The Japanese Real Estate Investment Market 2015

Transcription

1 The Japanese Real Estate Investment Market 215 June 215 Nomura Research Institute Marunouchi Kitaguchi Bldg Marunouchi, Chiyoda-ku, Tokyo 1-5, Japan

2 To create a transparent real estate investment market in Japan This report has been produced by Nomura Research Institute solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. No warranty for representation, express or implied is made as to the accuracy or completeness of any of the information herein and Nomura Research Institute shall not be liable to any reader of this report or any third party in any way whatsoever. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 1

3 Research Framework and Perspectives for this Report Macrofundamentals GDP growth, corporate performance, demographic movements Financial and Capital Markets Interest rates, financial and other regulations, political trends Rental Market Trading Market Demand What are the key drivers of demand? Which industries require more space? Which districts are in demand? Supply How much floor space is newly developed? How much floor space is demolished? Buyers What properties interest buyers? How strong is their buying appetite? Lenders What properties are lenders willing to finance? What are the lending conditions? Sellers Who are the potential sellers? What assets are likely to be sold? Vacancies Increase or decrease? Rent and NOI Increase or decrease? Liquidity What kinds of properties are transacted successfully and what are not? Cap Rate What cap rate level leads to successful transactions? Will asset value rise or fall? Asset Price Estimation Times New Roman, size 8, color: Dark Gray Ex) Source: NRI based on IMF Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 2

4 Table of contents Population Movements in Japan Macro Fundamentals of Japan Overview of Real Estate Investment Market in Japan Office Market Residential Market Retail Property Market Logistics Property Market Real Estate Investment Products Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 3

6 Population Movements in Japan Japan s population is aging and shrinking due to a low birth rate. The number of households will also be decreasing soon. Total population peaked out in 25. The number of households is increasing for now, but it is projected to decrease after 219. The population of 65 years or older is expected to level off in 225 and head downwards in 24. Population and Households in Japan Population (thousand) 14, Actual Forecast Households (thousand) 6, 12, 5, 1, 8, 6, 4, 2, 4, 3, 2, 1, Household Source: NRI based on National Institution of Population and Social Security Research Note: Medium-fertility (medium-mortality) projection Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 5

7 Population Movements in Tokyo Population continues to increase in Greater Tokyo. Population inflow into Tokyo is expected to continue. Net Population Inflow into Greater Tokyo Population (thousand) Inflow Outflow Kanagawa Chiba Saitama Tokyo -15 Source: NRI based on Basic Resident Register Population Migration Report Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 6

8 Population Movements in Tokyo Population and households are projected to decrease in Tokyo in 5 to 1 years time. In the Tokyo metropolitan area, total population and number of households are projected to peak out in 215 and 225, respectively. Population in Greater Tokyo Households in Greater Tokyo Population (thousand) 4, Actual Forecast Households (thousand) 18, Actual Forecast 35, 16, 3, 25, 2, Chiba Saitama Kanagawa Tokyo 14, 12, 1, 8, Chiba Saitama Kanagawa Tokyo 15, 6, 1, 4, 5, 2, Source: NRI based on National Institution of Population and Social Security Research Note: Medium-fertility (medium-mortality) projection Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 7

9 Population Movements in Tokyo Households in Tokyo are expected to increase over the medium term owing to the strength of one-person households. The number of single-person households is expected to peak out in 23. Number of Households by Family Composition Households (thousand) 7, Actual Forecast 6, 5, 4, 3, One-person Couple-only Couple-and-child(ren) One-parent-and-child(ren) Other 2, 1, Source: NRI based on National Institution of Population and Social Security Research Note: Medium-fertility (medium-mortality) projection Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 8

10 Population Movements in Tokyo Population in Tokyo is predicted to increase over the long term only in the three wards along Tokyo Bay. Population is expected to increase in the Chuo, Koto and Minato wards. In seven wards, the population is projected to decrease by over 1% between 21 and 24. Population Trends in Tokyo (21=1) Ward Chuo Koto Minato Shinjuku Nerima Sumida Arakawa Chiyoda Setagaya Shinagawa Edogawa Bunkyo Toshima Ota Itabashi Meguro Taito Shibuya Nakano Kita Suginami Katsushika Adachi Source: NRI based on National Institution of Population and Social Security Research Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: Medium-fertility (medium-mortality) projection 9

12 Macro Fundamentals of Japan Japan s economic growth is the lowest compared to other major economies with low forecasts for future growth. IMF forecasts estimate Japan s GDP growth rate at 1% for the next 5 years. Real GDP growth rate of major economies (%) 15. Actual Estimate India China Korea US UK Japan Source: NRI based on IMF data (214 Oct. and 215 Update) Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 11

13 Macro Fundamentals of Japan Despite the weak growth, Japan remains one of the largest economies in the world. Although Japan was overtaken by China and fell to the third place in world nominal GDP, India, Brazil and Russia will still remain behind Japan by 22, assuming current growth rates continue. Nominal GDP of Major Countries (Billion USD) 25, Actual Forecast US 2, China 15, 1, 5, Japan Source: NRI based on IMF (214 Oct.) Note: Figures up to 219 are IMF forecasts and those up to 22 are calculated with the assumption that the CAGR from 214 to 218 will be maintained. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 12

14 Macro Fundamentals of Japan Consumer price index became less active, despite the rise in price due to the consumption tax increase. With consumer sentiment depressed due to the consumption tax increase, the growth of consumer price index began to slow down. Year-on-Year Change in Japan s Consumer Price Index (excluding fresh foods) 4. (%) Inflation target set by BOJ Source: NRI based on Japan Ministry of Internal Affairs data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 13

15 Macro Fundamentals of Japan Yen still continues to decline. Large-scale monetary easing, the first arrow of Abenomics, has rapidly lowered the yen from the end of 212. USD-JPY exchange rate (USDJPY=X) Source: NRI based on Bloomberg data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 14

16 Macro Fundamentals of Japan Trade deficit is expanding, while the current account surplus is shrinking. Japan s trade balance recorded deficit for four consecutive years from 211, while the current account surplus fell to a record low in 214. Japan s Current Account ( (Trillion 兆円 ) yen) 35 (Trillion yen) ( 年 ) (CY) Trade 貿易 Balance 収支 Service サービス Balance 収支 Primary 第一 income 次所得 balance 収支 Second 第二次 income 所得収 balance 支経 Current 常収支 Account Source: NRI based on Japan Ministry of Finance data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 15

17 Macro Fundamentals of Japan The principle factor behind the rise of trade deficit was imports unit value. In 214,Increase in export volumes has not been yet reflected to trade balance. Japan s Trade Balance (YoY Change) (Trillion yen) 輸 Exports 出数量要 quantum 因 factor 輸 Exports 出価格要 unit 因 value factor 輸 Imports 入数量要 quantum 因 factor 輸 Imports 入価格要 unit 因 value factor 近 Approximation 似誤差 error 貿 Changes 易収支の in 変 trade 化額 ( balance 前年差 ) (YoY) Source: NRI based on Japan Ministry of Finance data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 16

18 Macro Fundamentals of Japan Export volumes have been increasing, because of yen s depreciation. Export volume has expanded due to yen s depreciation and lower oil price, especially in industries such as automobile. However, Japanese companies are experiencing stagnant growth in exports as a result of growing offshore transfers of production as well as of severe competition with cheap foreign products. Japan s Export Indexes 21= Exports Quantum Index Exports unitvalue index (seasonally-adjusted) (contract currency basis) Source: NRI based on MOF and BOJ data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 17

