The Japanese Real Estate Investment Market 2015 June 2015 Nomura Research Institute Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan
The Japanese Real Estate Investment Market 2015
June 2015
Nomura Research Institute
Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku,
Tokyo 100-0005, Japan
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 1
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.
To create a transparent real estate investment market in Japan
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 2
Research Framework and Perspectives
for this Report
Times New Roman, size 8, color: Dark Gray
Ex) Source: NRI based on IMF
Rental Market
Supply
Rent and NOI
How much floor space
is newly developed ?
How much floor space
is demolished?
…
Demand
What are the key drivers of demand?
Which industries require more space?
Which districts are in demand?
…
Increase or decrease?
Vacancies
Increase or decrease?
Trading Market
Lenders Sellers
Buyers
What properties
interest buyers?
How strong is their
buying appetite?
Cap Rate
What cap rate level leads to successful transactions?
Liquidity
What kinds of properties are transacted successfully and what are not?
What properties
are lenders willing
to finance?
What are the lending
conditions?
Who are the
potential sellers?
What assets are
likely to be sold?
Asset Price Estimation
Will asset value rise or fall?
Macrofundamentals
GDP growth, corporate performance, demographic movements…
Financial and Capital Markets
Interest rates, financial and other regulations, political trends…
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 3
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 4
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 5
Population Movements in Japan
Total population peaked out in 2005. The number of households is increasing for now, but it is projected to decrease after 2019.
The population of 65 years or older is expected to level off in 2025 and head downwards in 2040.
Japan’s population is aging and shrinking due to a low birth rate.
The number of households will also be decreasing soon.
Population and Households in Japan
Source: NRI based on National Institution of Population and Social Security Research
Note: Medium-fertility (medium-mortality) projection
Forecast → ←Actual
0
10,000
20,000
30,000
40,000
50,000
60,000
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
20
55
20
60
Households
(thousand)Population(thousand)
0-14
15-64
65+
Household
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 6
-150
-100
-50
0
50
100
150
200
250
1980 1985 1990 1995 2000 2005 2010
Population(thousand)
Kanagawa
Chiba
Saitama
Tokyo
Population Movements in Tokyo
Population inflow into Tokyo is expected to continue.
Population continues to increase in Greater Tokyo.
Net Population Inflow into Greater Tokyo
Source: NRI based on Basic Resident Register Population Migration Report
Inflow
Outflow
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 7
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Households(thousand)
Chiba
Saitama
Kanagawa
Tokyo
Population Movements in Tokyo
In the Tokyo metropolitan area, total population and number of households are projected to peak out in 2015 and 2025, respectively.
Population and households are projected to decrease in Tokyo in 5 to 10 years time.
Population in Greater Tokyo Households in Greater Tokyo
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
Population(thousand)
Chiba
Saitama
Kanagawa
Tokyo
Source: NRI based on National Institution of Population and Social Security Research
Note: Medium-fertility (medium-mortality) projection
Forecast → ←Actual Forecast → ←Actual
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Population Movements in Tokyo
The number of single-person households is expected to peak out in 2030.
Households in Tokyo are expected to increase over the medium term owing to the strength
of one-person households.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1995 2000 2005 2010 2015 2020 2025 2030 2035
Households(thousand)
One-person
Couple-only
Couple-and-child(ren)
One-parent-and-child(ren)
Other
Source: NRI based on National Institution of Population and Social Security Research
Note: Medium-fertility (medium-mortality) projection
Forecast → ←Actual
Number of Households by Family Composition
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Population Movements in Tokyo
Population is expected to increase in the Chuo, Koto and Minato wards.
In seven wards, the population is projected to decrease by over 10% between 2010 and 2040.
Population in Tokyo is predicted to increase over the long term only in the three wards along
Tokyo Bay.
Ward 2010 2015 2020 2025 2030 2035 2040 Chuo 100.0 112.9 115.3 116.6 116.8 116.1 114.4 Koto 100.0 102.7 104.4 106.8 108.2 108.8 108.5 Minato 100.0 105.0 107.0 107.9 107.8 107.0 105.2 Shinjuku 100.0 103.3 104.4 104.8 104.4 103.4 101.6 Nerima 100.0 103.8 105.1 105.3 104.5 102.9 100.6 Sumida 100.0 100.8 101.7 102.6 102.7 102.0 100.6 Arakawa 100.0 102.4 103.0 102.8 102.2 101.2 99.7 Chiyoda 100.0 106.9 106.9 106.1 104.6 102.2 99.3 Setagaya 100.0 102.1 102.7 102.4 101.5 100.0 97.9 Shinagawa 100.0 102.4 102.9 102.7 101.7 100.0 97.8 Edogawa 100.0 101.5 101.7 101.1 99.8 98.2 96.2 Bunkyo 100.0 101.8 101.9 101.3 100.1 98.2 95.7 Toshima 100.0 107.3 106.1 104.5 102.2 99.2 95.3 Ota 100.0 101.6 101.6 100.8 99.4 97.5 95.1 Itabashi 100.0 100.9 100.5 99.1 97.2 94.7 91.8 Meguro 100.0 100.8 100.2 98.8 96.8 94.1 91.1 Taito 100.0 100.6 99.5 97.7 95.4 92.6 89.4 Shibuya 100.0 100.3 98.8 96.6 93.9 90.9 87.4 Nakano 100.0 99.4 97.7 95.5 92.9 89.8 86.2 Kita 100.0 99.4 97.6 95.1 92.2 89.0 85.5 Suginami 100.0 99.4 97.6 95.1 92.0 88.5 84.5 Katsushika 100.0 98.2 95.7 92.4 88.7 84.8 80.8 Adachi 100.0 98.0 95.2 91.6 87.5 83.1 78.7
Source: NRI based on National Institution of Population and Social Security Research
Note: Medium-fertility (medium-mortality) projection
Population Trends in Tokyo (2010=100)
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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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 11
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.
Estimate → ←Actual
Source: NRI based on IMF data (2014 Oct. and 2015 Update)
ChinaIndia
Japan
Korea
UKUS
-10.0
-5.0
0.0
5.0
10.0
15.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
(%)←Actual Estimate→
Real GDP growth rate of major economies
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 12
0
5,000
10,000
15,000
20,000
25,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(Billion USD)
US
China
Japan
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 2020, assuming current growth rates continue.
Source: NRI based on IMF (2014 Oct.)
Note: Figures up to 2019 are IMF forecasts and those up to 2020 are calculated with the assumption that the CAGR from 2014 to 2018 will be maintained.
Forecast → ←Actual
Nominal GDP of Major Countries
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 13
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0 (%)
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.
Source: NRI based on Japan Ministry of Internal Affairs data
Inflation target
set by BOJ
Year-on-Year Change in Japan’s Consumer Price Index (excluding fresh foods)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 14
70
80
90
100
110
120
130
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 2012.
Source: NRI based on Bloomberg data
(USDJPY=X)
USD-JPY exchange rate
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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 2011, while the current account surplus fell to a record low in
2014.
