KENEDIX Real Estate Market Report 3Q 2021
Contents
Macroeconomic Condition………………… 2
J-REIT Market ………………… 2
Real Estate
Investment Market………… 3
Office Market……………………4
Residential Market…………… 5
Retail Facility Market………… 6
Logistics Facility Market………7
Hotel Market………………… …8
Summary
The real GDP growth rate in April-June 2021 showed positive growth for the first time in 2 quarters
The real GDP growth rate in April-June 2021 was up 1.3% QoQ at an annualized rate (seasonally adjusted), showing positive growth for the first time in 2 quarters. Private consumption was +3.4% over the same period, higher than expected, and conditions of both private residential investment (+8.6% over the same period) and private non-residential investment (+7.0% over the same period) were favorable. While there still are no signs of the spread of COVID-19 coming under control, vaccination is advancing rapidly, and many observers expect further increases in private consumption to accompany the progress of vaccination, leading to an economic recovery in autumn and beyond.
The J-REIT market moved up in the opposite direction
The TSE REIT Index's performance in April-June 2021 was up 6.8%, rising for the 5th consecutive quarter. TOPIX was down 0.8% during the same period, while the J-REIT market rose against the stock market direction. The favorable performance of retail REITs was pronounced, surpassing pre-COVID-19 highs. At the same time, office REITs remain at levels below last year's highs. A look at dividend yields based on the TSE REIT Index shows a decrease to roughly 3.4% and an increase in the NAV ratio to 1.18 times, so that undervaluation appears to be weakening.
While vacancy rates continue to worsen in the Tokyo office market, activity among tenants appears lively
The vacancy rate in Tokyo business districts (the 5 central wards) announced by Miki Shoji stood at 6.19% at the end of June 2021, up 0.77%pt from the end of March 2021. This is the first time in about 7 years the rate has reached the 6% level since August 2014. Average asking rent in June 2021 was down 7.5% YoY to JPY21,160 (per month/tsubo) for the 7th consecutive month, as the pace of the decrease in rents appears to be accelerating. However, office relocations by tenants appear to be growing increasingly active as the COVID-19 pandemic lengthens. Thanks to the spread of remote working, Corporate office strategies seems to be more flexible than pre-Covid 19. In the future, it is expected that the number of offices with highly diversity in terms of location and function will increase.
While the net outflow of population continues from the 23 wards of Tokyo, it may be slowing
A look at the occupancy rate for rental residences in the greater Tokyo area held by the major residential J-REITs as of the end of June 2021 shows a decrease of 0.95%pt from the end of March 2021, to 95.67%. While the occupancy rate fell due to seasonal factors in this quarter, even a YoY comparison shows a decrease of 0.3%pt. However, the pace of the decrease is slowing, and it appears that the worsening trend in the occupancy rate may be slowing down. The 23 wards of Tokyo showed a net population outflow of 5,318 people in April-June 2021. There is a clear trend toward net population outflows since July of last year, and the net population outflows were 12,535 people in July-September and 15,817 people in October-December of last year. This quarter's net outflow is down somewhat from last year. At the same time, there was a net inflow of population of 21,556 people to the Tokyo metropolitan area, up about 3 thousand people from the same period last year. Thus, while the outflow of population from central Tokyo is increasing, an inflow to suburban Tokyo metropolitan area appears to continue.