19 Macro Fundamentals of Japan Government debt has mounted, raising concerns about a potential financial collapse. The IMF forecasts that Japan s ratio of government debt to GDP will peak out but still remain high. A surplus in the primary balance, which is one of the conditions for preventing financial collapse, is expected to be difficult to achieve at least for the next several years. Ratio of Government Debt to GDP Ratio of Government Primary Net Lending/Borrowing to GDP (%) 25 2 Actual Forecast Japan (%) 4 2 Actual Forecast UK Germany US 15-2 Japan 1 US UK Germany Source: NRI based on IMF data (214 Oct.) Source: NRI based on IMF data (214 Oct.) Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 18

20 Macro Fundamentals of Japan A financial collapse is unlikely as long as domestic capital remains in Japan and continues to circulate. The possibility of Japanese government bonds collapsing is seen to be small since more than 9% of the bonds are held by domestic investors. Household financial assets, which are a resource for government bond purchases, have increased due to rising stock prices in recent years. Government Bond Investors 1% Household s Financial Assets in Japan (Trillion yen) 18 8% 6% % 2% % Japan US UK Germany 2 ( 年 ) Domestic investors Foreign investors Note: Figures for Japan and US are from Dec 214; for UK and Germany, from 214 Q3. Source: NRI based on Bank of Japan data Source: BoJ, FRB, ONS, Bundesbank Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 19

21 Macro Fundamentals of Japan Long-term interest rates remain stable at a low level. Currently Japan s interest rates remain at a lower level than that of UK and US. If the irrational gap between the interest rate level and sovereign ratings is closed, Japan s interest rates may rise. Long-term Interest Rates (Monthly) and Sovereign Ratings US AA+/Stable/A-1+ UK AAA/Stable/A Germany AAA/Stable/A Japan AA-/Negative/A-1+ Note: Classifications are as of Feb. 214 (Long-term/expected/short-term, in local currency) Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Ministry of Finance Japan, FRB, ECB, Bank of England, and S&P 2

22 Macro Fundamentals of Japan Tokyo continues to be the world s largest city in terms of population and GDP. GDP/population estimation in 225 (Top 3 cities of population) 225 population by city ( in 1 s) 4, 35, Delhi Tokyo 3, Shanghai 25, 2, Dhaka Cairo Beijing Mumbai Sao Paulo Mexico City New York 15, 1, Buenos Aires Paris Los Angeles 5, GDP scale by city (in billion USD at 28 PPPs ) Source: NRI based on PricewaterhouseCoopers and UN data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 21

23 Macro Fundamentals of Japan Tokyo has the second largest concentration of world-class enterprises. Number of Fortune Global 5 companies by city (214) Fortune Global 5 companies in Greater Tokyo (within top 2) Others, 31 Beijing, 52 Tokyo, 41 London, 18 Paris, 18 New York, 17 Seoul, 14 Osaka, 8 Shanghai, 8 Houston, 7 Moscow, 7 Rank Company Revenue(Mil$) 23 Japan Post Holdings 152, Honda Motor 118,21 51 JX Holdings 111,14 53 Nippon Telegraph & Telephone 19,54 61 Nissan Motor 14, Hitachi 95, Sony 77, Mitsubishi 75, Marubeni 7, Softbank 66, Tokyo Electric Power 66, Toshiba 64, AEON 64, Dai-ichi Life Insurance 6, Mitsui 57, Seven & I Holdings 56, Nippon Steel & Sumitomo Metal 55, Mitsubishi UFJ Financial Group 51,667 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Fortune Global 5 (214) data 22

25 Overview of Real Estate Investment Market in Japan Investors activities has been recovering to the level. In 213, J-REIT, the most powerful real estate buyer in Japan, acquired assets of more than 2 billion USD. In 214, however, J-REIT lost its dominance to other investors such as private-reits, high-net-worth individuals and corporations with more aggressive attitude towards acquiring assets. Other professional investors are also being ousted from the Tokyo market. Acquisitions of Securitized Real Estate billion yen 1, Others J-REIT 8, 6, 6,242 7,25 4, 2, 5,159 2,156 4,439 3,37 1,791 2,123 2,21 2,236 1,549 1,772 2,31 1,359 1, ,555 2, FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on MLIT 24

26 Overview of Real Estate Investment Market in Japan Hotel deals has been increasing amongst other key segments, i.e. office, residential, retail and logistics properties. Factors such as the 22 Olympic game in Tokyo, weak JPY currency, and strong macro economy in Japan have helped to push the demand in hotels, attracting more investors to hotel investment. Acquisitions of Securitized Real Estate by Asset Class Allocation of Securitized Real Estate by Asset Class in 5 years (29-213) billion yen 8, Office Residential Retail Logistics Hotel Others 6, Hotel, 3.3% Others, 16.% Office, 33.8% 4, 2, 1, , ,293 1, , ,194 2, ,611 1,516 1, , , FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 Logistics, 13.8% Retail, 16.% Residential, 17.1% Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 21. Because of this, the yearly totals and amounts will not match up with the documents cited for this entry. Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism s Survey of the Current State of Real Estate Securitization Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 25

27 Overview of Real Estate Investment Market in Japan Lack of assets in Tokyo is likely to cause investment money to head to other regions. For last few years, it has been extremely difficult for investors to find investment opportunities in Tokyo. In 214 and 215, transactions in the ex-tokyo area are expected to increase significantly in a trend similar to the one seen in pre-global financial crisis era. Number of Properties Securitized by Region Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others FY % 13.3% 1.% 3.7% 17.8% FY % 15.3% 9.5% 5.1% 19.9% FY % 12.% 8.% 4.% 14.9% FY21 66.% 11.8% 6.9% 12.% FY29 53.% 1.5% 8.4% 6.9% 17.2% FY % 12.7% 8.8% 5.5% 17.4% FY % 12.1% 1.5% 6.4% 23.1% % 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Note: not including securitization of real estate of SPC Source: NRI based on MLIT Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 26

28 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Overview of Real Estate Investment Market in Japan Total return recovered to 7%, the 25 Q1 level. Prior to the global financial crisis, the total return reached to 7% in 25 Q1, and hiked till 26 Q2. Total return maintained the rate over 1% until 27 Q1. Performance Trend in Japan (%) Income Return.3 Total Return Capital Return Source: MSCI Real Estate IPD Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 27

29 Oct-3 Mar-4 Aug-4 Jan-5 Jun-5 Nov-5 Apr-6 Sep-6 Feb-7 Jul-7 Dec-7 May-8 Oct-8 Mar-9 Aug-9 Jan-1 Jun-1 Nov-1 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Overview of Real Estate Investment Market in Japan Cap rates fell sharply and by 214 most likely reached the 27 level. In the Tokyo market, an increasing number of real estate deals have cap rates of 3-4%. Some investors believe that arguing cap rates is futile as one can expect higher rents. Such market players consider timing and level of rent increase more important rather than cap rate compression. Cap Rate Trend in Japan 8.% 7.% 6.% 5.% 4.% Office Osaka CBD Logistics Tokyo Multi Residential Tokyo Retail Tokyo Office Tokyo CBD 3.% Office Tokyo CBD Office Osaka CBD Retail Tokyo Residential Tokyo Logistics Tokyo Multi Source: NRI based on Japan Real Estate Institute Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 28

