Investment in commercial real estate has been at a minimum since 2013
The investment amount of business real estate in this term (Q1) (applicable to more than 1 billion yen, excluding land transactions and properties acquired at IPO of J-REIT) decreased by 30% compared to the same period last year, an investment of 761 billion yen, being at its lowest since 2013. In terms of entities involved, all investors decreased from the same period last year. The decrease in J-REIT was the most relevant. J-REIT continues to be dominated by transactions utilizing the sponsor’s pipeline, as there are few available transactions in the market. In addition, in the current term, there are many replacement purchases being made that aimed at improving the quality of the portfolio, and it is thought that the reason for the decrease is due to a significant reduction in acquisitions by public offering.
According to the “Questionnaire on Real Estate Investment-Expected Yield (As of April 2019),” which is implemented quarterly by CBRE, the average value of Tokyo’s expected yield (based on NOI) has decreased for four asset types such as offices, excluding commercial facilities and apartments (one room), which have been flat since the previous fiscal year, and updated to its lowest value. In addition, the expected office yields for local cities were also updated to the lowest values in four cities (Osaka, Nagoya, Sendai, Fukuoka).
Investors are being more selective, however, we do not see a deterioration of the financing environment nor a decline in investment will.
According to the investor awareness survey conducted by CBRE in January 2019, it was found that the willingness to invest did not decline compared to 2018. Also, by looking at the expected yield of this term and the CBRE Tankan, it is unlikely that investment will decline in Q1. However, investors are becoming more selective because of the scarcity of properties, as well as the high prices of real estate and the growing concern about the global economy. According to the survey results, the willingness to sell in 2019 declined slightly from the previous year. With the continuous tight supply-demand balance, the investment amount may be sluggish.
Investment decrease was partly due to a drop from the same period last year
The decrease in the amount of investment in the current quarter (Q1) is partly due to a backlash from the same period last year when the amount of investment increased. During that period, J-REIT recorded at its largest since the survey began in 2005, and the amount of investment increased significantly, as there were large-scale projects exceeding ¥ 100 billion by other domestic investors. On the other hand, the number of small and medium-sized projects, which are less than 10 billion yen, decreased this fiscal year, and the number of large-scale projects remained small.
Investment increases at commercial facilities and hotels
Investment by asset type increased 93% year-on-year to 119 billion yen for commercial facilities and increased 70% year-on-year for hotels, which were the second largest, to 117.0 billion yen. Both asset types were driven by domestic investors including J-REIT. On the other hand, the amount of investment decreased in all regions. The largest decline was in the metropolitan area (down 42 percent), followed by local cities (down 40 percent). In both cases, this was mainly due to the decrease in the investment of logistics facilities by J-REIT.
*From the Investment Market Trends (Japan Investment Market View) of 1Q 2019 (Q1) CBRE.