Source: NRI based on Japan Ministry of Finance data
Japan’s Current Account
-15
-10
-5
0
5
10
15
20
25
30
35
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(兆円)
(年)
貿易収支 サービス収支 第一次所得収支 第二次所得収支 経常収支
(Trillion yen)
-15
-10
-5
0
5
10
15
20
25
30
35
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(Trillion yen)
(CY)
Trade Balance Service Balance Primary income balance Second income balance Current Account
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Macro Fundamentals of Japan
The principle factor behind the rise of trade deficit was imports unit value.
In 2014,Increase in export volumes has not been yet reflected to trade balance.
Source: NRI based on Japan Ministry of Finance data
(Trillion yen)
Japan’s Trade Balance (YoY Change)
-30
-20
-10
0
10
20
30
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
輸出数量要因
輸出価格要因
輸入数量要因
輸入価格要因
近似誤差
貿易収支の変化額(前年差)
Exports quantum factor
Exports unit value factor
Imports quantum factor
Imports unit value factor
Approximation error
Changes in trade balance (YoY)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 17
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.
Source: NRI based on MOF and BOJ data
Japan’s Export Indexes
60
70
80
90
100
110
120
130
2009 2010 2011 2012 2013 2014 2015
2010=100
Exports Quantum Index
(seasonally-adjusted)
Exports unitvalue index
(contract currency basis)
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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.
Source: NRI based on IMF data (2014 Oct.) Source: NRI based on IMF data (2014 Oct.)
Forecast → ←Actual Forecast → ←Actual
Ratio of Government Debt to GDP Ratio of Government Primary Net Lending/Borrowing to GDP
-12
-10
-8
-6
-4
-2
0
2
4
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
(%)
Japan
US
UK
Germany
0
50
100
150
200
250
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
(%)
Japan
US
UK
Germany
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 19
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 90% 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.
Source: NRI based on Bank of Japan data
(年) 0
200
400
600
800
1000
1200
1400
1600
1800
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(Trillion yen)
Note: Figures for Japan and US are from Dec 2014; for UK and Germany, from 2014 Q3.
Source: BoJ, FRB, ONS, Bundesbank
0%
20%
40%
60%
80%
100%
Japan US UK Germany
Domestic investors Foreign investors
Government Bond Investors Household’s Financial Assets in Japan
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Macro Fundamentals of Japan
Long-term interest rates remain stable at a low level.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Long-term Interest Rates (Monthly) and Sovereign Ratings
Japan
AA-/Negative/A-1+
Germany
AAA/Stable/A-1+
UK
AAA/Stable/A-1+
US
AA+/Stable/A-1+
Note: Classifications are as of Feb. 2014 (Long-term/expected/short-term, in local currency)
Source: NRI based on Ministry of Finance Japan, FRB, ECB, Bank of England, and S&P
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.
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Macro Fundamentals of Japan
Tokyo continues to be the world’s largest city in terms of population and GDP.
Tokyo
Delhi
Shanghai
BeijingMumbai
Dhaka
Mexico City
Sao PauloCairo
New York
Buenos Aires
Los AngelesParis
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0 500 1000 1500 2000 2500
GDP/population estimation in 2025 (Top 30 cities of population)
2025 population
by city
( in 1000’s)
2025 GDP scale
by city
(in billion USD at
2008 PPPs )
Source: NRI based on PricewaterhouseCoopers and UN data
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 22
Tokyo has the second largest concentration of world-class enterprises.
Rank Company Revenue(Mil$)
23 Japan Post Holdings 152,125
45 Honda Motor 118,210
51 JX Holdings 111,014
53 Nippon Telegraph & Telephone 109,054
61 Nissan Motor 104,635
78 Hitachi 95,988
105 Sony 77,532
108 Mitsubishi 75,755
124 Marubeni 70,429
135 Softbank 66,546
139 Tokyo Electric Power 66,194
145 Toshiba 64,907
148 AEON 64,240
164 Dai-ichi Life Insurance 60,340
173 Mitsui 57,302
176 Seven & I Holdings 56,572
184 Nippon Steel & Sumitomo Metal 55,062
199 Mitsubishi UFJ Financial Group 51,667
Beijing, 52
Tokyo, 41
London, 18
Paris, 18
New York, 17
Seoul, 14
Osaka, 8
Shanghai, 8
Houston, 7
Moscow, 7
Others, 310
Number of Fortune Global 500 companies by city (2014) Fortune Global 500 companies in Greater Tokyo (within top 200)
Source: NRI based on Fortune Global 500 (2014) data
Macro Fundamentals of Japan
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 23
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 24
Investors’ activities has been recovering to the 2005-2006 level.
In 2013, J-REIT, the most powerful real estate buyer in Japan, acquired assets of more than 20 billion USD. In 2014, 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.
Overview of Real Estate Investment Market in Japan
Source: NRI based on MLIT
611 305 676 8951,772 2,031 1,679
628 439 604 7921,555
2,237
2,1232,236
3,307
4,439
5,159
6,242 7,205
2,210
1,359539
1,549
1,791
2,156
0
2,000
4,000
6,000
8,000
10,000
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Others J-REIT
billion yen
Acquisitions of Securitized Real Estate
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 25
1,611
710
1,516 1,7282,194 2,124
2,503
891556 768 512
1,0921,501
267
552
686808
1,293 1,5891,321
348
235441
406
550
603161
270
404
835
790
1,107 981
479
289
252309
452
788615
746
0
2,000
4,000
6,000
8,000
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Office Residential Retail Logistics Hotel Others
Hotel deals has been increasing amongst other key segments, i.e. office, residential, retail
and logistics properties.
Factors such as the 2020 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.
Overview of Real Estate Investment Market in Japan
Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 2001. 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”
billion yen
Office, 33.8%
Residential, 17.1%Retail, 16.0%
Logistics, 13.8%
Hotel, 3.3%
Others, 16.0%
Acquisitions of Securitized Real Estate by Asset Class Allocation of Securitized Real Estate by Asset Class
in 5 years (2009-2013)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 26
Note: not including securitization of real estate of SPC
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 2014 and 2015, 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.
Overview of Real Estate Investment Market in Japan
Source: NRI based on MLIT
41.9%
51.9%
53.0%
66.0%
58.8%
47.9%
51.9%
12.1%
12.7%
10.5%
11.8%
12.0%
15.3%
13.3%
10.5%
8.8%
8.4%
6.9%
8.0%
9.5%
10.0%
6.4%
5.5%
6.9%
4.0%
5.1%
3.7%
23.1%
17.4%
17.2%
12.0%
14.9%
19.9%
17.8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others
Number of Properties Securitized by Region
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 27
3.7
7.3
13.8
-7.2
0.3
7.4
5.0
-11.7
2.3
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Mar
Jun
Sep
De
cM
arJu
nSe
pD
ec
Mar
Jun
Sep
De
cM
arJu
nSe
pD
ec
Mar
Jun
Sep
De
cM
arJu
nSe
pD
ec
Mar
Jun
Sep
De
cM
arJu
nSe
pD
ec
Mar
Jun
Sep
De
cM
ar
Jun
Sep
De
cM
ar
Jun
Sep
De
cM
ar
Jun
Sep
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total return recovered to 7%, the 2005 Q1 level.