30 Overview of Real Estate Investment Market in Japan Mega deals of over one billion USD have increased. Transaction Month/Year Dec, 213 Mar, 214 Aug, 214 Oct, 214 Nov, 214 Asset Land next to the Hamamatsucho Station Otemachi Tower (Ratio of Acquisition: 17% ) Meguro Gajoen Pacific Century Place Tokyo (Office floors) GE s Residence Portfolio (2 properties) Property Type Land Office Office Hotel Office Residence Area Minato, Hamamatsucho Chiyoda, Otemachi Meguro, Meguro Chiyoda, Marunouchi All parts of the country Seller Kokusai Kogyo Tokyo Tatemono s SPC Lone Star Buyer Transaction Amount Gross Floor Area Nippon Life Insurance Obayashi Secured Capital Japan (PAG) Mizuho Bank Mori Trust GIC Blackstone GE Real Estate Japan 8 million USD 1,782 million USD 1,3 million USD 1,7 million USD 2, million USD 7,25m2 34,2m2 (Floor Area of Acquisition) 155,82m2 38,84m2 (Floor Area of Acquisition) NA Source: NRI based on Nikkei Real Estate Market Report and others Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 29

31 Overview of Real Estate Investment Market in Japan Money from investors with different perspectives have caused real estate prices to rise and capital to diversify in various market segments. Properties that domestic investors do not favor due to risk concerns have been purchased by foreign and non-professional (e.g. highnet-worth) investors with different goals, causing real estate prices to rise in the ex-tokyo area. The trend is undoubtedly due primarily to the fact that such investors cannot find any good investment opportunities in Tokyo. Transaction Month/Year Jun, 214 Sep, 214 Oct, 214 Nov, 214 Nov, 214 Asset Shinbashi Park Place Nihonbashi Tomihisa Daini Building Parel Royale Shoto Ginza Granvia Bldg 2 Seiko BldgH Property Type Office Office Residence Retail Office Retail Area Minato, Shinbashi Chuo, Nihonbashi- Honcho Shibuya, Shoto Chuo, Ginza Osaka, Kita Shinchi Seller NA Ascott NA Hulic NA Buyer Transaction Amount Gross Floor Area high-net-worth high-net-worth (Taiwanese) high-net-worth high-net-worth high-net-worth NA NA NA NA NA 2,646m2 1,31m2 2,873m2 1,34m2 3,342m2 Source: NRI based on Nikkei Real Estate Market Report and others Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 3

32 Overview of Real Estate Investment Market in Japan Because of the lack of investment opportunities at Tokyo metropolitan area, equity heads to the Tokyo neighboring part and ex-tokyo area. Many investors are seeking investment opportunities in Osaka, Nagoya and other regions other than Tokyo, repeating a similar trend seen between 24 and 27. How to build good relations with regional banks is one of the key issues for real estate investors at present. Transaction Month/Year Jul, 214 Oct, 214 Oct, 214 Oct, 214 Jan, 215 Asset Renaissance Resort Okinawa Shinagawa Seaside (3 properties) Sumitomo Life Sendai Bldg Beppu Kamenoi Hotel Maebashi Daiichi Life Bldg Oyama Daiichi Life Bldg Property Type Resort Hotel Office Office Hotel Office Area Okinawa Shinagawa Miyagi, Sendai Oita Mebashi, Oyama Seller Ishin Hotel Group Japan Tabacco Sumitomo Life AZ Hotel Chain Daiichi life Buyer Green Oak Real Estate Idera Capital Management Lone Star Elliott Management Goldman Sachs Fortress Investment Group KAISER ASSET Transaction Amount Gross Floor Area 13 million USD 6 million USD (for 3 properties) NA 4 million USD 8.5 million USD 4,195m2 14,m2 2,411m2 19,422m2 12,m2 Source: NRI based on Nikkei Real Estate Market Report and others Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 31

33 Mar- Sep- Mar-1 Sep-1 Mar-2 Sep-2 Mar-3 Sep-3 Mar-4 Sep-4 Mar-5 Sep-5 Mar-6 Sep-6 Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Overview of Real Estate Investment Market in Japan Fierce competition among commercial banks help boost prices. Banks lending attitude toward the real estate industry is nearly the most lenient since 2 and almost as lenient as in 26. Many people in Japan believe that there are too many banks, and competition among lenders is quite fierce. Along with major banks, regional mid-size banks are trying to reduce spreads and loosen covenants. One big difference from the last peak we saw in 26, however, is the non-participation of foreign lenders. One reason why foreign lenders are staying away from the Japanese debt market is the fact that the CMBS market has been frozen since 29. Financial Institutions Lending Attitude DI toward Real Estate Industry 15 1 Loose 5-5 Tight Source: NRI based on BOJ Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 32

35 Office Market Tokyo Area holds 6% of Japan s office rental market. Japan has a stock of around 16 million m2 of available office rental space. The Tokyo area holds an overwhelming share of the market at 64 million m2, comprising 6% of the total. Office Floor Space Shares by Major City 1% 9% 8% 7% 6% 5% 4.7% 1.% 1.8% (1.95million m2) (1.3million m2) (5.million m2) 14.9% (15.91million m2) 1.7% 1.% (1.12million m2) (1.85million m2) Osaka Area 17.7% 5.5% 2.4% 2.1% 1.6% (1.72million m2) 3.3% (2.23million m2) (2.54million m2) (3.57million m2) (5.87million m2) 4% 3% 59.9% Tokyo Metropolitan Area 67.4% 12 major cities 16.73million m2 2% 1% (63.94million m2) % Tokyo Yokohama Saitama Chiba Osaka Kobe Kyoto Nagoya Fukuoka Sapporo Sendai Hiroshima Source: NRI based on JREI As of Jan.214 The investigation focus on central area of each city. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. The investigation object which are smaller than 3, square meter are excluded 34

36 Office Market There are five sub sectors in Tokyo s Central Business District. Tokyo s Central Business District(CBD) has an accumulation of office buildings and is concentrated in an area of 5km wide. Saitama 7.15 million people Tokyo million people Kanagawa 9.7 million people Chiba 6.15 milion people Setagaya Itabashi Kita Minato Adachi Nerima Arakawa Toshima Nakano Bunkyo Taito Sumida Suginami Shinjuku Chiyoda Shibuya Chuo Koto Meguro Shinagawa Katsushika Edogawa 3 km Ohta Copyright(C) Nomura Research Institute, Ltd. All rights reserved km

37 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Office Market Vacancy rates in the Tokyo office market have been improving for two consecutive years. Retrospectively, vacancy rates have been experiencing regular ups and downs. Vacancy rate movement in Tokyo CBD Yearly( ) 14.% 12.% Monthly(Jan 213 Jan 215) 14.% 12.% 1.% 8.% Chuo Shinjuku Minato 1.% 8.% Chuo Shinjuku Minato 6.% 6.% 4.% Chiyoda 4.% Chiyoda 2.% Shibuya 2.% Shibuya.%.% Source: NRI based on Miki Shoji Co., Ltd. data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 36

