Mid-Sized Asset Class Attracting Investors Amid Limited New Supply
CBRE today released "Tokyo’s Mid-Sized Office Market Whets Investor Appetite,” a report that looks into the market conditions and benefits driving the growing interest in mid-sized buildings.
From 2018 the Tokyo office market will see three consecutive years of above-average new supply. The majority of this new supply will comprise of large-scale (Grade A) properties and CBRE forecasts that Grade A rents will drop c.15% in the next three years as a result. This then leads us to expect further traction for mid-sized offices as an investment class.
What makes mid-sized properties attractive to investors?
✔ Stable leasing demand from SMEs: More than 90% of office-type business sites have less than 20 employees.
✔ Limited supply means little to no disruption to the current supply-demand balance: Of the new supply scheduled for the coming three years in Tokyo, mid-sized (Grade B) buildings comprise only 6% of the total on a leased floor area basis.
✔ Rents are expected to be more stable relative to large-scale buildings: While CBRE forecasts an approximate 15% drop in Grade A rents, the decline in Grade B rents is expected to be much smaller, at c.6%, over the next three years.
✔ Higher yields compared to large-scale buildings: Yields from mid-sized buildings are estimated to be around 50bps higher compared to large-scale, prime office properties.
✔ Higher liquidity: Since 2012, the number of transactions for mid-sized buildings has accounted for around 17% of the total, exceeding 9% for large-scale buildings.
80% of acquisitions by overseas investors since 2012 have involved buildings with a gross floor area of less than 7,000 tsubo. With interest also growing among investors in core-plus investment, robust demand for mid-sized offices is likely to continue.
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 (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.co.jp