CBRE Releases Q2 2015 Japanese Real Estate Investment Survey

More Regional and Asset Diversification: Osaka Records 44% y-o-y Growth;

​Investment in Healthcare Facilities Grows Six-Fold y-o-y

Tokyo, August 11th, 2015 - CBRE released today its 48th Quarterly Survey on Japanese Real Estate Investment along with the Q2 2015 edition of its Japan Investment MarketView. (The methodology for the survey is detailed on page 7 of this release.)

Summary

• Expected yields for offices (Otemachi, Tokyo) fell to 3.78%, 7 basis points (bps) lower than that of the April 2015 survey and for the second consecutive quarter, setting the lowest level since 2003 when CBRE began its surveys.
• Acquisitions by J-REITs nearly doubled y-o-y, accounting for 50% of total transactions.
• Osaka investment volume rose 44% y-o-y to JPY 101 billion, driven by transactions of large-scale office buildings.
• CBRE’s Tankan survey for Tokyo Grade A buildings showed stable investor sentiment despite a decline in the Diffusion Index (DI), while the outlook for an increase in NOI remained positive.
• The Tankan survey for large-scale multi-tenant logistics facilities in the Greater Tokyo Area showed an improvement in the DI, but slightly more respondents are concerned with the potential rise in vacancy rates due to new supply.

Investment transactions: J-REITs drive the market; investor sentiment remains strong as investments continue to diversify across regions and sectors

The total value of real estate investment transactions (those worth at least JPY 1 billion) in Q2 2015 declined 28% y-o-y to JPY 674 billion. Of this, investments by J-REITs totaled JPY 340 billion (up 94% y-o-y), while those by overseas investors equaled JPY 80 billion (down 28% y-o-y), accounting for 50% and 12% of the total, respectively. Acquistions by J-REITs continue to drive the overall market.

In Osaka, investments for the quarter increased 44% to JPY 101 billion. Several transactions exceeded JPY 10 billion in value, demonstrating investor’s interest in areas other than Tokyo. By asset type, there was a decline y-o-y for all sectors except health care. Offices accounted for 56% of the total, followed by 16% for the retail sector, 13% for the hotels, and 11% for residential sector. Although the total value of transactions in the closely-watched health care sector of the J-REIT market was small in scale at just JPY 8 billion, it was a six-fold increase on last year’s value.

A severe shortage of properties in the investment market has led to intense competition for buildings, but investor sentiment remains strong amidst an abundance of funding and robust market conditions.

Expected yields for Tokyo decline across all sectors, offices set new record lows

The latest quarterly survey for July 2015 found that average expected yields (based on NOI* ) in major areas of Tokyo declined across all sectors. Yields in the office sector (Otemachi, Tokyo) declined 7bps q-o-q to 3.78%, the second consecutive quarter of a record low since CBRE began its surveys in July 2003. The residential sector also fell to their lowest levels since the survey began for this sector in October 2007: studio apartments were at 4.65% (down 5bps q-o-q), while multi-room apartments declined to 4.75% (down 10bps q-o-q). Expected yields for retail facilities (Ginza Chuo Dori), hotels (management contract, in Tokyo’s 5 main wards), and multi-tenant logistics facilities (Tokyo Bay area), stood at 3.94% (down 4bps q-o-q), 5.25% (down 5bps), and 5.05% (down 10bps), respectively, the lowest since the survey for these sectors began in January 2009.

Expected yields for offices in cities other than Tokyo also declined. Osaka fell by 10bps q-o-q to 5.55%, while Nagoya was down by 7bps to 5.83%. Other cities included Hiroshima at 6.40% and Fukuoka at 5.65%, both of which are down 11bps and 13bps q-o-q respectively. Despite further compression in regional yields, they are still more than 150bps above the Tokyo yield.  Given the strong interest by investors towards these regional cities, yields are likely to compress further and the gaps vis-à-vis Tokyo to narrow.

CBRE Tankan survey: DI for office NOI and logistics rents both improve

The July 2015 survey included a study of Grade A office buildings, for which the respondents were asked to compare current conditions to three months ago (with results collected as Diffusion Indices (DI)* . Topics were: 1) transaction volume, 2) sales price, 3) NOI (or rents and vacancy rates for logistics facilities), 4) expected yields, 5) lending attitude of financial institutions, and 6) strategies for investment and loans. Although the DI for strategies for investment and loans were flat q-o-q, the DI deteriorated for the remaining five topics. However, the reason for the decline was due to an increase in the number of respondents who stated there was no change compared to three months ago. In regards to NOI, the outlook for one year from now improved, demonstrating continued expectations that rents will continue to rise in the future. Multi-tenant logistics facilities recorded improvements in DI for transaction volume (up 4 points q-o-q), rents (up 4 points), and expected yields (up 2 points), while the DI for vacancy rates was flat, and the other three categories declined by 1 point. With approximately 180,000 tsubo of supply scheduled to come online half a year from now in Q4 2015, the DI for sales prices (down 13 points), transaction volume (down 8 points), and expected yields (down 8 points) all experienced a decline compared to the last survey. This was because more respondents saw no change compared to three months ago. However, for vacancy rates, which experienced a 5 point decline, the decline was due to an increase in the number of responses that expected the vacancy rate to rise, demonstrating concern over the expected large amount of new supply.

To download the Q2 2015 edition of the CBRE Japan Investment MarketView, please click on the link below. http://www.cbre.co.jp/EN/research/Pages/MarketViews.aspx

The official survey results are downloadable in PDF format from our website, please click on the link below. http://www.cbre.co.jp/EN/research/Pages/CBRE-Quarterly-Survey.aspx

As this survey covers many unpublished items, full results are only provided to respondents. See the list of surveys below for details.

Notes to Editors:

Quarterly Survey

1. Objective
   The objective of the survey is to collect and analyze data looking at the level of expected yields for real estate investments.
2. Survey method and period
   Sent and received by e-mail primarily between June 22 and July 10, 2015.
3. Recipients surveyed and response rate
   - Recipients:  186 individuals (165 corporations)
   - Responses:  144 individuals (141 corporations)
   - Response rate:  74.7% from individuals (85.5% from corporations)
4. Type of respondents
   Arrangers, Lenders (senior), Lenders (mezzanine), Developers, Real property lessors, Asset managers (Mainly for J-REITs), Asset managers (Mainly for non J-REITs), and Equity investors, among other respondents.
5. Policy regarding the release of survey results
   - This report is an excerpt of the results from our quarterly survey.

Download PDF

Press Release
Japan Investment MarketView Q2 2015
Quarterly Survey Vol. 48

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.​