38 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Office Market Although rent increase is slow, there has been a clear reversal in the rent trend. Retrospectively, the high rent period have been short, making office owners negotiation power weaker than that of tenants. Rent trends in Tokyo CBD (yen/tsubo per month) Yearly( ) Monthly(Jan. 213 Jan. 215) Yen/month, tsubo 26, Yen/month, tsubo 26, 24, 24, 22, 22, 2, 18, 16, Chiyoda Shibuya Minato Chuo 2, 18, 16, Chiyoda Shibuya Minato Chuo 14, Shinjuku 14, Shinjuku 12, 12, 1, 1, Note: One tsubo is 3.3 square meters Source: NRI based on Miki Shoji Co., Ltd. data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 37

39 Office Market The number of Tokyo s office workers is declining at a fast rate than the published forecast. Trend and Forecast of Office workers in Tokyo ( 千人 ) (1, people) 4,5 4, 3,5 3,818 3,835 3,66 3,461 3,648 3,643 3,565 3, wards 区 3, 3,243 2,5 2, 1,5 1, 2,2 1,988 1,467 1,474 2,83 2,78 2,35 1,998 Central 5 wards 1,884 (Chiyoda, 5 区 Chuo, Minato, Shibuya, Shinjuku) 1,533 1,539 1,51 1,473 Central 3 wards 3 区 1,415 (Chiyoda, Chuo, Minato) Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 38

40 Office Market Chiyoda and Minato has been increasing its share of office workers, whilst Shinjuku has been losing its share midst fierce competitions among submarkets. Trend of Office Worker Share (23 Ward =1%) 18% 16% 14% 12% 1% 8% 6% 4% 千 Chiyoda 代田区 16.4% 15.8% 15.4% 15.5% 15.5% 15.6% 14.8% 15.% 15.2% 15.4% 15.3% 15.3% 13.5% Minato 港区 11.6% 11.8% 11.8% 11.5% 11.4% 11.3% 11.3% 8.6% 8.6% 8.6% 8.6% 8.9% 8.7% 8.4% 6.3% 6.4% 6.4% 6.4% 6.2% 6.2% 6.1% Chuo 中央区 Shinjuku 新宿区 Shibuya 渋谷区 2% % Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 39

41 Office Market Despite the dwindle in the number of office workers, new office supply will continue to grow. Office Space Supply in Tokyo s 23 districts Supplied floor area (1, m2) Office supply area Number of building supplied # of buildings Source: NRI based from Mori Building Company s Mega Office Building Market Trends Survey (Preliminary figure) dated October 22, 214 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 4

42 Oct-3 Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Office Market Cap rate has been dropping for three consecutive years since 212. As of March 215, office deals with cap rates of 3-4% are commonly carried out, resting on investors expectations for higher rent and NOI, henceforth. Tokyo office market cap rate trend 6.5% 6.% 5.5% 5.% 4.5% 4.% 3.5% Shinjuku Shinagawa Shibuya Minato(Toranomon) Chuo(Nihonbashi) Chiyoda(Marunouchi) 3.% Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon) Shinagawa Shinjuku Shibuya Source: NRI based on Japan Real Estate Institute s Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 41

43 Office Market The improvement of the vacancy rate is not leading to the recovery of rents in the ex-tokyo office market. Office Vacancy Trend in ex-tokyo Market Office Rent Trend in ex-tokyo Market 2.% 18.% 16.% 14.% 12.% 1.% Sapporo Fukuoka Nagoya Yokohama Osaka Sendai (yen/tsubo) 24, 22, 2, 18, 16, Tokyo 8.% 6.% 4.% 2.%.% Tokyo 14, 12, 1, 8, Fukuok Fukuoka Osaka Nagoya Yokohama Sendai Sapporo Source: NRI based on Miki Shoji Co., Ltd. data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 42

44 Oct-3 Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Office Market Liquidity is growing as real estate prices rise in ex-tokyo office market. Office cap rates in most major cities have decreased due to investors strengthening interest in opportunities outside of Tokyo. Ex-Tokyo Office Market Cap Rate Trend 9.% 8.% 7.% 6.% 5.% Sendai Sapporo Fukuoka Nagoya Yokohama Osaka 4.% 3.% Source: NRI based on Japan Real Estate Institute s Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 43

46 Number of Households (unit:1,) Residential Market About 2% of all households in Japan are living in non-public rental apartments, and the percentage is trending upwards. Households living in non-public rental apartments (excluding wooden apartments; hereafter the same in this section), which numbered 3.34 million in 1988, increased by about 2.6 times to 9.96 million (about 2% of all households) in 213. Breakdown of All Households by Housing Type (213) Number of Households by Housing Type Private Rental Housing, Others 9% Private Rental House, Apartment House (nonwood) 2% Public Rental House 6% Company Housing 2% Own House 63% 6, 5, 4, 3, 2, 1, 3,76 9% 1, ,97 12% 4,421 4,716 4,989 5,238 2% 1,578 1,682 1,724 1,783 1, % Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan. 16% 18% 25% 2% 15% 1% % '88 '93 '98 '3 '8 '13 Households Living in Housing Households Living in Rental Houses Households Living in Private Rental & Apartment Houses (non-wood) Ratio of Households Living in Private Rental & Apartment Houses (non-wood) 5% Ratio of Households Living in Private Rental & Apartment House (non-wood) Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 45

47 Number of Moving Households (Unit:1,) Residential Market The total number of moving households has decreased, but the ratio of households moving to non-public rental apartments is trending upwards. The number of moving households peaked out in and decreased to about 77% of the peak-time level in The number of households moving to non-public rental apartments is also on a decreasing trend, although its ratio to the total number of moving households is trending upwards. Housing Choices of Moving Households ,6 1,4 1,2 1, % 1, % 46% 1,186 1, ,135 44% 45% 778 1, % % 45% 4% 35% 3% 25% 2% 15% 1% 5% % Ratio of Households Living in Private Rental & Apartment Houses Number of Moving Households in Past 5 Years Number of Households Moved into Rental Houses Number of Households Moved into Private Rental (Apartment) Houses Ratio of Households Moved into Private Rental (Apartment) Houses Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 46

48 Breakdown of In-Flow Households Moved in Private Rental Houses (non-wood) (Unit:1,) Residential Market The majority of households moving to non-public rental apartments moved within the same city. Looking at the former locations of households moving into non-public rental apartments in seven major cities, those that moved within the same city were greater in number than those that moved in from outside the city. Tokyo s 23 wards and Osaka saw a decline in households moving into non-public rental apartments from outside the city, while major regional cities saw no change. Location Choices of Moving Households Household moving in a city Household moving out a city Sapporo Sendai Tokyo 23 Wards Nagoya Osaka Hiroshima Fukuoka Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 47

49 Housing Stock (Unit:1 million) Growth Rate (1988 = 1) Residential Market The supply of non-public rental apartment units has increased more sharply than total housing stock. The growth of rental apartments (public and non-public combined) outpaced the growth of overall housing as well as the more modest rise of rental housing in general. As a result, the ratio of rental apartments to total rental houses increased from 6 to 7%. Housing Stock by Type Housing Growth Rates by Type '88 '93 '98 '3 '8 '13 Number of Houses Number of RentalHouses Number of Rental & Apartment Houses (non-wood) 9 8 Number of Houses Number of RentalHouses Number of Rental & Apartment Houses (non-wood) '98 '3 '8 '13 Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 48

