KENEDIX Real Estate Market Report 1Q 2022
Contents
Macroeconomic
Conditions ………………… 2
J-REIT Market ………………… 3
Real Estate
Investment Market ………… 4
Office Market ………………… 5
Residential Market …………… 6
Retail Facility Market ………… 7
Logistics Facility Market………8
Hotel Market ………………… 9
Summary
The real GDP growth rate in October-December 2021 showed positive growth for the first time in 2 quarters
The real GDP growth rate in October-December 2021 was up 5.4% QoQ at an annualized rate (seasonally adjusted), showing positive growth for the first time in 2 quarters. Both personal consumption and corporate capital investment recovered. However, personal consumption appears to be slowing again in January-March 2022, due to a quasi-state of emergency enacted in response to the spread of the Omicron variant in Japan. In addition, against a backdrop of rising prices of crude oil and other resources inflation appears to be having an impact on personal consumption and corporate performance, and expectations that economic growth will slow in the quarter January-March 2022 are strengthening.
The downward trend in the J-REIT market has strengthened since the start of 2022
The TSE REIT Index's performance in October-December 2021 was largely unchanged at -0.3%. However, at the end of February the TSE REIT Index was down 9.1% from the end of 2021. Since the start of 2022, as long-term interest rates rise in the US due to the global inflationary trend and anticipation of an interest-rate hike by the FRB, the upward trend in yields on 10-year JGBs has strengthened as well, rising to 0.192% at the end of February. The market for REITs, which tend to be sold off when interest rates rise, appears to have taken a bearish turn. As interest rates rise, close attention should be paid to the J-REIT market.
The office vacancy rate has fallen for the first time in 7 quarters
According to Miki Shoji, the vacancy rate in Tokyo business districts (the 5 central wards) stood at 6.33% at the end of December 2021, down 0.1%pt from the end of September 2021. This is the first decrease in the vacancy rate on a quarterly basis in 7 quarters, since January-March 2020. While it appears that lease terminations due to the spread of teleworking continue, there also appears to be a rising trend in demand for high-spec offices, as the meaning of office space is reconsidered. Additionally, lease terminations have leveled off recently due to the economic downturn, and it would appear that the worsening trend in the vacancy rate has come to a stop.
Signs that the occupancy rate on rental residences in the greater Tokyo area is bottoming out
The occupancy rate on rental residences in the greater Tokyo area held by the major residential J-REITs stood at 96.0% at the end of December 2021, up 0.58%pt YoY, rising YoY for 4 consecutive months. Compared to September, asking rent in December was down 1.2% on residences of 30 sqm or less, down 0.7% on those of 30-50 sqm, up 0.8% on those of 50-70 sqm, and up 2.8% on those of more than 70 sqm (calculated by Kenedix based on the trends in asking rents for apartments published by At Home Co., Ltd.), as a polarizing trend was apparent by unit type. The effects of the trend toward preferring more spacious residences along with the rapid growth in teleworking since COVID-19 have become more pronounced. While the population of the 23 wards of Tokyo showed a net outflow of 12,034 in October-December 2021, the trend in January 2022 was a net inflow of 60 people- the first net inflow for January in 2 years. Although future conditions should be observed closely, it would appear that the outflow of population from the 23 wards of Tokyo is coming to a stop.
【Macroeconomic Conditions】
The real GDP growth rate in October-December 2021 showed positive growth for the first time in 2 quarters
The real GDP growth rate in October-December 2021 was up 5.4% QoQ at an annualized rate (seasonally adjusted), showing positive growth for the first time in 2 quarters. It appears that personal consumption recovered, centered on food service, travel, and entertainment, as a result of the decrease in new COVID-19 cases and the end of the 4th state of emergency on September 30. Corporate capital investment also recovered, thanks to the effects of the easing parts shortage. At the same time, private residential investment was down 3.7% over the same period, falling for the second consecutive quarter. Since exports increased centered on automotive-related materials and imports decreased, the contribution of net exports remained positive, rising by 0.2% QoQ.