Prior to the global financial crisis, the total return reached to 7% in 2005 Q1, and hiked till 2006 Q2.
Total return maintained the rate over 10% until 2007 Q1.
Overview of Real Estate Investment Market in Japan
Source: MSCI Real Estate IPD
Total Return
Capital Return
Income Return
Performance Trend in Japan
(%)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 28
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Oct
-03
Ma
r-0
4
Au
g-0
4
Jan
-05
Jun
-05
Nov
-05
Apr
-06
Sep-
06
Feb-
07
Jul-
07
De
c-0
7
Ma
y-08
Oct
-08
Ma
r-0
9
Au
g-0
9
Jan
-10
Jun-
10
Nov
-10
Apr
-11
Sep
-11
Feb-
12
Jul-
12
Dec
-12
May
-13
Oct
-13
Ma
r-1
4
Au
g-1
4
Office Tokyo CBD Office Osaka CBD Retail Tokyo Residential Tokyo Logistics Tokyo Multi
Office Tokyo CBD
Office Osaka CBD
Retail Tokyo
Residential Tokyo
Logistics Tokyo Multi
Cap rates fell sharply and by 2014 most likely reached the 2007 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.
Overview of Real Estate Investment Market in Japan
Source: NRI based on Japan Real Estate Institute
Cap Rate Trend in Japan
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 29
Mega deals of over one billion USD have increased.
Transaction
Month/Year Dec, 2013 Mar, 2014 Aug, 2014 Oct, 2014 Nov, 2014
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
(200 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 Secured Capital Japan
(PAG) GE Real Estate Japan
Buyer Nippon Life Insurance
Obayashi Mizuho Bank Mori Trust GIC Blackstone
Transaction
Amount 800 million USD 1,782 million USD 1,300 million USD 1,700 million USD 2,000 million USD
Gross Floor
Area 7,205㎡
34,200㎡
(Floor Area of Acquisition) 155,820㎡
38,840㎡
(Floor Area of Acquisition) NA
Overview of Real Estate Investment Market in Japan
Source: NRI based on Nikkei Real Estate Market Report and others
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 30
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. high-
net-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.
Overview of Real Estate Investment Market in Japan
Transaction
Month/Year Jun, 2014 Sep, 2014 Oct, 2014 Nov, 2014 Nov, 2014
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 high-net-worth high-net-worth
(Taiwanese) high-net-worth high-net-worth high-net-worth
Transaction
Amount NA NA NA NA NA
Gross Floor
Area 2,646㎡ 1,310㎡ 2,873㎡ 1,340㎡ 3,342㎡
Source: NRI based on Nikkei Real Estate Market Report and others
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 31
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 2004 and 2007. How to build good relations with regional banks is one of the key issues for real estate investors at
present.
Overview of Real Estate Investment Market in Japan
Transaction
Month/Year Jul, 2014 Oct, 2014 Oct, 2014 Oct, 2014 Jan, 2015
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 130 million USD
600 million USD
(for 3 properties) NA 40 million USD 8.5 million USD
Gross Floor
Area 40,195㎡ 140,000㎡ 20,411㎡ 19,422㎡ 12,000㎡
Source: NRI based on Nikkei Real Estate Market Report and others
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 32
Fierce competition among commercial banks help boost prices.
Banks’ lending attitude toward the real estate industry is nearly the most lenient since 2000 and almost as lenient as in 2006. 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 2006, 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 2009.
Overview of Real Estate Investment Market in Japan
Loose
Tight
Source: NRI based on BOJ
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
Mar
-00
Sep-
00
Mar
-01
Sep-
01
Mar
-02
Se
p-0
2
Mar
-03
Se
p-0
3
Mar
-04
Sep-
04
Mar
-05
Sep-
05
Mar
-06
Se
p-0
6
Mar
-07
Sep-
07
Mar
-08
Sep-
08
Mar
-09
Se
p-0
9
Mar
-10
Sep-
10
Mar
-11
Sep-
11
Mar
-12
Se
p-1
2
Mar
-13
Sep-
13
Mar
-14
Sep-
14
Financial Institutions’ Lending Attitude DI toward Real Estate Industry
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 33
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 34
Office Market
Tokyo Area holds 60% of Japan’s office rental market.
Japan has a stock of around 106 million ㎡ of available office rental space. The Tokyo area holds an overwhelming share of the market
at 64 million ㎡, comprising 60% of the total.
Source: NRI based on JREI As of Jan.2014
The investigation focus on central area of each city.
The investigation object which are smaller than 3,000 square meter are excluded
59.9%
4.7%1.0% 1.8%
14.9%
1.7% 1.0%5.5%
3.3%2.4%
2.1% 1.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Tokyo Yokohama Saitama Chiba Osaka Kobe Kyoto Nagoya Fukuoka Sapporo Sendai Hiroshima
(5.00million ㎡)
(63.94million ㎡)
(1.03million ㎡)(1.95million ㎡)
(15.91million ㎡)
(1.85million ㎡)(1.12million ㎡)
(5.87million ㎡)(3.57million ㎡)
(2.54million ㎡)(2.23million ㎡)
(1.72million ㎡)
Tokyo Metropolitan Area
67.4%
12 major cities106.73million ㎡
Osaka Area
17.7%
Office Floor Space Shares by Major City
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 35
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.
30 km
30 km
Tokyo 13.22 million people
Kanagawa 9.07 million people
Saitama 7.15 million people
Chiba 6.15 milion people
Setagaya Minato
Itabashi Kita
Adachi
Katsushika
Edogawa
Koto
Sumida Taito
Arakawa
Toshima
Bunkyo
Shibuya
Shinjuku Chiyoda
Chuo
Meguro
Shinagawa
Ohta
Nakano
Nerima
Suginami
Office Market
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 36
Source: NRI based on Miki Shoji Co., Ltd. data
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
Monthly(Jan 2013 –Jan 2015) Yearly(1998 - 2014)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Shibuya
Shinjuku
MinatoChuo
Chiyoda
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan
-13
Apr
-13
Jul-
13
Oct
-13
Jan
-14
Apr
-14
Jul-
14
Oct
-14
Jan
-15
Shibuya
Chiyoda
Chuo
Minato
Shinjuku
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 37
Yen/month, tsubo Yen/month, tsubo
Source: NRI based on Miki Shoji Co., Ltd. data
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.