50 Number of Construction Starts( Unit: 1,) New Rental Housing Construction by Region(Unit:1,) Residential Market Construction of new rental housing declined in 29 but is now on a recovery path. The number of new constructions decreased in 214 as a reaction to last minute surge in demand prior to the tax increase. The ratio of rental house has increased as the number of new rental housing has leveled off while the total number of new construction has declined. New Housing Supply Trend: Breakdown of New Rental Housing Construction by Region 2, 1,8 1,6 1,4 1,2 1, % 45% 4% 35% 3% 25% 2% 15% 1% 5% Ratio of Rental Houses Provincial Region Kinki Region Chuubu Region Metropolitan Region % 1 Own House Rental House Company House House Built for Sale Ratio of Rental House Source: NRI based on data from Survey of Construction Work Started, Ministry of Land, Infrastructure, Transport and Tourism of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 49

51 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Vacancy Rate of Rental Housing (non-wood) (Unit:%) Rental Housing Vacancy Rate (Unit: %) Residential Market Vacancy rates are rising in all of Tokyo s 23 wards. Vacancy rate in the metropolitan Tokyo has continued to decline for the past decade. In the recent years, however, Tokyo has seen an upward trend of vacancy rates, especially in the 23 wards. Affected by the Great East Japan earthquake in 211, vacancy rates in Sendai has seen a significant shrinkage. Vacancy Rates of Rental Housing (non-wood) in Major Cities 25% '98 '3 '8 '13 2% Vacancy Rates of Rental Housing in Tokyo Metropolitan Area % % 5% % Sapporo Sendai Tokyo23 Wards Nagoya Osaka Hiroshima Fukuoka Source: NRI based on data from Data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved All Tokyo areas 23 Tokyo districts Tokyo cities Kanagawa Source: NRI based on data from Report on Rental Housing Market, TAS Corp. (Analyzed by TAS Corp. Data Supplied by At Home Co., Ltd.).

52 Private (Annual Average) Rent Index (Base Year 21) Residential Market The rent level of non-public rental housing continues to fall. The rent level of non-public rental housing rose steadily from 199 to 2, after which it gradually declined. The rent level downward trend continued in 213. Rent in the Private Sector (Annual Average) Nationwide and Central Tokyo Japan Tokyo 23 Wards Source: NRI based on data from Consumer Price Index, Ministry of Internal Affairs and Communications of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 51

53 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Occupancy Rate (Unit:%) Monthly Rent Level (Unit:Yen/m 2 ) Residential Market Occupancy rates of REIT-owned and private fund-owned properties are rising, while their rent levels remain stable. Looking at the changes in the REIT-owned and private fund-owned occupancy rate and monthly rent, the monthly rent level has remain stable although the occupancy rate in Tokyo s 3 central districts and its 23 districts has been on an uptrend since 212. Occupancy Rates of REIT-owned and private fund-owned Properties 1% 98% 96% 94% 92% 9% Tokyo 3 central districts Tokyo 23 districts Nagoya city Osaka city Fukuoka city Monthly Rents of REIT-owned and private fund-owned Properties 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Tokyo 3 central districts Tokyo 23 districts Nagoya city Osaka city Fukuoka city Source: NRI based on data from ARES J-REIT Property Database, Association for Real Estate Securitization of Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 52

54 Residential Market The rate of housing ownership, which has a negative impact on rental housing demand, has shown a downward trend with the 4-49 age group. Housing Ownership Rate in Japan 9% 8% 7% 6% 5% 4% 3% 2% (age) % % Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 53

56 Floor Area(1m2) Retail Property Market Development of large-scale retail stores has started to recover since 29. New Retail Space Supply vs. Number of Development Projects 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 45 2, , ,729 Floor Area ,545 4,178 3,983 Number of projects ,369 2,351 1,919 2,81 2, ,86 2, Number of projects(cases) ( year) Note: The reported numbers for the fiscal years 22 and 28 include stores without floor space indication. Source: NRI based on data from the Ministry of Economy, Trade and Industry s Large-scale Retail Chain Site Expansion Report Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 55

57 Overall floor area Retail Property Market For shopping centers, the total floor area for all stores and the floor area per store are both on the rise. Overall floor area and per-store floor area for shopping centers Overall floor area Floor area per SC (in 1 million m 2 ) Old SC Standard New SC Standard (in 1m 2 /store) (year) NB: In the old SC standard, only shopping malls with more than 1 retail tenants were considered. In the new SC standard, the shopping center must have more than 1 tenants including food stalls, service centers and retail outlets. On the same note, the shopping center must have more than 1,5 m 2 retail space. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on data from the Council of Shopping Centers SC White Book Floor area per shopping center

58 Retail Property Market Declining tendency of shopping center s sales is mitigating. Yearly comparison of existing shopping centers sales (%) Source: NRI based on the Japan Council of Shopping Centers Overall Sales Statistics Report Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 57

59 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Retail Property Market Abenomics has not changed consumer outlook dramatically. Consumer outlook index chart 6 5 Dec. 212 Liberal Democratic Party becomes the ruling party again NB: Consumer outlook index calculation methodology: Consumers are asked to rate their outlook for the next 6 months for the following 4 categories: Lifestyle, Income, Job environment and Determining when to purchase consumer durables using a 5-scale index. Each of the 5 scales is assigned a value: +1 for Will get better, +.75 for Will get somewhat better, +.5 for Won t change, +.25 for Will get somewhat worse, and + for Will get worse. This numerical index is used to provide a component ratio for each of the answers, from which the results are calculated. To illustrate, a value of 5 will be produced if all participates answer Won t change for all available items. Source: NRI based on from Cabinet Office Consumer Trends Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 58

60 Retail Property Market Compared to other areas, rent level of Ginza, Omotesando and Shinjuku are still high. 1 st floor rent ranking in 13 principal business areas (yen/month/tsubo) (yen / month / tsubo) 6, 5, 4, 3, 2, 1, NB1 NB2 Late 211 Early 212 Late 212 Early 213 Late 213 Early 214 NB3 NB4:Rent in Shibuya, Sakae and Ikebukuro are shown to have spiked in the early half of 214, which can be attributed to a sample bias towards a small number of properties with high rent Source: NRI based on the Japan Real Estate Institute Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 59 Ginza Omotesando Shinjuku Shibuya Sakae Ikebukuro NB1: Rent in Yokohama is shown to have spiked in the early half of 212, but this can be attributed to the extremely small sample size Ginza Omotesando Ikebukuro Shinjuku Shibuya Yokohama Shinsaibashi Oodori (Sapporo) Sannomiya (Kobe) Sendai Tenjin (Fukuoka) Shijokawaramachi (Kyoto) Sakae (Nagoya) NB2: Rent in Shinjuku is shown to have spiked in the late half of 212, but this can be attributed to a sample bias toward small, high-rent properties NB3: Rent in Ikebukuro is shown to have dived in the early half of 213, but this can be attributed to a sample bias toward low-rent properties in unfavorable locations NB4 Tokyo Metropolitan Area Provincial Areas