In January 2022, the quasi-state of emergency was implemented in 34 prefectures at a maximum, as the Omicron variant spread in Japan. While responses varied by prefecture, most implemented measures such as asking restaurants and bars to limit their business hours. In addition, inflows of people to commercial districts have once again started to decrease, and personal consumption appears likely to decrease again
in January-March 2022. Also, attention probably should be paid to decreases in household purchasing power due to inflation, against a backdrop of rising prices of oil and other raw materials. While the consumer price index (CPI) was up just 0.5% YoY in January 2022, the corporate goods price index was up 9.3% YoY in February, showing a high level of growth since December 1980, and there are concerns about future spillover effects on consumer prices. Additionally, with regard to private non-residential investment, while it appears business improvements can be expected in automotive and other manufacturing industries as parts shortages are resolved, falling profit margins due to high resource prices remains a cause for concern. As the future outlook becomes increasingly uncertain due to Russia's invasion of Ukraine in addition to the spread of the Omicron variant, the view that the economic growth rate will slow in January-March 2022 is becoming stronger.
【Fig.1】Real GDP Growth Rate and Contribution to Change
(%)
25
-10
-15
-20 -25 -30
20
15
10
-5
5
0
10
-2
-4
-6 1/10
8
6
4
2
0
(%)
4/11
7/12 10/13 1/15
4/16
7/17 10/18 1/20
4/21
-50 1/21
10
0
-10
-20
-30
-40
2/21
4/21
5/21
6/21
8/21
9/21 11/21 12/21 2/22
Note: The baseline day is the median value from the 5-week period
Jan.- Feb.6 2020.
Source: Google LLC "Google COVID-19 Community Mobility Reports".
https://www.google.com/covid19/mobility/
【J-REIT Market】
Although the TSE REIT Index remained largely unchanged in October-December 2021, a downward trend has been strengthening since the start of 2022
Performance of the TSE REIT Index in October-December 2021 was largely unchanged, falling by just 0.3%. Although over this period J-REITs outperformed TOPIX, which was down 1.9% over the same period, this does not mean that J-REITs showed particularly strong performance. This 【Fig.4】TSE REIT Index, TOPIX、JGB 10 Yield
appears to be a result of weaning downward pressure on the J-REIT market from the yield on 10-year JGBs, which had shown a strengthening upward trend in September but has been falling since October. However, as long-term interest rates in the US have risen due to the global inflationary trend and anticipation of an interest-rate hike by the FRB since the start of 2022, the upward trend in yields on 10-year JGBs has strengthened as well, rising to 0.192% at the end of February. REITs tend to fall as interest rates rise, and as of the end of February the TSE REIT Index had fallen 9.1% from the end of 2021, to 1,877.38pt. TOPIX fell by 5.3% during this period. Although the decrease in J-REITs was larger, it was not J-REITs alone that decreased since US stock prices fell by 8.2% (S&P 500) while US REITs fell by 11.5% during the period.
(%)
0.3
-0.1
-0.2'20/1 '20/4 '20/7 '20/10
0.2
0.1
0.0
'21/1
'21/4
'21/7
'21/10
'22/1
Only office REITs recorded negative performance in October-December 2021
2,300
2,100
1,900
1,700
1,500
1,300
1,100
Viewed by asset type, the performance of REITs investing mainly in each asset type showed a decrease of 5.1% in the office REITs and increases of 4.1% in the residential REITs, 3.3% in the retail REITs, and 8.9% in the logistics REITs, as only office REITs were down (calculated by Kenedix based on the SMTRI J-REIT Index® from the Sumitomo Mitsui Trust Research Institute). It appears that while inflows of people to commercial districts rose in the first half of the period, thanks to the lifting of the state of emergency, the residential and logistics sectors were preferred toward the end of the year from a relatively defensive posture, reflecting the rise in Omicron variant cases and concerns about inflation.
Fluctuation in unit prices was low in October-December 2021, and dividend yields at the end of December were largely unchanged from the end of September, at 3.54%. Although the yield spread also remained largely unchanged at 3.47%, as unit prices have fallen while yields on 10-year JGBs have risen since the start of 2022, dividend yields rose to 3.91% and the yield spread grew to 3.72% at the end of February. Although the NAV ratio stood at 1.14 times at the end of December 2021, it had fallen to 1.06 times at the end of February 2022.