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KENEDIXケネディクス不JAPAN動産マREALーケットESTATEレポート 2021Q2MARKET REPORT 3Q2021
【Macroeconomic Conditions】
The real GDP growth rate in April-June 2021 rebounded to positive territory thanks to and recovering domestic demand
The real GDP growth rate in April-June 2021 was up 1.3% QoQ at an annualized rate (seasonally adjusted), showing positive growth for the first time in 2 quarters. Although the third state of emergency was declared during the quarter, it appears not to have had as much of an impact as the second state of emergency in the quarter January-March, due to factors such as the fact that the third state of emergency applied to fewer prefectures, lasted for a shorter period, and had less of a restraining
effect on people's movements. The contribution of | 【Fig.1】Real GDP Growth Rate and Contribution to Change | |||||||||||||||||||||||||
domestic demand was high at +2.6% annualized, while the | 25(%) | |||||||||||||||||||||||||
contribution of | foreign demand was | negative. Private | Private Inventories | |||||||||||||||||||||||
consumption was +3.4% over the same period, higher than | 20 | |||||||||||||||||||||||||
Net Exports | ||||||||||||||||||||||||||
expected, and conditions of both private residential | 15 | Public Demand | ||||||||||||||||||||||||
investment (+8.6% over the same period) and private non- | Private Non-Resi. Investment | |||||||||||||||||||||||||
residential investment (+7.0% over the same period) were | 10 | Private Residential Investment | ||||||||||||||||||||||||
Consumption of Households | ||||||||||||||||||||||||||
favorable. | 5 | Real GDP Growth Rate | ||||||||||||||||||||||||
While the fourth state of emergency in Tokyo was declared | 0 | |||||||||||||||||||||||||
beginning July 12, there are no signs of the spread of | -5 | |||||||||||||||||||||||||
COVID-19 coming under control, and the increasing trend | -10 | |||||||||||||||||||||||||
in new cases continues. In August it was expanded to cover | -15 | |||||||||||||||||||||||||
more prefectures, and the number of covered prefectures | ||||||||||||||||||||||||||
stood at 21 as of the end of August. While there still are no | -20 | |||||||||||||||||||||||||
signs of the spread of COVID-19 coming under control, | -25 | |||||||||||||||||||||||||
vaccination is | advancing | rapidly, and | many observers | -30 | ||||||||||||||||||||||
expect further | increases | in private | consumption | to | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | ||||||||||||
accompany the | progress | of vaccination, leading to | an | |||||||||||||||||||||||
2019 | 2020 | 2021 | ||||||||||||||||||||||||
economic recovery in autumn and beyond. | ||||||||||||||||||||||||||
Source: The Cabinet office | ||||||||||||||||||||||||||
【J-REIT Market】 |
The TSE REIT Index continues to rise amid a bearish stock market
The TSE REIT Index's performance in April-June 2021 was up 6.8%, rising for the 5th consecutive quarter. TOPIX was down 0.8% during the same period, while the J-REIT market rose against the stock market. However, while TOPIX had set a new high surpassing even its pre-COVID-19 high at
the end of 2020, the TSE REIT Index has not yet reached | 【Fig.2】TSE REIT Index, TOPIX、JGB 10 Yield | ||||||||
its pre-pandemic level, as its recovery appears to be | 0.2 (%) | 2,300 | |||||||
slower. In addition, the J-REIT continues to outperform | |||||||||
the stock market, which has been somewhat bearish | |||||||||
since July. | 2,100 | ||||||||
Viewed by asset type, the favorable conditions of retail | |||||||||
REITs are pronounced, as office REITs were up 5.8%, | 0.0 | 1,900 | |||||||
residential REITs 4.0%, retail REITs 10.5%, and | |||||||||
logistics REITs 6.2% (calculated by Kenedix based on | 1,700 | ||||||||
the SMTRI J-REIT Index® from the Sumitomo Mitsui | |||||||||
Trust Research Institute). While retail REITs, like hotel | |||||||||
REITs, declined dramatically in spring 2020 due to | -0.2 | 1,500 | |||||||
concerns about the impact of COVID-19, their | |||||||||
subsequent resilience has been strong, exceeding pre- | |||||||||
pandemic highs. Logistics REITs, for which the decline | JGB 10 Yield (LHS) | 1,300 | |||||||
had been limited, have set new highs since summer 2020, | |||||||||
TSEREIT Index(RHS) | |||||||||
while residential REITs also finally reached new highs | |||||||||
-0.4 | TOPIX (RHS) | 1,100 | |||||||
since last year at the end of June 2021. At the same time, | |||||||||
'19/1 | '19/7 | '20/1 | '20/7 | '21/1 | '21/7 |
office REITs remain at levels below last year's highs.