61 Retail Property Market Cap rates have been falling since 211. In the Tokyo Metropolitan Area, cap rates are approaching the all-time low. Commercial establishment cap rates (expected yield) 8.% 7.% 6.% 5.% 4.% Suburban, Nagoya Suburban, Osaka Suburnban, Tokyo Metropolitan, Metropolitan, Osaka Metropolitan, Omotesando Metropolitan, Ginza 3.% 2.% 1.%.% NB: Metropolitan high-class specialty stores: Length of time after construction -or- large-scale repair/improvement: less than 5 years Tenants: Mainly retailers of high-class brands. Rent system: Mainly fixed-term, variable rental schemes based on the revenue. Areas: Along Chuodoori in Ginza s Chuo district. Along Omotesando in Omotesando s Shibuya district. Suburban shopping centers: Sales floor area: around 2,m 2 Key tenants: Prominent general merchandise stores (GMS) Rent system: Mainly fixed-term, fixed-charge rental schemes Areas: 1-hour Shinkansen ride along key stations to Tokyo s Metropolitan District Stores for areas outside Tokyo follow similar locational conditions as above. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on the Japan Real Estate Institute s Real Estate Investor s Survey 6

62 Retail Property Market Accessibility and density level of commercial facilities are the important factors in selecting locations. In evaluating a commercial district, the most heavily considered factor is its accessibility (i.e. inter-district factors), followed by quantitative aspects such as choice of items/services and number of shops/facilities within a district. Intra-district factors are also regarded important (i.e. mobility between shops/facilities). On the other hand, exclusivity of a district is not heavily considered (i.e. presence of shops/facilities exclusive to the location, lack of similar shops/facilities around home/work). The most heavily considered factor Quantitative aspects of shops/facilities are considered important Exclusivity of a district is not heavily considered Important Factors in Selecting Commercial Districts by General Consumers (in Metropolitan Area) 交通アクセスがしやすい High accessibility 商品やサービスなどの Abundant choice 選択 of 肢 items/services が豊富である店 Ample 舗や施 shops/facilities 設の数が多い様 Wide 々な用 variety 途の店 of 舗 shops/facilities や施設がある High mobility 店舗や施 between 設間の回 shops/facilities 遊がしやすい Shops/facilities その地域にしかない exclusive 店舗や to 施 the 設 location がある公園などの Bountiful 休憩エリアが resting 十分 spaces にある自宅 Proximity や就業地 from に近 home/work 接している Lack of similar 自宅や shops/facilities 就業地に同様の around 店舗や施 home/work 設がない Presence of visitors from 様 various 々な年齢 occupations や職業の人 and が来 age 訪している groups イベントなどが High 数 frequency 多く開催されている of events High density 企業が of 集 companies 積している High frequency of 店舗 realignment や施設の入 of 替 shops/facilities や更新が多い n=41,273 % 2% 4% 6% 8% 1% 22% 2% 19% 18% 16% 14% 12% 11% 8% 7% 6% 5% 42% 3% 26% 24% 2% 33% 35% 36% 48% 48% 45% 42% 31% 49% 33% 34% 31% 41% 33% 32% 32% 28% 25% 21% 24% 24% 44% 31% 33% 37% 12% 5% 7% 9% 9% 12% 14% 18% 23% 23% Very とても important 重要である Important 重要である Slightly やや重要 important である Not 重要 important でない Questionnaire name: Investigation about integrated area Practitioner:NRI Period of time:july 214~ August214 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 61

63 Shinjuku(West) Shibuya Otemachi Maruniouchi Yurakucho Ginza Shinjuku(West) Nihonbashi Yaesu Kyobashi Aoyama Omotesando Roppongi Retail Property Market Large scale development of commercial buildings will proceed mainly around Tokyo station. Total store area of commercial buildings in metropolitantokyo (1,m 2 ) 35 1% % 15% 24% 7% % 34% 8% 36% 8% 6% 4% 2% % Total area(future plan) Total area(existing) New store rate NB) Total area(existing) includes department stores and specialty stores. Data as of May 214 Total area(future plan) is calculated via following formula: Total area(future plan) = Site area Floor area rate Commercial building rate Shop floor rate Note that the above-calculation is based on a presupposition that floor area rate, commercial building rate and shop floor rate to be 7%, 2% and 6%, respectively. Source:NRI based on the Sangyo-Times Commercial Facilities Schedule Guide, Toyo Keizai Shinposha National Supermarket Guide 215 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 62

65 Logistics Property Market The truck-based transport volume (in tons), which forms the bedrock of Japan s cargo industry, has continued to decline in recent years. Truck-based (automobile) transport is the primary transport method that constitutes a large share of Japan s freight traffic. In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for private use. Cargo quantity by transport method (FY212) Automobile cargo quantity movement Unit: 1 million tons Coastwise vessels 366,8% Domestic aviation 1,% (1 million tons) 7, Business Personal Railways 42,1% 6, 5, 4, 3, Motor vehicles 4,366,91% 2, 1, '6 '65 '7 '75 '8 '85 '9 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 NB: The chronological continuity of data from prior to 29 could not be guaranteed due to the changes made to the in tallying methodology in the middle of 21. Source: NRI based on the Ministry of Affairs Transport quantity by transport method and the Ministry of Land, Infrastructure, Transport and Tourism s Automobile Transport Statistics Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 64

66 Logistics Property Market As the movement to smaller logistics lots progresses, the quantity distributed in such lots appears to be in upward trend based on the number of instances. As the movement to smaller logistics lots progresses across the whole industry, the quantity distributed has increased to a yearly rate of 4.% based on the number of reported instances. The increased quantity of distribution in warehouses is remarkably high. This increase is propelled by the increase in distribution quantity using small lots that are less than.1 tons. Industry-wide (except warehousing) distribution quantity by lot size (unit: number of instances) Below.1t.1~.5t.5~1t 1~5t Above 5t 5, 1, 15, 2, 25, (thousand instances) Warehousing distribution quantity per lot size (number of instances) Below.1t.1~.5t.5~1t 1~5t Above 5t 5 1, 1,5 2, (thousand instances) % % CAGR 4.5% CAGR 7.3% % % CAGR 3.7% CAGR 12.6% % % Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourism s Logistics Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 65

67 Logistics Property Market Small-lot consignments increase, due partly to the expansion of e-commerce, which is expected to continue growing hereafter. Market size of Business-to-Consumer e-commerce is expected to surpass 2 trillion yen in 218. Market Size of Business-to-Consumer e-commerce (trillion ( 兆円 ) yen) NB: Business to-consumer e-commerce: sale of products and services to consumers in general via the Internet Source: NRI Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 66

68 '88 '89 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '88 '89 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 Logistics Property Market While new supply has stopped dwindling, facilities are growing larger due to businesses consolidating their logistics capabilities. The number of supplied warehouse buildings fell to roughly 23% of the peak level in 1991 (12, buildings/year) which has stabilized in recent years. The number of supplied warehouse buildings for the transport industry is dwindling at a more relaxed pace compared to the rest of the industry (see figure below left), but the floor space per building is on an upward trend (below right). This explains the increased need for SCM support for generic enterprises and new/large-scale logistics facilities for logistics consolidation. Nationwide number of supplied warehouses including warehouses for transport and transport industry share Floor space per warehouse building Transport industry Other than transport Transport industry share (Buildings) 6, 25% (m2) 2, Entire industry Other than transport Transport industry 5, 4, 3, 2, 1, 2% 15% 1% 5% 1,5 1, 5 % Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism s Construction Statistics 67

69 Logistics Property Market Development of logistics real estate, which had been shrinking since the Lehman shock, is now back in full swing. Order volume for construction of warehouses/logistics facilities by ordering industry (1 billion yen) Real estate industry Transport industry Others Note: Only contracts worth 5 billion yen above are included Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism s Construction Order Trends, Statistics and Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 68

