but this is still the lowest level since the October 2008 survey (5.88%). Nagoya, where yields began to decline somewhat later than in Osaka, had a second consecutive quarterly fall of around 10bps, reaching the lowest level since the January 2009 survey (6.30%). Increasing interest in Osaka and Nagoya - as the number of properties available in central Tokyo falls and competition increases - seems to be behind the decline in expected yields.
Improving trend in investor sentiment toward Tokyo Grade A office buildings is continuing
A survey was administered for office buildings in Tokyo (with results collected as the CBRE Tankan Diffusion Indices*2). Topics included: 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. Compared to the previous survey, the responses for current conditions improved in four categories, each setting new records since the survey first began: sales prices (79), NOI (14), the lending attitude of financial institutions (74), and stance on investment and loans (56). In particular, and as in the previous quarter, responses on sales prices have continued to improve for up to six months from now, and NOI up to two years from now. In the Tokyo office rental market, tenant activity has picked up, partly due to an expectation of rising rents, and the vacancy rate is declining. Although rents have not intensely risen yet, the improvement in occupancy rates and NOI, along with the expectation that rents for Grade A buildings will rise ahead of the market as a whole, seem to be reasons for continuing market optimism from investors.
Sentiment also improving on non-Grade A Tokyo office buildings
Responses for non-Grade A Tokyo office buildings were flat on expected yields (50). But Grade A sales prices rose eight points q-o-q (69), and is also expected to rise for the next six months as well. Net Operating Income was still -2, like the previous quarter. This appears to reflect the fact that it will take some time before improvement in the rental market becomes more widespread. Net Operating Income three months from now is expected to be positive at 6.
Tokyo Metropolitan Area large multi-tenant logistics facilities still improving this quarter
A survey was administered for large logistics facilities in Greater Tokyo. 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. The responses for current conditions indicated improvements across all categories except for sales prices. Although sales prices fell slightly, an improvement of four points in expected yields implies that investor sentiment is still improving. Investment sentiment in the future outlook seems to have deteriorated, most likely on account of expected new supply going forward. This is due to an increase in the number of responses quoting "no change" and suggests that investors are taking a cautious view, rather than a pessimistic one.
*1 NOI ： Net income before depreciation and income taxes; total revenues from real estate less total expenses (excluding depreciation).
*2 Diffusion index (DI) ： Diffusion index 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).”
The official survey results are downloadable in PDF format from the links below.
About CBRE Group, 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.