【Fig.6】Amount of Public Offering by J-REIT
【Fig.5】Price Performance by Asset Type (Jan.2020=100)
140
120
100
80
60
40
(JPY in trillion) 1.4
1.2
Q4
Q3
1.0
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
1/20
4/20
7/20
10/20
1/21
4/21
7/21
10/21
Source︓SMTRI J-REIT Index® made by Sumitomo Mitsui Trust
1/22
The amount of POs in 2021 was down 24% YoY
The number of public offerings (POs) by J-REITs rose to 8 in October- December, while the total amount of funds raised, JPY110.4 billion, was down 58% YoY (based on payment dates). Although down YoY, since the amount of funds raised was more than JPY100 billion the level cannot be said to be extremely low. The main cause of this decrease probably was the fact that multiple large-scale public offerings had been conducted in the same period of the previous year. The cumulative figure for 2021 was just JPY478.7 billion, down 24.2% from 2020. While NAV ratios based on the TSE REIT Index largely remained in excess of 1.0 times, the ratio fell below 1.0 times for some REITs, so that it cannot be said that the fund-raising environment was favorable for all REITs.
At the same time, the amount of property acquisitions by J-REITs in 2021 was up 14.6% YoY to JPY1.59 trillion, exceeding that of the previous year. Probably the main reason for higher growth in the amount of property acquisitions than in that of POs was due to increase in replacement of properties. The amount of property dispositions in 2021 was JPY466.9 billion, or 1.6 times the 2020 level. There were many examples of replacement of properties by J-REITs, such as the sale by Nippon Building Fund Inc. of 4 properties, including Nakanosakaue Sunbright Twin, for JPY75.4 billion and its acquisition of IIDABASHI GRAND BLOOM for JPY77.6 billion. As economic prospects remain uncertain, the trend toward seeking to increase NOI and improve portfolios through replacement of properties appears likely to continue in asset classes for which internal growth strategies are difficult.
【Real Estate Investment Market】
The amount of commercial property transactions remained largely unchanged QoQ in October-December 2021
According to CBRE, the amount of investment in commercial real estate properties in October-December 2021 was down 14% YoY to JPY1.181 trillion. While this figure is down YoY due to the concentration of multiple large-scale deals in the same quarter of the previous year, it is largely unchanged from July-September 2021. A look at the figures by investor type shows YoY decreases of 32% for J-REITs and 37% for non-J-REIT domestic investors and an increase of 40% for overseas investors. It would appear that as the amount of POs by J-REITs decreased by 58.9% YoY, the amount of investment is also failing to grow. The appetite for investment appears to remain strong among overseas investors, some of whom acquired multiple properties as a portfolio in bulk. On a full-year basis in 2021, the amount of investment was down 6% YoY to JPY3.84 trillion. While down YoY, this level is higher than those in 2018 and 2019, as favorable conditions probably could be said to appear to continue in the commercial real estate investment market.