70 Logistics Property Market Major foreign-based logistics property players and Japanese real estate developers are gearing up for roadside development ahead of new expressway construction. Expressway Expressway (Planned) New devts Newly operational Prologis Park Yoshimi Developer:Prologis Completion: Dec. 215 Total floor area: 19, m2 GLP Sayama HidakaⅠ Developer:GLP Completion; Dec. 215 Total floor area: 42, m2 Logi-Port Hashimoto Developer:LaSalle, Mitsubishi Estate Completion: Feb. 215 Total floor area: 157, m2 MFLP Hino Developer: Mitsui Fudosan Completion: Oct. 215 Total floor area: 213, m2 GLP Zama Chuo Developer:GLP Expressway Completion; Jun. 215 Total floor area: 132,m2 GLP Ayase Developer:GLP Completion: Apr. 215 Total floor area: 69,m2 Landport Atsugi Kaneda Developer: Nomura Real Estate Completion: Mar. 215 Total floor area: 39,m2 Prologis Park Kitamoto Developer:Prologis Completion: Mar. 214 Total floor area: 74, m2 Tomei Expressway Honmoku Distribution Center Developer: Mitsubishi Corp. Urban devt Completion: Dec. 215 Total floor area: 71,m2 Ken-O Expressway Redwood Namamugi Distribution Center Developer: Redwood Group Completion: Oct. 215 Leasable floor area: 62,m2 MFLP Kuki Developer:Mitsui Fudosan Completion: Jul. 214 Total floor area: 75, m2 Haneda Airport Joban Expressway Gaikan Expressway Narita Airport Moriya Logistics Center Developer:Orix Completion: Apr. 216 Total floor area: 48,m2 Landport Kashiwa ShonanⅡ Developer: Nomura Real Estate Completion; Apr. 216 Total Floor area: 56,m2 Landport Kashiwa ShonanⅠ Developer: Nomura Real Estate Completion: Feb. 216 Total floor area: 5,m2 Goodman Business Park Chiba East Developer: Goodman Japan Completion: Mar. 216 Total floor area:133,m2 GLP Yachiyo Developer: Redwood Group Completion: Oct. 215 Total floor area: 72,m2 Redwood Sakura Developer: Redwood Group Completion: Nov. 215 Total floor area: 85,m2 Goodman Ichikawa Developer: Goodman Japan Completion: Apr. 215 Leasable floor area: 64,m2 Prologis Park Ichikawa 3 Developer:Prologis Completion: Oct. 215 Total floor area: 6,m2 Shinkiba Distribution Center Developer: IK Investment Ⅲ Completion: Aug. 215 Leasable floor area: 46,m2 Goodman Mizue Developer: Goodman Japan Dec. 214 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Leasable floor area: 58,m2 Source: companies respective websites 69

71 Logistics Property Market Sourcing turns increasingly competitive due to market entries by Mitsubishi Estate, Mitsui Fudosan and Sumitomo Corporation and to IPOs of J-REITs. Actions of Major Logistics Property Developers Abbreviation ACQ: Acquisition Compl: Completion Devt: Development GFA: Gross Floor Area GLA: Gross Leasable Area SHOSHA Foreign capital company Independent company General developer ITOCHU Corporation Mitsubishi Corporation MITSUI & CO., LTD Sumitomo Corporation GLP Prologis LaSalle Goodman Kenedix ORIX Real Estate Daiwa House Nomura Real Estate Mitsubishi Estate Logistics property devt with Kenedix (GFA 44,m2) (Begin: Apr. 213) Logistics property devt in Ichikawa, Chiba (GFA 57, m2) (Compl. Oct. 213) ACQ of Urayasu Logistics Center by private fund managed by Mitsui & Co Realty (Sep. 213) IPO of Nippon Prologis REIT, Inc (Feb. 213) Sale of 6 logistics properties by a LaSalle-managed fund for 74 billion yen (Oct.213) IPO of Nomura Real Estate Master Fund (REIT of logistics and retail property) (Jun. 213) The Industrial and Infrastructure Fund holds 23 logistics properties acquired at a price of 72 billion yen (as of Mar. 214) ACQ of 51% ownership of SG Realty Yokohama (logistics property) for 6.3 billion yen through a fund established with institutional investors (Apr. 213) Sale of Saitama Logistics Property to Askul for 15 billion yen (Jan. 213) ACQ of a 36,m2 site for logistics property in Ichikawa, Chiba for 6.6 billion yen (Dec. 213) Logistics property devt with The first solo project in Fukuoka LaSalle in Sagamihara, (Start: Dec. 213) Kanagawa (Compl. Aug. 213) ACQ of Zama and Chiba Logistics Centers by private fund managed by Mitsui & Co Realty (Mar./Apr. 214) Cooperation agreement with Kokyo Tatemono on logistics properties devt and establishment & management of private funds. Sumitomo aims to develop logistics properties worth 2 billion yen s per year (Mar. 214) Devt of 2 logistics properties in Hidaka, Saitama & Yachiyo, Chiba (GFA 2,m2) (Compl. 215/16) Devt of 2 logistics properties in Yoshimicho, Saitama (GFA 1,m2) (Compl. Dec.215) Sale of Atsugi Distribution ACQ of 3 logistics properties in Kawasaki, Center to Nissay (Apr. 214) Kanagawa for 55 billion yen (Jul. 214) ACQ of land for logistics property devt in Tokyo and Chiba (March 214) Devt of 3 logistics properties (GFA:2,m2) in Kanagawa and Chiba after Oct.214 Logistics property devt in Atsugi, Kanagawa (GFA 89,m2) (Compl. Jun.216) Devt of logistics properties in Narashino & Inzai, Chiba (GFA 19,m2)(Compl. Spring 216) Logistics property devt in Devt of several logistics properties in Chiba. Mizue,Kanagawa (GLA 59,m2) When completed, they are said to be worth (Compl.Dec. 214) 1 billion yen. (Compl. March 216) Cooperation agreement with Fast Retailing on logistics properties (Oct. 214) Establishment of a private REIT (diversified REIT, which also invests in logistics properties)(start: Jan.215) Logistics property devt in Joso, Ibaraki(GLA 46,m2) (Compl. Jun. 216) ACQ of 7 logistics properties by Daiwa House REIT for 48.4 billion yen (Mar. 215) Logistics property devt in Atsugi, Kanagawa (GFA 4,m2)(Compl. Mar.215) Logistics property devt with LaSalle in Sagamihara, Kanagawa (Compl. Feb. 215) Announced a plan to develop Entry into the logistics property market in partnership Devt of logistics properties in Yashio & Kuki, Mitsui Fudosan three more logistics properties in the Tokyo with GLP (Start: Sep. 212) Saitama (GFA 117,m2)(Compl. 214) metropolitan area (March.215) Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: companies respective websites 7

72 Logistics Property Market Vacancy rate in Tokyo area, which was on a rise, has diverted downwards. Monthly rent offers and vacancy rates of logistics real estate (yen / month / tsubo) Tokyo area Osaka area 5, 4,5 Jul.28 Rent offer 4, Jan.215 Jul.21 Jul.28 Oct.212 3,5 Jan.215 Oct.212 Jul.21 3,.% 2.% 4.% 6.% 8.% 1.% 12.% 14.% 16.% 18.% Vacancy rates NB: Logistics facilities which have a total lot area or total floor area of 1,m 2 Source: NRI based on data from Ichigo Real Estate Information Service s Survey on the Logistics Facilities Rental Market Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 71