Note: One tsubo is 3.3 square meters
Rent trends in Tokyo CBD (yen/tsubo per month)
Monthly(Jan. 2013 – Jan. 2015) Yearly(1999 - 2014)
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
ChiyodaShibuyaMinato
Chuo
Shinjuku
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-13
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-14
Jan
-15
ChiyodaShibuyaMinatoChuo
Shinjuku
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 38
3,818 3,8353,660
3,461
3,243
2,020 1,988
1,884
1,467 1,474 1,415
3,648 3,6433,565 3,498
2,083 2,078 2,035 1,998
1,5391,533 1,501 1,473
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1990 1995 2000 2005 2010 2015 2020 2025
23区
5区
3区
(千人)
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
Office Market
Central 3 wards
(Chiyoda, Chuo, Minato)
Central 5 wards
(Chiyoda, Chuo, Minato, Shibuya, Shinjuku)
23 wards
Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government
(1,000 people)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 39
14.8%
15.8%16.4%
11.8% 11.8%
11.6%
13.5%
15.0%
15.6%
8.9% 8.7% 8.4%
6.2% 6.2% 6.1%
15.4%
15.3% 15.3%
11.5% 11.4% 11.3% 11.3%
15.2% 15.4%
15.5% 15.5%
8.6% 8.6% 8.6% 8.6%
6.3% 6.4% 6.4% 6.4%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2000 2005 2010 2015 2020 2025
千代田区
港区
中央区
新宿区
渋谷区
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 =100%)
Office Market
Minato
Shibuya
Chuo
Chiyoda
Shinjuku
Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 40
56 55
83
100108104
114118
183
92
119
74
99
36
72
91
125
216
121
77
154
119
65
86 85
117
175
58
88
111110
124
96
0
10
20
30
40
50
60
70
0
50
100
150
200
250
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
# of buildingsSupplied f loor area
(1,000 ㎡)
Office supply areaNumber of building supplied
Source: NRI based from Mori Building Company’s “Mega Office Building Market Trends Survey (Preliminary figure)” dated October 22, 2014
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
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 41
Tokyo office market cap rate trend
Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”
Office Market
Cap rate has been dropping for three consecutive years since 2012.
As of March 2015, office deals with cap rates of 3-4% are commonly carried out, resting on investors’ expectations for higher rent and
NOI, henceforth.
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
Oct
-03
Ap
r-0
4
Oct
-04
Ap
r-0
5
Oct
-05
Ap
r-0
6
Oct
-06
Ap
r-0
7
Oct
-07
Ap
r-0
8
Oct
-08
Ap
r-0
9
Oct
-09
Ap
r-1
0
Oct
-10
Ap
r-1
1
Oct
-11
Ap
r-1
2
Oct
-12
Ap
r-1
3
Oct
-13
Ap
r-1
4
Oct
-14
Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon)
Shinagawa Shinjuku Shibuya
ShinjukShinagaShibuyaMinato(Toranomon)Chuo(Nihonbashi)Chiyoda(Marunouchi)
Shinjuku
Shinagawa
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 42
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
(yen/tsubo)
Tokyo
OsakaNagoyaYokohamaFukuokSendai
Sapporo
Source: NRI based on Miki Shoji Co., Ltd. data
Office Market
The improvement of the vacancy rate is not leading to the recovery of rents in the ex-Tokyo
office market.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Sendai
Fukuoka
NagoyaYokohama
SapporoOsaka
Tokyo
Office Vacancy Trend in ex-Tokyo Market Office Rent Trend in ex-Tokyo Market
Fukuoka
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 43
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Oct
-03
Apr
-04
Oct
-04
Apr
-05
Oct
-05
Apr
-06
Oct
-06
Apr
-07
Oct
-07
Apr
-08
Oct
-08
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Sendai
Sapporo
FukuokaNagoyaYokohamaOsaka
Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”
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
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 44
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 45
Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.
Residential Market
About 20% 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 20% of all households) in 2013.
3,7604,097
4,4214,716
4,9895,238
1,411 1,578 1,682 1,724 1,783 1,857
334 490 650 750 879 996
9%
12%
15%16%
18%
20%
0%
5%
10%
15%
20%
25%
0
1,000
2,000
3,000
4,000
5,000
6,000
'88 '93 '98 '03 '08 '13
Ratio
of H
ou
seh
old
s Living in
Private
Re
ntal &
A
partm
en
t Ho
use
(no
n-w
oo
d)
Nu
mb
er o
f Ho
use
ho
lds
(un
it:1
0,00
0)
Households Living in HousingHouseholds Living in Rental HousesHouseholds Living in Private Rental & Apartment Houses (non-wood)Ratio of Households Living in Private Rental & Apartment Houses (non-wood)
Own House63%
Private Rental House,
Apartment House (non-
wood)20%
Private Rental Housing, Others
9%
Public Rental House
6%
Company Housing
2%
Breakdown of All Households by Housing Type (2013) Number of Households by Housing Type 1988 - 2013
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 46
Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.
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 1994-98 and decreased to about 77% of the peak-time level in 2009-13 .
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.
1,1031,186 1,221
1,1351,039
939
782884 868
778698
639
427532 557
502 466 447
39%
45% 46% 44% 45%48%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
200
400
600
800
1,000
1,200
1,400
1,600
84-88 89-93 94-98 99-03 04-08 09-13
Ratio
of H
ou
seh
old
s Living in
Private
Re
ntal &
A
partm
en
t Ho
use
s
Nu
mb
er
of
Mo
vin
g H
ou
seh
old
s (U
nit
:10,
000)
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
Housing Choices of Moving Households 1984 - 2013
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 47
Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.
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.
28 30 28 31 32 28 27 33
165 157 148 137
56 57 55 55 73 61 53 50 27 27 23 22 47 46 41 4850 46 48 55 25 24 24 27
266
207 197 200
58 54 51 58
10586 77 73
36 37 32 3045 47 49 54
0
50
100
150
200
250
300
350
400
450
500
94-9
8
99-0
3
04-0
8
09-1
3
94-9
8
99-0
3
04-0
8
09-1
3
94-9
8
99-0
3
04-0
8
09-1
3
94-9
8
99-0
3
04-0
8
09-1
3
94-9
8
99-0
3
04-0
8
09-1
3
94-9
8
99-0
3
04-0
8
09-1
3
94-9
8
99-0
3
04-0
8
09-1
3
Sapporo Sendai Tokyo 23
Wards
Nagoya Osaka Hiroshima Fukuoka
Bre
akd
ow
n o
f In
-Flo
w H
ou
seh
old
s M
ove
d in
Pri
vate
Re
nta
l Ho
use
s (n
on
-wo
od
) (U
nit
:1,0
00)
Household moving in a city
Household moving out a city
Location Choices of Moving Households
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 48
Housing Stock by Type 1988-2013
Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.
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 60 to 70%.