Source: Bloomberg, Kenedix
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KENEDIXケネディクス不JAPAN動産マREALーケットESTATEレポート 2021Q2MARKET REPORT 3Q2021
Undervaluation is weakening
A look at dividend yields based on the TSE REIT Index shows a decrease to roughly 3.4% at the end of June, followed by continued decreases since July as well, reaching 3.34% in August-below the 2019 low of 3.36%. Over this period, the yield on 10-year JGBs fell from the 0.1% level in early April to the 0.05% level at the end of June, before falling to a level around 0.02% in August, as the yield spread fell from 3.54% at the end of March to the 3.3% level in July. The NAV ratio at the end of June stood at 1.18 times, up from 1.12 times at the end of March and approaching its level of 1.2 times at the end of 2019. Probably it could be said that undervaluation is weakening in the J-REIT market as a whole.
The amount of public offerings (POs) for J-REITs in April-June 2021 was up 50% YoY to JPY71.9 billion (based on payment dates). Despite a major increase from the previous year, this is due to the fact that the quarter April-June 2020 was one in which social and economic activities were greatly restricted under the first state of emergency, and by no means can POs be described as lively at this time. However, the number of POs, at 6, is not an extremely low one. It would appear that the low amount was due to no large-scale POs.
【Fig.3】Price Performance by Asset Type
140
120
100
80 | |
60 | Office |
Residential | |
Retail | |
40 | Logistics |
1/20 3/20 5/20 7/20 9/20 11/20 1/21 3/21 5/21
Source: SMTRI J-REIT Index® made by Sumitomo Mitsui Trust Research Institute, Kenedix
【Fig.4】Amount of Public Offering
1.4(JPY in trillion)
Q4
1.2 | Q3 | |
Q2
1.0
Q1
0.8
0.6
0.4
0.2
0.0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: The Association Real Estate Securitization, Kenedix
【Real Estate Investment Market】
The amount of commercial property transactions in April-June 2021 was down YoY due to a decrease in large-scale transactions
According to CBRE, the amount of investment in commercial real estate in April-June 2021 was down
【Fig.5】Major Transaction Volume by Investor Type
37% YoY to JPY512 billion. Also, according to CBRE, the main cause of this decrease was a rebound from scattered large-scale transactions exceeding JPY50 billion during the same period of last year, centered on transactions involving overseas investors. The amount of investment by overseas investors is down substantially by 66% over the same period. However, the third state of emergency is having no apparent impact, it seems that there are bullish transactions in terms of price. According to the "Japan Cap Rate Survey," which CBRE surveys quarterly, the expected yields of Logistics facilities and Retail facilities have declined from the previous quarter, and appetite for investment appears to remain healthy. Since several operating companies have made clear their plans to sell large-scale properties,
(JPY in billion) 6,000
5,000
4,000
3,000
2,000
1,000
Domestic (J-REITs) Domestic (Others) Overseas
for example Dentsu Group plans to sell the head office building, most observers expect the amount of transactions to increase in the second half of 2021.
