Japan Investment MarketView Q2 2024

Transaction volume falls 25% y-o-y;

hotel investment surges to account for 40% of total volume

- Japan commercial real estate transaction volume for Q2 2024 fell by 25% y-o-y to JPY 663.0 billion. Several major hotel transactions pushed up the sector’s acquisition volume to JPY 280.0 billion, some 2.6x the volume recorded in the same quarter of the previous year, and roughly 40% of the total transaction volume for the quarter. Cumulative transaction volume for the hotel sector in H1 2024 was up by 49% from the previous year. Office transactions also rose this quarter, registering a 47% y-o-y increase to JPY 180.0 billion. In contrast, investment volume for the retail, residential, and logistics sectors all declined.

- J-REIT acquisition volume for the quarter (all transactions, including those below JPY 1 billion) slipped by 22% y-o-y to JPY 169.8 billion. This also represented a significant decline from the January-March quarter, when several major J-REIT transactions were announced. Over half of all J-REIT transaction volume this quarter was in the hotel sector. While the TSE REIT Index has dropped since the beginning of the year, hotel REITs have posted positive returns.

- The results of this quarter’s CBRE Cap Rate Survey reveal that expected yields either fell or remained unchanged for Tokyo prime assets across all sectors. For offices in regional cities, no areas saw expected yields increase. Shrinking yield spreads appear to have largely absorbed the effects of the recent rises in interest rates.