73 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Logistics Property Market Cap rates have been falling since 212, with Tokyo hitting all-time low. Logistics real estate cap rate (expected yield) Single tenant Multi-tenant 7.5% 7.5% 7.% 7.% 6.5% 6.5% 6.% Chiba(inland) 6.% Chiba(inland) 5.5% Tokyo(inland) 5.5% Tokyo(inland) Tokyo(bay) Tokyo(bay) 5.% 5.% NB: Single tenant: 2-3 floors; total floor area of around 1,m 2 NB: Multi-tenant: 3-4 floors; total floor area of around 5,m 2 Source: NRI based on Japan Real Estate Institute s Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 72

75 Real Estate Investment Instruments An overall perspective of the Japanese real estate market Unlisted open-ended private REITs was offered in November 21, and the size of private REITs market is growing rapidly. Overview of the Real Estate Investment Instruments in Japan ( tn) Listed REIT Private Fund Private REIT RMBS CMBS.4 Equity Type Debt Type Listed Close-Ended Unlisted Open-ended Residential Mortgage Commercial Mortgage NB: Listed REIT figure is updated as of end of Jan 215, private fund figure is updated as of end of Dec 214, unlisted REIT is an estimated figure as of end of Oct 214, RMBS/CMBS figure is updated as of end of Sept 214. Source: NRI based on the Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 74

76 Real Estate Investment Instruments The J-REIT market capitalization has reached approximately 1 trillion yen. The J-REIT market began trading on the stock market in Sept 21 with 2 companies traded and a market capitalization of 2.5 trillion yen. As of the end of January 215, there are 49 companies traded worth approximately 1 trillion yen. J-REIT Market Capitalization and Number of J-REITs ( bn) 12, (No. of J-REITs) 5 1, 4 8, 3 6, 2 4, 2, 1 21/9 22/8 23/7 24/6 25/5 26/4 27/3 28/2 29/1 29/12 21/11 211/1 212/9 213/8 214/7 Market Capitalization No. of J-REITs Source: Bloomberg Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 75

77 Real Estate Investment Instruments Approximately 75% of J-REITs assets are located in the Tokyo Metropolitan Area, and approximately 5% of J-REITs assets are office properties. Approximately 75% of real estate owned by J-REITs is in the Tokyo Metropolitan Area. In recent years, J-REITs have become more diversified in type of property, and Healthcare REIT has started in November 214. Asset Mix of J-REITs by Area and Asset Class Kinki Area 13.1% Chubu Area 4.2% Other Areas 7.9% Approx trillion yen 5 Central Wards of Tokyo 37.8% Retail 18.2% Hotel 3.3% Logistics 1.2% Others 3.8% Approx trillion yen Office 47.4% Kanto Area 18.9% 23 Wards of Tokyo 18.2% Greater Tokyo Area 74.9% Residential 17.% * As of the end of January 215 Source: NRI based on ARES Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 76

78 Real Estate Investment Instruments The Tokyo Stock Exchange (TSE) REIT Indices have recovered from 213. The TSE REIT Indices has dropped sharply from its peak in May 27, and has recovered rapidly from 213. TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index 3, 2,5 2, 1,5 1, 5 23/3 24/1 24/11 25/9 26/7 27/5 28/3 29/1 29/11 21/9 211/7 212/5 213/3 214/1 214/11 TSE REIT Index TOPIX TOPIX Real Estate Sector Index Source: NRI based on Bloomberg Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 77

79 Real Estate Investment Instruments J-REIT dividend yields are currently down to around 3%. J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 3%. J-REIT dividend yield and Japanese Government Bond 1-year yield 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% 22/1 22/11 23/9 24/7 25/5 26/3 27/1 27/11 28/9 29/7 21/5 211/3 212/1 212/11 213/9 Spread J-REITs Dividend Yield JGB 1-Year-Yield Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Bloomberg, TSE. 78

80 Real Estate Investment Instruments The performance recovered to positive in the capital return. According to the index based on actual performance of core funds invested in domestic real estate, the performance of real estate investments in Japan recovered to positive in the capital return. ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI) 25% 2% AJPI: Income Return AJFI: Income Return 25% 2% AJPI: Total Return AJFI: Total Return 15% AJPI: Capital Return 15% 1% AJFI: Capital Return 1% 5% 5% % % -5% -5% -1% -1% -15% -15% -2% -2% -25% 22/12 24/8 26/4 27/12 29/8 211/4 212/12-25% 22/12 24/8 26/4 27/12 29/8 211/4 212/12 Source: NRI based on The Association for Real Estate Securitization (ARES) ARES Japan Property Index and ARES Japan Fund Index Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 79

81 Real Estate Investment Instruments CMBS issuance has decreased drastically since 28, and at present only RMBS is issued at a constant pace. Most recently, about 8% of residential mortgage-backed securities were originated by the Japan Housing Finance Agency. Asset Backed Securities Breakdown by Type of Backing and RMBS Breakdown by Originator ( 1m) 6, % 2% 4% 6% 8% 1% 5, 4, 3, 2, 6,937 4,37 7,418 7,679 8,755 1,338 24FY 1H 24FY 2H 25FY 1H 25FY 2H 26FY 1H 26FY 2H 27FY 1H 27FY 2H 28FY 1H 28FY 2H 29FY 1H 29FY 2H 21FY 1H 21FY 2H 211FY 1H 211FY 2H 212FY 1H 212FY 2H 213FY 1H 213FY 2H 214FY 1H Housing Finance Agency Banks/Trust Banks Regional Banks Non-bank Others 1, 3,511 9,72 1,994 14,815 16,935 32,311 3,26 2,955 16,276 16,352 2,38 12,143 1,71 7, , ,491 8, , ,64 1, ,742 11, ,741 1, st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/commercial Bills Others Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 8

82 Authors SungYun KIM Lead author of Japan Kim has been engaged in real estate related consulting projects and research for years. His current interest in real estate investment market includes behavioral investment, market cycle theory, demographic impact on real estate market, real estate securitization, global real estate investment, and financial crisis. Tomohiko TANIYAMA Author of Real Estate Investment Products Taniyama is engaged in consulting and research projects. His resent research theme is the analysis of alternative investment market including real estates and infrastructures, and the development of new financial instruments and new real estate economic models. Akira DAIDO Author of Population Movements in Japan and Residential Property Market Daido is engaged in consulting and research projects such as real estate and housing, electric industry, and planning of business strategies. Hirokazu SAO Author of Retail Property Market Sao is engaged in consulting and research projects, mainly on real estate, housing and infrastructure-related cases. Sao undertakes survey/research as well as business strategy planning. Keita KAMEI Author of Logistics Property Market Kamei is engaged in consulting and research projects, undertaking real estate, housing, housing loan, and infrastructure-related survey/research, as well as business strategy planning. Seiya HARIMA Author of Macro Fundamentals of Japan Harima is engaged in consulting and research projects such as real estate/infrastructurerelated survey/research, and planning of business strategies. Aya IMAI Editorial Assistant Imai is engaged in research and consulting with specific focus on real estate and housing industries, primarily undertaking entry strategy planning into foreign markets. Contact: Nomura Research Institute, Ltd. Consulting Division Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 81

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