Housing Growth Rates by Type
39 44
50 54
58 61
16 18
20 21 22 23
12 14 15 16
0
10
20
30
40
50
60
70
'88 '93 '98 '03 '08 '13
Ho
usi
ng
Sto
ck (U
nit
:1 m
illio
n)
Number of Houses
Number of RentalHouses
Number of Rental & Apartment Houses (non-wood)
100
107
114
119
103
108
112 112
124
130
80
90
100
110
120
130
140
'98 '03 '08 '13
Gro
wth
Rat
e (1
988
= 10
0)Number of Houses
Number of RentalHouses
Number of Rental & Apartment Houses (non-wood)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 49
0
100
200
300
400
500
600
700
800
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
New
Ren
tal H
ousi
ng C
onst
ruct
ion
by R
egio
n(U
nit:
1,00
0)
Provincial Region
Kinki Region
Chuubu Region
Metropolitan Region
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Ratio
of R
en
tal Ho
use
s
Nu
mb
er o
f Co
nst
ruct
ion
Sta
rts(
Un
it:
1,00
0)
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.
Residential Market
Construction of new rental housing declined in 2009 but is now on a recovery path.
The number of new constructions decreased in 2014 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: 1991-2014 Breakdown of New Rental Housing Construction by Region
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 50
8
9
10
11
12
13
14
15
16
17
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
2012 2013 2014
Ren
tal H
ou
sin
g V
acan
cy R
ate
(Un
it: %
)
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.).
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 2011, vacancy rates in Sendai has seen a significant shrinkage.
Source: NRI based on data from Data from “Housing and Land Survey”, Ministry of Internal Affairs
and Communications of Japan.
0%
5%
10%
15%
20%
25%
Sapporo Sendai Tokyo23
Wards
Nagoya Osaka Hiroshima Fukuoka
Vac
ancy
Rat
e o
f R
en
tal H
ou
sin
g (n
on
-wo
od
) (U
nit
:%) '98 '03 '08 '13
Vacancy Rates of Rental Housing (non-wood) in Major Cities Vacancy Rates of Rental Housing in Tokyo Metropolitan Area
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 51
86.0
88.0
90.0
92.0
94.0
96.0
98.0
100.0
102.0
104.0
106.0
108.0
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Pri
vate
(An
nu
al A
vera
ge)
Re
nt
Ind
ex
(Bas
e Y
ear
20
10
)
Japan
Tokyo 23 Wards
Source: NRI based on data from “Consumer Price Index”, Ministry of Internal Affairs and Communications of Japan.
Residential Market
The rent level of non-public rental housing continues to fall.
The rent level of non-public rental housing rose steadily from 1990 to 2000, after which it gradually declined. The
rent level downward trend continued in 2013.
Rent in the Private Sector (Annual Average) – Nationwide and Central Tokyo
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 52
Source: NRI based on data from “ARES J-REIT Property Database”, Association for Real Estate Securitization of Japan.
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 2012.
90%
92%
94%
96%
98%
100%
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
2012 2013 2014
Occ
up
ancy
Rat
e (U
nit
:%)
Tokyo 3 central districts
Tokyo 23 districts
Nagoya city
Osaka city
Fukuoka city
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
2012 2013 2014
Mo
nth
ly R
ent
Leve
l (U
nit:
Yen
/m2 )
Tokyo 3 central districts
Tokyo 23 districts
Nagoya city
Osaka city
Fukuoka city
Occupancy Rates of REIT-owned and private fund-owned Properties Monthly Rents of REIT-owned and private fund-owned Properties
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 53
Housing Ownership Rate in Japan
Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan
Residential Market
The rate of housing ownership, which has a negative impact on rental housing demand, has
shown a downward trend with the 40-49 age group.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1998 2003 2008 2013
70+
60-69
50-59
40-49
30-39
-29
(age)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 54
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 55
Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication.
Retail Property Market
Development of large-scale retail stores has started to recover since 2009.
Source: NRI based on data from the Ministry of Economy, Trade and Industry’s “Large-scale Retail Chain Site Expansion Report”
2,455
3,3353,729
4,1784,545
3,9834,369
1,919 2,0812,351 2,193
2,860 2,824
450
638
786738 731 730 750
654
500
584620
738705
0
100
200
300
400
500
600
700
800
900
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Nu
mb
er of p
rojects(cases)
Flo
or
Are
a(1
00
0m
2)
(year)
Floor Area Number of projects
New Retail Space Supply vs. Number of Development Projects
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 56
NB: In the old SC standard, only shopping malls with more than 10 retail tenants were considered.
In the new SC standard, the shopping center must have more than 10 tenants including food stalls, service centers and retail
outlets.
On the same note, the shopping center must have more than 1,500 m2 retail space.
Retail Property Market
For shopping centers, the total floor area for all stores and the floor area per store are both
on the rise.
Source: NRI based on data from the Council of Shopping Centers’ “SC White Book”
30.6 30.4 31.5 33.1 34.6 36.5 38.0
42.1 42.7 44.2 45.7 46.4 47.9 11.8 11.6
12.1 12.4 12.8 13.2 13.6
14.1 14.2 14.5 14.8 15.0 15.3
0
2
4
6
8
10
12
14
16
0
10
20
30
40
50
60
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Floo
r area per sh
op
pin
g center
Ov
era
ll fl
oo
r a
rea
(year)
Overall floor area Floor area per SC(in 1 million m2) Old SC Standard New SC Standard (in 1000m2/store)
Overall floor area and per-store floor area for shopping centers
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 57
-3.4
-2.2-2.1
-1.6 -1.7
0.3 0.30.0
-1.5
-6.8
-2.0
-1.3
0.5
-0.50.1
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(%)
Source: NRI based on the Japan Council of Shopping Centers’ “Overall Sales Statistics Report
Retail Property Market
Declining tendency of shopping center’s sales is mitigating.
Yearly comparison of existing shopping centers’ sales
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 58 Source: NRI based on from Cabinet Office “Consumer Trends Survey”
Retail Property Market
Abenomics has not changed consumer outlook dramatically.
▼ Dec. 2012
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,” +0.75 for “Will get somewhat better,” +0.5 for “Won’t change,” +0.25 for “Will get somewhat worse,”
and +0 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 50 will be produced if all participates answer “Won’t change” for all available items.
0
10
20
30
40
50
60
Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov Jan
Mar
May Ju
lSe
pN
ov
2007 2008 2009 2010 2011 2012 2013 2014
Consumer outlook index chart
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 59
0
10,000
20,000
30,000
40,000
50,000
60,000
Late 2011 Early 2012 Late 2012 Early 2013 Late 2013 Early 2014
Ginza
Omotesando
Ikebukuro
Shinjuku
Shibuya
Yokohama
Shinsaibashi
Oodori (Sapporo)
Sannomiya (Kobe)
Sendai
Tenjin (Fukuoka)
Shijokawaramachi (Kyoto)
Sakae (Nagoya)
(yen / month / tsubo)
Ginza
OmotesandoShinjukuShibuyaSakaeIkebukuro
NB1: Rent in Yokohama is shown to have spiked in the early half of 2012, but this can be attributed to the extremely small sample size
NB2: Rent in Shinjuku is shown to have spiked in the late half of 2012, 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 2013, but this can be attributed to a sample bias toward low-rent properties in unfavorable locations
NB4:Rent in Shibuya, Sakae and Ikebukuro are shown to have spiked in the early half of 2014, which can be attributed to a sample bias towards a small number of
properties with high rent
Retail Property Market
Compared to other areas, rent level of Ginza, Omotesando and Shinjuku are still high.