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Q4 Q4
【Fig.8】Significant Deals
Propery Name | Asset Type | Buyer | Prefecture | Value (JPY in bn) | TFA (sqm) | Date |
Nippon Express former head office Bldg. | Office | MinebeaMitsumi | Tokyo | 73.2 | 53,079 | Dec-21 |
Nakanoshima Mitsui Bldg. | Office | Nippon Building Fund | Osaka | 44.0 | 67,672 | Jan-22 |
Akasaka Star Gate Plaza | Office | Japan Metropolitan Fund | Tokyo | 42.4 | 17,494 | Nov-21 |
Kuwana Logistics Centre | Logistics | Mapletree Logistics Trust/Mapletree Investment Japan | Mie | 35.0 | - | Jan-22 |
Prologis Park Inagawa 2 | Logistics | Nippon Prologis REIT | Hyogo | 33.0 | 137,333 | Nov-21 |
3 Data Center Bldgs | Data Center | Digital Edge | Tokyo and Others | 24.0 | - | Dec-21 |
Setagaya Business Square | Office | GMO Internet | Tokyo | 22.8 | 51,906 | Nov-21 |
Tokyo Opera City Bldg. | Office | NTT UD REIT | Tokyo | 22.0 | - | Oct-21 |
Akasaka Garden City Bldg. | Office | Sekisui House REIT | Tokyo | 21.3 | - | Oct-21 |
DPL Kawasaki Yako | Logistics | SPC of Daiwa House Logistics Trust | Kanagawa | 18.8 | 94,799 | Nov-21 |
Aoyama Oval Bldg. | Office | TOKYU REIT | Tokyo | 18.6 | 9,856 | Nov-21 |
MFLP Yachiyo Katsutatdai | Logistics | Mitsui Fudosan Logistics Park | Chiba | 18.0 | 74,624 | Jan-22 |
JPR Umeda Loft Bldg. | Retail | MBS MEDIA Holdings | Osaka | 17.5 | 17,898 | Dec-21 |
Landport Ome Ⅲ | Logistics | Nomura Real Estate Master Fund | Tokyo | 17.0 | - | Oct-21 |
Prologis Park Ebina 2 | Logistics | Nippon Prologis REIT | Kanagawa | 15.2 | 34,487 | Nov-21 |
Source: Companies publication documents, News reports, Kenedix 4
Real estate investorsʼ expected yields are down for numerous assets and regions
According to CBRE's quarterly survey of investors regarding expected yields, in October-December 2021 investors' expected yields (average value) fell on major assets other than Tokyo office buildings, including Tokyo family-type apartments and Nagoya office buildings, indicating a strong appetite for investment among investors. Expected yields continue to fall compared to December 2019, before the COVID-19 pandemic, on logistics facilities (waterfront areas in the greater Tokyo area) and Tokyo family-type apartments. On the other hand, for facilities such as hotels (Tokyo central 5 wards) and retail facilities (Tokyo/Ginza) expected yields remain unchanged recently, despite temporary increases. It would appear that the forward-looking appetite for investment in hotels and retail facilities is recovering.
【Office Market】
8.0
(%)
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
Office/OtemachiIndustrial /Tokyo bay area
07/7 08/7 09/7 10/7 11/7 12/7 13/7 14/7 15/7 16/7 17/7 18/7 19/7 20/7 21/7
The vacancy rate in central Tokyo falls for the first time in 7 quarters
The vacancy rate in Tokyo business districts (the 5 central wards) announced by Miki Shoji stood at 6.33% at the end of December 2021, down 0.1%pt from the end of September 2021. This is the first decrease in the vacancy rate on a quarterly basis in 7 quarters, since January-March 2020. During this period, leasable floor areas grew by 473 tsubo while vacant floor area decreased by 7,655 tsubo to 497 thousand tsubo. On a monthly basis, the vacancy rate has continued to fall since November 2021, reaching 6.26% at the end of January 2022, down 0.07%pt from the previous month. It appears that tenant firms are proceeding with revisions to their office strategies in light of changing work styles, as they prepare for the post-COVID-19 period. It appears that although lease terminations resulting from increased use of teleworking continue, some companies are expanding their spaces for purposes to encourage web conferencing and other communication. There also appears to be a rising trend in demand for high-spec offices, as the spread of teleworking has led to reconsideration of the meaning of office space. At the same time, the stock of vacancies is up from before COVID-19, and tenant firms have a greater range of choices. This also appears to be an opportunity for tenants to secure higher-quality office spaces under new office strategies. Additionally, lease terminations seem to have leveled off recently due to the economic downturn, and it would appear that the worsening trend in the vacancy rate has come to a stop.
(%) 10 9 8 7 6 5 4 3 2 1 0
25
(JPY in thousand)
20
15
10
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: Miki Shoji, Kenedix
【Fig.11】Changes in Vacancy Area in Tokyo Central 5 Ward
(thousand tsubo)
150
100
50
0
-50
-100
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
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Kenedix Inc. published this content on 07 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 April 2022 07:22:05 UTC.