- | |||||||||||||||||
05 | 06 | 07 | 08 | 09 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | Q2 Q2 | |
Source: CBRE | "Investment Market | View", Kenedix | 20 21 |
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KENEDIX JAPAN REAL ESTATE MARKET REPORT 3Q2021 ケネディクス不動産マーケットレポート 2021Q2
【Fig.6】Significant Deals
Propety Name | Type | Buyer | Prefecture | Value (JPY in bn) | Date |
LOGIPORT Osaka Bay | Logistics | LaSalle LOGIPORT REIT | Osaka | 40.0 | Apr-21 |
Head Office of Hewlett Packard Japan | Office | Mapletree North Asia Commercial Trust | Tokyo | 38.8 | May-21 |
Kamiyacho Trust Tower | Office | SMFL MIRAI Partners | Tokyo | 32.5 | Jul-21 |
GLP Zama | Logistics | GLP J-REIT | Kanagawa | 29.7 | Jun-21 |
Ichikawa Distribution Centre | Office | M&G Real Estate Asia | Chiba | 23.7 | May-21 |
Sumitomo Corp. Shinsaibashi Bldg. | Retail | Deka Immobilien Investment | Osaka | - | Apr-21 |
Ichigaya Square Bldg. | Office | Japan Metropolitan Fund | Tokyo | 20.9 | Apr-21 |
IIF Shonan Health Innovation Park | Other | Industrial & Infrastructure Fund | Kanagawa | 15.4 | Jul-21 |
Hamamatsu Plaza | Land | Tokaido REIT | Shizuoka | 12.0 | Jun-21 |
Tokyu Plaza Akasaka | Hotel | SPC of Tokyu Land | Tokyo | 11.8 | May-21 |
Kitera Town Chofu | Retail | Kenedix Retail REIT | Tokyo | 10.5 | Apr-21 |
Source: Materials published by each company, Kenedix
【Office Market】
The vacancy rate in central Tokyo rises to the 6% level
The vacancy rate in Tokyo business districts (the 5 central wards) announced by Miki Shoji stood at 6.19% at the end of June 2021, up 0.77%pt from the end of March 2021. This is the first time in about 7 years the rate has reached the 6% level since August 2014. Over this period, vacant floor space increased by 62 thousand tsubo to 487 thousand tsubo. It was up 73 thousand tsubo in January-March. While the pace of the increase is slowing, vacant floor space remains at a high level and continues to increase. Average asking rent in June 2021 was down 7.5% YoY to JPY21,160 (per month/tsubo) for the 7th consecutive month, as the pace of the decrease in rents appears to be accelerating.
Viewed by ward, the vacant floor space in Minato Ward grew by 19 thousand tsubo and the vacancy rate rose by 0.75%pt to 8.05%, while the vacant floor space in Chiyoda Ward grew by 16 thousand tsubo and the vacancy rate rose by 0.66%pt to 4.51%, as both of these wards recorded increases of more than 10 thousand tsubo in vacant floor space. This is surmised to reflect the fact that these wards, as office districts that have high concentrations of large-scale offices and more than 2 million tsubo in leased office space, are highly susceptible to the influence of major firms' office strategies. While vacancy rates rose in Chuo, Shinjuku, and Shibuya wards as well over the 3 months of the quarter April-June, in the 2-month period of June-July vacant floor space in Shinjuku Ward decreased by 2,790 tsubo. While this represents only a small movement, future trends should be observed closely.
Office relocation activities by tenant firms appear increasingly lively
As the COVID-19 pandemic lengthens, office relocation by tenant firms appears to be growing increasingly lively. It would appear that one cause of this trend is the greater choices available as vacant floor space increases. Prior to COVID-19, conditions in the Tokyo office market were tight, and it was not easy for companies to secure their desired offices. In addition, many companies have reconsidered the assumptions of their office strategies based on their experiences with COVID-19. For example, the Internet-related firm DeNA Co., Ltd. has announced plans to relocate its head office, which had been
【Fig.7】Office Vacancy Rate in Tokyo Central 5
d
14
Chiyoda | |
12 | Chuo |
Minato | |
10 | Shinjuku |
Sibuya | |
8 |
6
4
2
0
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 Source: Miki Shoji, Kenedix
【Fig.8】Increase /Decrease in Vacant Area
(thousand tsubo) 150
Existing building
Newly-built building
100
50
0
-50
-100
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Miki Shoji, Kenedix
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KENEDIX JAPAN REAL ESTATE MARKET REPORT 3Q2021 ケネディクス不動産マーケットレポート 2021Q2
located in Shibuya Hikarie, to WeWork Shibuya Scramble Square and open a new office in Yokohama, as it reorganizes its office facilities around a structure centered on Shibuya and Yokohama. HP Japan Inc. has announced the relocation of its head office from Koto Ward to Shinagawa Season Terrace in Minato Ward. It intends to continue remote working even after the COVID-19 pandemic has ended, and appears to be reducing its leased floor space by about one-half. Aqurahome Co., Ltd., a builder of wooden homes to order, has announced plans to relocate its head office from Shinjuku to Saitama City in 2023. It claims that this will enable it to secure 8 times the floor area at roughly the same cost, and apparently it plans to build facilities including a showroom and demonstration spaces as well. Thanks to the spread of remote working, corporate office strategies seems to be more flexible than pre-Covid 19. In the future, it is expected that the number of offices with highly diversity in terms of location and function will increase.
