Lowest Expected Yields for Tokyo Offices Since Surveys Began in 2003
Lowest Expected Yields for Tokyo Offices Since Surveys Began in 2003
February 18, 2015
2014 Acquisitions Totaled JPY 4.7 trillion, up 3.5% y-o-y
CBRE Releases Latest Survey on Expectations for Japanese Real Estate Investment
CBRE released today its 46th Quarterly Survey on Japanese Real Estate Investment along with the Q4 2014 edition of its Japan Investment MarketView. The objective of the survey is to analyze the current state of the Japan real estate investment market through data including expected yields and other statistics. The January 2015 survey polled 217 investors and had 147 respondents.
Expected yields for offices (Otemachi, Tokyo) declined 5 bps quarter-on-quarter to 3.90%, on par with the level recorded in 2007 (and the lowest level on record since the survey began in 2003)
Expected yields for multi-family residential and retail assets in Tokyo also fell by 5 bps to 10 bps q-o-q, but were flat for hotels and industrial facilities
The CBRE Tankan survey for Tokyo Grade-A offices found that the Diffusion Indices (DI) decreased q-o-q by 7 points for NOI, but continues to show higher DI for the future outlook
The Tankan survey for large-scale multi-tenant logistics facilities in the Greater Tokyo area showed declines in DI for expected yields
Investment volume in Q4 2014 rose 47% year-on-year to JPY1.6 trillion, mainly driven by a number of major acquisitions by overseas investors. The total for 2014 rose 3.5% y-o-y to JPY4.7 trillion
Expected yields for Tokyo offices reach their lowest since surveys began in 2003
In the January 2015 survey, average expected yields (based on NOI* ) in major areas of Tokyo fell by 5 bps to 10 bps q-o-q for office, multi-family residential, and retail, but were flat for hotels and logistics facilities. Otemachi offices had the lowest yields among all asset types at 3.9%, on par with the level recorded in 2007 (and the lowest level on record since CBRE began the survey in 2003). The reason why yields for hotels (in Tokyo's central five wards; sub-contracted management) and for logistics facilities (Tokyo Bay Area; multi-tenant) were flat q-o-q is thought to be that there were few large transactions to indicate a further decline in cap rates during the quarter. Expected yields in regional cities further compressed, with a 20 bps q-o-q fall in Osaka, 8 bps decline in Nagoya and a fall of between 3 and 7 bps in Sapporo, Sendai, and Fukuoka.
CBRE Tankan shows DI for expected yields falling for all sectors and investor appetite remains strong
The January 2015 survey included a study of Grade A offices, where respondents were asked to compare current conditions with three months earlier (with results collected as Diffusion Indices* ). Topics were: 1) transaction volume, 2) sales price, 3) NOI (or rents and vacancy rates for logistics facilities), 4) expected yields, 5) lending attitudes of financial institutions, and 6) strategies for investment and loans. Comparing current conditions to three months earlier, improvement was seen in sales price, which rose 3 points q-o-q, and transaction volume, which rose by 1 point. On the other hand, NOI declined by 7 points q-o-q, expected yields by 6 points, lending attitudes of financial institutions by 1 point, while attitudes on investment and loans were flat. For non-Grade A offices, expected yields recorded a 5 point decline and NOI a 1 point fall. The lending attitudes of financial institutions and strategies on investment and loans both improved by 4 points and 3 points respectively. Meanwhile, multi-tenant logistics facilities saw improvements in real estate transaction volume as well as vacancy rates, up by 5 points and 3 points respectively.
The DI for expected yields declined across all sectors as the number of investors expecting yields to fall decreased. For Grade A offices, the DI for NOI declined this quarter, but the DI for outlook remains higher than the current DI, which suggests respondents continue to expect rents to rise. For logistics facilities, the DI declined for five topics, possibly reflecting investors' concerns about the large volume of new supply scheduled to be completed in the second half of 2015.
Transactions: Large acquisitions by overseas investors boosted the total value of investment transactions in 2014
Data collected by CBRE on transactions by J-REITs and other published transactions (those worth at least JPY1 billion, excluding acquisitions at J-REIT IPOs) show that the total value of real estate investment in Q4 2014 was JPY1.6 trillion, an increase of 47% y-o-y and the highest quarterly total in 2014. Due to a series of large acquisitions by overseas investors, including GIC's purchase of Pacific Century Place Marunouchi for a reported JPY170 billion, the total value of investments in 2014 as a whole also rose, to JPY4.7 trillion. Both the acquisitions and the dispositions by overseas investors roughly doubled y-o-y, with total acquisitions of JPY1.0 trillion and total sales of JPY1.3 trillion respectively. Overseas investors accounted for 23% of all acquisitions, not far behind the 25% share accounted for by J-REITs.
With an increasing shortage of supply, especially in central Tokyo, investors have widened the scope of their search to include regional cities and assets other than offices. The quarter saw strong appetite among overseas investors for hotels, as the number of foreign visitors to Japan continues to increase. There were also some large transactions in the logistics sector including the deal for GLP Tokyo II, acquired by GLP J-REIT for JPY36.1 billion with 4.5% NOI yield. Last year also saw fewer number of deals for the sector, but developers continued to actively invest in sites for the development of logistics facilities. The number of acquisitions by J-REITs in regional cities, including Osaka and Nagoya, rose by 24% y-o-y. With companies' earnings recovering, office demand in regional cities is expected to remain healthy. In 2015 investors are therefore likely to diversify into regional cities in earnest.
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 January 8 and January 23, 2015.
3.Recipients surveyed and response rate
Recipients: 217 individuals (194 corporations)
Responses: 147 individuals (147 corporations)
Response rate: 67.7% from individuals (75.8% 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.
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.