Source: NRI based on the Japan Real Estate Institute
NB2
NB1 NB3
Tokyo Metropolitan
Area
Provincial Areas
1st floor rent ranking in 13 principal business areas (yen/month/tsubo)
NB4
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 60
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Metropolitan , Ginza
Metropolitan , Omotesando
Suburban, Nagoya
Metropolitan , Metropolitan, Osaka
Suburnban, TokyoSuburban, Osaka
Source: NRI based on the Japan Real Estate Institute’s “Real Estate Investor’s Survey”
Retail Property Market
Cap rates have been falling since 2011. In the Tokyo Metropolitan Area, cap rates are
approaching the all-time low.
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 20,000m2
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.
Commercial establishment cap rates (expected yield)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 61
Retail Property Market
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).
Accessibility and density level of commercial facilities are the important factors in selecting
locations.
42%
22%
20%
19%
18%
16%
14%
12%
11%
8%
7%
6%
5%
41%
49%
48%
48%
45%
42%
36%
33%
35%
30%
26%
24%
20%
12%
21%
24%
24%
25%
28%
32%
33%
32%
31%
34%
33%
31%
5%
7%
9%
9%
12%
14%
18%
23%
23%
31%
33%
37%
44%
0% 20% 40% 60% 80% 100%
交通アクセスがしやすい
商品やサービスなどの選択肢が豊富である
店舗や施設の数が多い
様々な用途の店舗や施設がある
店舗や施設間の回遊がしやすい
その地域にしかない店舗や施設がある
公園などの休憩エリアが十分にある
自宅や就業地に近接している
自宅や就業地に同様の店舗や施設がない
様々な年齢や職業の人が来訪している
イベントなどが数多く開催されている
企業が集積している
店舗や施設の入替や更新が多い
とても重要である 重要である やや重要である 重要でないn=41,273
The most heavily
considered factor
Very important Important Slightly important Not important
High accessibility
Abundant choice of items/services
Ample shops/facilities
Wide variety of shops/facilities
High mobility between shops/facilities
Shops/facilities exclusive to the location
Bountiful resting spaces
Proximity from home/work
Lack of similar shops/facilities around home/work
Presence of visitors from various occupations and age groups
High frequency of events
High density of companies
High frequency of realignment of shops/facilities
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)
Questionnaire name: Investigation about integrated area
Practitioner:NRI
Period of time:July 2014~August2014
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 62
Retail Property Market
Large scale development of commercial buildings will proceed mainly around Tokyo station.
Source:NRI based on the Sangyo-Times ”Commercial Facilities Schedule Guide”, Toyo Keizai Shinposha “National Supermarket Guide 2015”
Total store area of commercial buildings in metropolitanTokyo
(1,000m2)
NB)
Total area(Existing) includes department stores and specialty stores. Data as of May 2014
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 700%, 20% and 60%, respectively.
6%
15%
24%
7%0%
34%
8%
36%
0%
20%
40%
60%
80%
100%
0
50
100
150
200
250
300
350
Shin
juku
(We
st)
Shib
uya
Ote
mac
hi・
Mar
un
iou
chi
・Yu
raku
cho
Gin
za
Shin
juku
(We
st)
Nih
on
bas
hi・
Yae
su
・K
yob
ash
i
Ao
yam
a・O
mot
esa
nd
o
Ro
pp
on
gi
Total area(Future plan)
Total area(Existing)
New store rate
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 63
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 64
Cargo quantity by transport method (FY2012) Automobile cargo quantity movement
NB: The chronological continuity of data from prior to 2009 could not be guaranteed due to the changes made to the in tallying methodology in the middle of 2010.
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.
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”
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
'60 '65 '70 '75 '80 '85 '90 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Business Personal
(1 million tons)
Motor vehicles 4,366,91%
Coastwise vessels 366,8%
Domestic aviation 1,0%
Railways
42,1%
Unit: 1 million tons
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 65
Industry-wide (except warehousing) distribution quantity by lot size
(unit: number of instances)
Warehousing distribution quantity per lot size
(number of instances)
Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourism’s “Logistics Census”
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
4.0% 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 0.1 tons.
CAGR
4.5%
CAGR
3.7%
CAGR
7.3%
CAGR
12.6%
46.4%
59.2%
72.4%
0 500 1,000 1,500 2,000
2000
2005
2010
(thousandinstances)
Below 0.1t 0.1~0.5t 0.5~1t 1~5t Above 5t
64.4%
69.2%
75.3%
0 5,000 10,000 15,000 20,000 25,000
2000
2005
2010
(thousandinstances)
Below 0.1t 0.1~0.5t 0.5~1t 1~5t Above 5t
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 66
9.7
11.712.8
14.416.2
18.1
20.2
22.5
25.1
0
5
10
15
20
25
30
2012 2013 2014 2015 2016 2017 2018 2019 2020
(兆円)
Market Size of Business-to-Consumer e-Commerce
NB: Business –to-consumer e-commerce: sale of products and services to consumers in general via the Internet
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 20 trillion yen in 2018.
Source: NRI
(trillion yen)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 67
0
500
1,000
1,500
2,000
'88
'89
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
(㎡)Entire industry Other than transport Transport industry
0%
5%
10%
15%
20%
25%
0
10,000
20,000
30,000
40,000
50,000
60,000
'88
'89
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
(Buildings)Transport industry Other than transport Transport industry share
Nationwide number of supplied warehouses
including warehouses for transport and transport industry share Floor space per warehouse building
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Construction Statistics”
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 (12,000 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.
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 68
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(1 billion yen) Real estate industry Transport industry Others
Order volume for construction of warehouses/logistics facilities by ordering industry
Note: Only contracts worth 5 billion yen above are included
Logistics Property Market
Development of logistics real estate, which had been shrinking since the Lehman shock, is
now back in full swing.
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. 69
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.