Vacancy rates in provincial cities have not risen to the same extent as in Tokyo
A look at vacancy rates in major provincial cities as of the end of June 2021 shows increases from the end of March of 0.33%pt in Osaka (to 4.24%), 0.14%pt in Nagoya (4.15%), 0.38%pt in Fukuoka (4.4%), 0.27%pt in Sapporo (2.99%), and 0.41% in Yokohama (3.99%). While these vacancy rates show an increasing trend, they still remain below the 5% level, as these cities show no signs of the rapid increases in vacant floor space seen in Tokyo. The increases in vacancy rates were limited in Sapporo and Yokohama in particular. While there have been lease cancellations due to consolidation and closure resulting from the COVID-19 pandemic, it appears that there are not a few movements to make contracts in concluding leases. In Yokohama, vacant floor space in the Kannai area decreased over this period, as its vacancy rate fell by 0.55%pt from the end of March to return to the 4% level at 4.83%. There is a possibility that changes in corporate office strategies could lead to further changes in areas chosen by tenants as well.
【Fig.9】Office Vacancy Rate in Major City
16 (%)
Tokyo | |
14 | Osaka |
Nagoya | |
12 | Fukuoka |
Sapporo | |
10 | Yokohama |
8
6
4
2
0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source: Miki Shoji, Kenedix
【Residential Market】
Signs that the occupancy rate in rental residences is bottoming out
A look at the occupancy rate for rental residences in the greater Tokyo area held by the major residential J-REITs as of the end of June 2021 shows a decrease of 0.95%pt from the end of March 2021, to 95.67%. March is the month in which the occupancy rate tends to be at its highest for the year, and although the decrease in the occupancy rate this quarter was due to seasonal factors, it still was down 0.3%pt from March last year. However, the pace of the decrease is slowing, and it appears that the worsening trend in the occupancy rate may be slowing down. While the occupancy rate for rental residences in the greater Tokyo area has remained down YoY since March 2020, it still remains above the 95% level, at roughly the same level it was at around 2014. While in the last market downturn in 2009 the occupancy rate fell temporarily to the 92% level, at
【Fig.10】Residential Occupancy Ratio | 【Fig.11】Rental Apartment Rent Index | ||||
98 | (%) | in Tokyo Metropolitan Area | (%)3 | 125 | in Tokyo 23 Wards |
70㎡ and more (large family) | |||||
97 | 2 | 120 | 50~70㎡(family) | ||
115 | 30~50㎡(couple) | ||||
96 | 1 | 30㎡ or less(single) | |||
95 | 0 | 110 | |||
94 | -1 | 105 | |||
93 | Occupancy Rates (LHS) | -2 | 100 | ||
92 | YoY % change (RHS) | -3 | 95 | ||
1/'09 4/'10 7/'1110/'121/'14 4/'15 7/'1610/'171/'19 4/'20 7/'21 | 1/'15 | 12/'15 11/'16 10/'17 9/'18 8/'19 7/'20 6/'21 | |||
Source: Monthly data announced by major residential J-REITs, Kenedix | Source: At home Co, Ltd. |
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KENEDIX JAPAN REAL ESTATE MARKET REPORT 3Q2021 ケネディクス不動産マーケットレポート 2021Q2
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Kenedix Inc. published this content on 28 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 September 2021 05:51:06 UTC.