Narita Airport
Haneda Airport
Ken-O
Expressway Gaikan
Expressway
Joban
Expressway
Chuo
Expressway
Tomei
Expressway
Prologis Park Kitamoto Developer:Prologis Completion: Mar. 2014 Total floor area: 74,000 ㎡
MFLP Kuki Developer:Mitsui Fudosan Completion: Jul. 2014 Total floor area: 75,000 ㎡
Goodman Mizue Developer: Goodman Japan Dec. 2014 Leasable floor area: 58,000㎡
Logi-Port Hashimoto Developer:LaSalle, Mitsubishi Estate Completion: Feb. 2015 Total floor area: 157,000 ㎡
Goodman Ichikawa Developer: Goodman Japan Completion: Apr. 2015 Leasable floor area: 64,000㎡
GLP Ayase Developer:GLP Completion: Apr. 2015 Total floor area: 69,000㎡
GLP Zama Developer:GLP Completion; Jun. 2015 Total floor area: 132,000㎡
Prologis Park Ichikawa 3 Developer:Prologis Completion: Oct. 2015 Total floor area: 60,000㎡
Source: companies’ respective websites
Landport Atsugi Kaneda Developer: Nomura Real Estate Completion: Mar. 2015 Total floor area: 39,000㎡
Shinkiba Distribution Center Developer: IK Investment Ⅲ Completion: Aug. 2015 Leasable floor area: 46,000㎡
GLP Yachiyo Developer: Redwood Group Completion: Oct. 2015 Total floor area: 72,000㎡
MFLP Hino Developer: Mitsui Fudosan Completion: Oct. 2015 Total floor area: 213,000 ㎡
Redwood Namamugi Distribution Center Developer: Redwood Group Completion: Oct. 2015 Leasable floor area: 62,000㎡
Redwood Sakura Developer: Redwood Group Completion: Nov. 2015 Total floor area: 85,000㎡
GLP Sayama HidakaⅠ Developer:GLP Completion; Dec. 2015 Total floor area: 42,000 ㎡
Honmoku Distribution Center Developer: Mitsubishi Corp. Urban devt Completion: Dec. 2015 Total floor area: 71,000㎡
Prologis Park Yoshimi Developer:Prologis Completion: Dec. 2015 Total floor area: 109,000 ㎡
Landport Kashiwa ShonanⅠ Developer: Nomura Real Estate Completion: Feb. 2016 Total floor area: 50,000㎡
Goodman Business Park Chiba East Developer: Goodman Japan Completion: Mar. 2016 Total floor area:133,000㎡
Landport Kashiwa ShonanⅡ Developer: Nomura Real Estate Completion; Apr. 2016 Total Floor area: 56,000㎡
Moriya Logistics Center Developer:Orix Completion: Apr. 2016 Total floor area: 48,000㎡
Expressway
Expressway
(Planned)
New devts
Newly
operational
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 70
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
2013 2015
Mitsubishi Estate
Mitsui Fudosan
Nomura Real
Estate
ITOCHU
Corporation
Mitsubishi
Corporation
Sumitomo
Corporation
Kenedix
ORIX Real Estate
GLP
Daiwa House
Prologis
LaSalle
Goodman
General
developer
“SHOSHA”
Independent
company
Foreign
capital
company
The first solo project in Fukuoka
(Start: Dec. 2013)
Entry into the logistics property market in partnership
with GLP (Start: Sep. 2012)
IPO of Nomura Real Estate Master Fund (REIT
of logistics and retail property) (Jun. 2013)
The Industrial and Infrastructure Fund holds
23 logistics properties acquired
at a price of 72 billion yen (as of Mar. 2014)
Cooperation agreement with Kokyo Tatemono on logistics
properties devt and establishment & management of private
funds. Sumitomo aims to develop logistics properties
worth 20 billion yen’s per year (Mar. 2014)
MITSUI
& CO., LTD
ACQ of 51% ownership of SG Realty Yokohama (logistics property) for 6.3
billion yen through a fund established with institutional investors (Apr. 2013)
Logistics property devt with Kenedix
(GFA 44,000㎡) (Begin: Apr. 2013)
ACQ of Zama and Chiba Logistics Centers by private fund
managed by Mitsui & Co Realty (Mar./Apr. 2014)
ACQ of Urayasu Logistics Center
by private fund managed
by Mitsui & Co Realty (Sep. 2013)
Sale of Saitama Logistics Property to Askul
for 15 billion yen (Jan. 2013)
ACQ of a 36,000㎡ site for logistics property
in Ichikawa, Chiba for 6.6 billion yen (Dec. 2013)
Devt of 2 logistics properties in Hidaka,
Saitama & Yachiyo, Chiba (GFA 200,000㎡)
(Compl. 2015/16)
IPO of Nippon Prologis REIT, Inc
(Feb. 2013)
Sale of 6 logistics properties
by a LaSalle-managed fund
for 74 billion yen (Oct.2013) Logistics property devt in
Mizue,Kanagawa (GLA 59,000㎡)
(Compl.Dec. 2014)
Logistics property devt in
Ichikawa, Chiba (GFA 57,000
㎡) (Compl. Oct. 2013)
Source: companies’ respective websites
Abbreviation
ACQ: Acquisition
Compl: Completion
Logistics property devt in
Atsugi, Kanagawa (GFA 89,000㎡)
(Compl. Jun.2016) Devt of 2 logistics properties in
Yoshimicho, Saitama (GFA 100,000㎡)
(Compl. Dec.2015)
Devt of logistics properties in
Narashino & Inzai, Chiba
(GFA 190,000㎡)(Compl. Spring 2016)
Sale of Atsugi Distribution
Center to Nissay (Apr. 2014)
ACQ of 3 logistics properties in Kawasaki,
Kanagawa for 55 billion yen (Jul. 2014)
Devt of several logistics properties in Chiba.
When completed, they are said to be worth
100 billion yen. (Compl. March 2016)
Logistics property devt in
Joso, Ibaraki(GLA 46,000㎡)
(Compl. Jun. 2016)
Cooperation agreement with
Fast Retailing on
logistics properties (Oct. 2014)
ACQ of 7 logistics properties by
Daiwa House REIT
for 48.4 billion yen (Mar. 2015)
ACQ of land for logistics property devt
in Tokyo and Chiba (March 2014)
Logistics property devt in Atsugi, Kanagawa
(GFA 40,000㎡)(Compl. Mar.2015)
Logistics property devt with
LaSalle in Sagamihara,
Kanagawa (Compl. Aug. 2013)
Logistics property devt with LaSalle in
Sagamihara, Kanagawa (Compl. Feb. 2015)
Devt of logistics properties in Yashio & Kuki,
Saitama (GFA 117,000㎡)(Compl. 2014)
Announced a plan to develop
three more logistics properties in the Tokyo
metropolitan area (March.2015)
Devt: Development
GFA: Gross Floor Area
GLA: Gross Leasable Area
Devt of 3 logistics properties
(GFA:200,000㎡) in Kanagawa and
Chiba after Oct.2014
Establishment of a private REIT
(diversified REIT, which also invests in
logistics properties)(Start: Jan.2015)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 71
Monthly rent offers and vacancy rates of logistics real estate
NB: Logistics facilities which have a total lot area or total floor area of 10,000m2
Logistics Property Market
Vacancy rate in Tokyo area, which was on a rise, has diverted downwards.
Source: NRI based on data from Ichigo Real Estate Information Service’s “Survey on the Logistics Facilities Rental Market”
Rent offer
Vacancy rates
Jul.2008
Jul.2010
Oct.2012
Jan.2015
Jul.2008
Jul.2010
Oct.2012
Jan.2015
3,000
3,500
4,000
4,500
5,000
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%
(yen / month / tsubo) Tokyo area Osaka area
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 72
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
Oct
-05
Ap
r-06
Oct
-06
Ap
r-07
Oct
-07
Ap
r-08
Oct
-08
Ap
r-09
Oct
-09
Ap
r-10
Oct
-10
Ap
r-11
Oct
-11
Ap
r-12
Oct
-12
Ap
r-13
Oct
-13
Ap
r-14
Oct
-14
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
Oct
-05
Ap
r-06
Oct
-06
Ap
r-07
Oct
-07
Ap
r-08
Oct
-08
Ap
r-09
Oct
-09
Ap
r-10
Oct
-10
Ap
r-11
Oct
-11
Ap
r-12
Oct
-12
Ap
r-13
Oct
-13
Ap
r-14
Oct
-14
Single tenant Multi-tenant
NB: Single tenant: 2-3 floors; total floor area of around 10,000m2
NB: Multi-tenant: 3-4 floors; total floor area of around 50,000m2
Logistics Property Market
Cap rates have been falling since 2012, with Tokyo hitting all-time low.
Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”
Tokyo(bay)
Tokyo(inland)
Chiba(inland)
Tokyo(bay)
Tokyo(inland)
Chiba(inland)
Logistics real estate cap rate (expected yield)
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 73
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
Table of contents
Real Estate Investment Products
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 74
12.7
15.1
0.9
14.4
0.4
0
4
8
12
16
20
Listed REIT Private Fund Private REIT RMBS CMBS
(¥tn)
Unlisted open-ended private REITs was offered in November 2010, and the size of private REITs market is growing rapidly.
Real Estate Investment Instruments
An overall perspective of the Japanese real estate market
Equity Type Debt Type
Listed Unlisted
Close-Ended Open-ended
Residential
Mortgage
Commercial
Mortgage
Overview of the Real Estate Investment Instruments in Japan
NB: Listed REIT figure is updated as of end of Jan 2015, private fund figure is updated as of end of Dec 2014, unlisted REIT is an estimated figure as of end of Oct 2014,
RMBS/CMBS figure is updated as of end of Sept 2014.
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. 75
0
10
20
30
40
50
0
2,000
4,000
6,000
8,000
10,000
12,000
2001/9 2002/8 2003/7 2004/6 2005/5 2006/4 2007/3 2008/2 2009/1 2009/12 2010/11 2011/10 2012/9 2013/8 2014/7
(No. of J-REITs)(¥bn)
Market Capitalization No. of J-REITs
The J-REIT market began trading on the stock market in Sept 2001 with 2 companies traded and a market capitalization of 2.5 trillion
yen.
As of the end of January 2015, there are 49 companies traded worth approximately 10 trillion yen.
Real Estate Investment Instruments
The J-REIT market capitalization has reached approximately 10 trillion yen.
J-REIT Market Capitalization and Number of J-REITs
Source: Bloomberg
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 76
5 Central Wards of
Tokyo37.8%
23 Wards of Tokyo18.2%
Kanto Area18.9%
Chubu Area
4.2%
Kinki Area13.1%
Other Areas7.9%
Office47.4%
Residential17.0%
Retail
18.2%
Hotel3.3%
Logistics
10.2%
Others
3.8%
Real Estate Investment Instruments
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 2014.
Approximately 75% of J-REITs assets are located in the Tokyo Metropolitan Area, and
approximately 50% of J-REITs assets are office properties.
Greater Tokyo Area
74.9%
Approx. 12.7
trillion yen
Approx. 12.7
trillion yen
Asset Mix of J-REITs by Area and Asset Class
* As of the end of January 2015
Source: NRI based on ARES
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 77
0
500
1,000
1,500
2,000
2,500
3,000
2003/3 2004/1 2004/11 2005/9 2006/7 2007/5 2008/3 2009/1 2009/11 2010/9 2011/7 2012/5 2013/3 2014/1 2014/11
TSE REIT Index TOPIX TOPIX Real Estate Sector Index
The TSE REIT Indices has dropped sharply from its peak in May 2007, and has recovered rapidly from 2013.
Real Estate Investment Instruments
The Tokyo Stock Exchange (TSE) REIT Indices have recovered from 2013.
TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index
Source: NRI based on Bloomberg
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 78
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2002/1 2002/11 2003/9 2004/7 2005/5 2006/3 2007/1 2007/11 2008/9 2009/7 2010/5 2011/3 2012/1 2012/11 2013/9
Spread J-REITs Dividend Yield JGB 10-Year-Yield
J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 3%.
Real Estate Investment Instruments
J-REIT dividend yields are currently down to around 3%.
J-REIT dividend yield and Japanese Government Bond 10-year yield
Source: NRI based on Bloomberg, TSE.
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 79
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2002/12 2004/8 2006/4 2007/12 2009/8 2011/4 2012/12
AJPI: Total Return
AJFI: Total 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.
Real Estate Investment Instruments
The performance recovered to positive in the capital return.
ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2002/12 2004/8 2006/4 2007/12 2009/8 2011/4 2012/12
AJPI: Income Return
AJFI: Income Return
AJPI: Capital Return
AJFI: Capital Return
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. 80
9,702
14,81516,935
32,31130,260
20,955
16,276 16,352
12,143
7,537
11,1138,491 8,341
11,132
15,064
10,742 11,1489,741 10,760
3,511
1,994
6,937
4,370 7,418
7,679
8,75510,338
2,038
1,701
980
341 138
413
563
1,288 140153
5
0
10,000
20,000
30,000
40,000
50,000
60,000
20041st Half
20042nd Half
20051st Half
20052nd Half
20061st Half
20062nd Half
20071st Half
20072nd Half
20081st Half
20082nd Half
20091st Half
20092nd Half
20101st Half
20102nd Half
20111st Half
20112nd Half
20121st Half
20122nd Half
20131st Half
(¥100m)
RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/Commercial Bills Others
Real Estate Investment Instruments
Most recently, about 80% of residential mortgage-backed securities were originated by the Japan Housing Finance Agency.
CMBS issuance has decreased drastically since 2008, and at present only RMBS is issued
at a constant pace.
Asset Backed Securities Breakdown by Type of Backing and RMBS Breakdown by Originator
0% 20% 40% 60% 80% 100%
2004FY 1H2004FY 2H2005FY 1H2005FY 2H2006FY 1H2006FY 2H2007FY 1H2007FY 2H2008FY 1H2008FY 2H2009FY 1H2009FY 2H2010FY 1H2010FY 2H2011FY 1H2011FY 2H2012FY 1H2012FY 2H2013FY 1H2013FY 2H2014FY 1H
Housing Finance Agency Banks/Trust Banks Regional Banks Non-bank Others
Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 81
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.
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.
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.
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.
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.
Seiya HARIMA Author of Macro Fundamentals of Japan
Harima is engaged in consulting and research
projects such as real estate/infrastructure-
related survey/research, and planning of
business strategies.
Contact:
Nomura Research Institute, Ltd.
Consulting Division
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.