the japanese real estate investment market 2018€¦ · the japanese real estate investment market...

The Japanese Real Estate Investment Market 2018

November 2018

Otemachi Financial City Grand Cube,1-9-2 Otemachi, Chiyoda-ku, Tokyo 100-0004, Japan

Copyright（C） Nomura Research Institute, Ltd. All rights reserved.

Macro fundamentals of Japan

Overview of real estate investment market in Japan

Population movements in Japan

Residential market

Retail property market

Hotel market

Logistics property market

Real estate investment products

Office market

Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 2


The decline in number of households was not confirmed by the national census in 2015; hence, the rise is expected to continue. The population of people 65 years or older is expected to level off in 2025 and head downwards from 2040.

In 2015, depopulation was observed for the first time in Japan, based on the national census.

Population and households in Japan

Forecast →← ActualPopulation(thousand)

Households(thousand)

Source: National Institution of Population and Social Security Research and MIC “Population Census”Note 1: Population forecast is based on the data of population census in 2015.Note 2: The solid line shows the actual households based on the population census and dotted line shows the predicted households based on the population census in 2010.Note 3: Median-fertility (median-mortality) projection is used in population and household forecast.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065

65-

15-64

0-14

households



Compared to the forecast on number of households based on the 2010 National Census, the peak will shift from 2019 to 2023 and number of households will increase by 2.25 million in 2030 (National Institute of Population and Social Security Research)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

5,500

4,950

5,350

0

5,100

5,000

5,050

5,150

5,200

5,300

5,400

5,250

5,450

5,333

5,419

5,290

5,307

5,348

5,123

+225(4.4%)

+43(0.8%)

Forecasted and actual number of households

Forecast based on 2010 National Census(Estimated for 2013)

Forecast based on 2015 National Census(Estimated for 2018)

Households(thousand)

Source: National Institution of Population and Social Security Research and MIC “Population Census”



Single-person households have been holding the major share since 2010 and cross 20 million after 2030. Couple and child households will continue to decrease, whereas couple-only households will continue to increase.

0

500

1,000

1,500

2,000

2,500

1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Single person(2018 estimate)

Single person(2013 estimate)

Others(2018 estimate)

Couple only(2018 estimate)Couple and child(2018 estimate)

Couple only(2013 estimate)Couple and child(2013 estimate)Others(2013 estimate)

Forecasted and actual number of households (by family type)

Households (thousand)




The population of foreigners is drastically increasing in Greater Tokyo and slightly increasing in the Aichi prefectures and prefectures with regional core cities.

The population is increasing only in Greater Tokyo, Aichi prefecture, Fukuoka prefecture and Okinawa prefecture. The same tendency can be seen in the increase/decrease of foreigners population.

Increase/decrease in population of each prefecture from FY 2010 to 2015.

50

-150

-100

-50

200

300

250

150

400

350

0

100

Hokk

aido

Aomo

riIw

ate

Ehim

eKo

uchi

Akita

Miya

gi

Fuku

oka

Naga

saki

Fuku

shim

aYa

maga

ta

Kuma

moto

Oita

Toch

igiIba

raki

Miya

zaki

Kago

shim

a

Saita

maGu

nma

Okina

wa

Toky

oCh

iba

Niiga

taKa

naga

wa

Ishika

waTo

yama

Osak

aHy

ogo

Yama

nash

iFu

kui

Nara

Wak

ayam

a

Gifu

Naga

no

Totto

riSh

iman

e

Aich

iSh

izuok

a

Okay

ama

Hiro

shim

a

ShigaMi

e

Yama

guch

iTo

kush

ima

Kyoto

Kaga

wa

Saga

Increase/decrease in population of foreigners

Increase/decrease in population of Japanese

Population(thousand)



Population movements in Greater Tokyo

It is anticipated that the population in the Greater Tokyo will continue to rise till 2020. On the other hand, the number of households is projected to increase until 2025.

The population and number of households in the Greater Tokyo will continue to rise together, and it is expected that they would reach their peak in 2020 and 2025 respectively.

Population of Greater Tokyo Number of households in Greater Tokyo

Source: National Institution of Population and Social Security Research and MIC “Population Census”Note 1: Median-fertility (median-mortality) projection is used for population forecast. Note 2: Forecast of population and the number of households are based on the “Population Census” in 2010. However, the data of 2015 is based on the population census in 2015.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Tokyo Kanagawa Saitama Chiba


Households(thousand)Forecast →← Actual Forecast →← Actual

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Tokyo Kanagawa Saitama Chiba



Although there is no change in the forecast and actual population of the elderly in 2013, young and working age population is rising.

Comparison on age-wise population forecast of the Tokyo area

Households (thousand)


0

5,000

30,000

10,000

15,000

20,000

25,000

2010 2015 2020 2025 2030 2035 2040 2045

0-14 (2018)

Above 65 (2018)15-64 (2018)

15-64 (2013)0-14 (2013)

Above 65 (2013)



The population of Greater Tokyo area is rising, but a little less than 50% of the increased population is accounted to foreigners. In the future, it seems that the population growth of Greater Tokyo will be supported by the foreigners.

Incremental population growth of foreign and Japanese residents in Greater Tokyo

Sources: “Statistics on Foreign national residents” compiled by Ministry of Justice and “Basic resident registers” compiled by Ministry of Internal Affairs and CommunicationsNote 1: The population of foreign national is based on the Statistics on Foreign national residents till 2011. In 2012 and later, population is based on the Basic resident registration.Note 2: The statistics of Foreign nationals used the data as of the end of December. Till 2012, the Basic resident registration used the data as of March 31 of the year. Since 2013, it uses the data of population as on January 1 of the following year.

The foreign population dipped temporarily due to the global financial crisis and aftermath of the 2011 earthquake, but has be en rising in line with economic recovery.

Foreigners accounted for 38.6% of the population growth in this area.

Population (thousand)

40

-40

260

140

60

-20

120

0

160

220

20

180

100

200

80

240

20152002 2017

172

2007

23

2009

252

2003

173

1997 20161998 1999 2000

82(52.2%)

2001

207

59(35.0%)

2004

158

185

2005

171

40(29.8%)

2006 2008

241

2010 2011 2012

17(16.6%)

84(83.4%)

2013

94(70.2%)

75(47.8%)

109(65.0%)

72(41.8%)

100(58.2%)

189

101 100

19

2014

233

213211

250240

134

168

191

JapaneseForeigners (by “Jumin-Kihon-Daicho”)foreigners (by “Zairyu-Gaikokujin-Tokei”)



The number of net inflows in 2017 recovered to the level of 2005 or 2006. The inflow is projected to continue.

Population inflow to Tokyo has been decreasing continuously since 2016, whereas population in the Greater Tokyo area is increasing owing to population inflow to three peripheral prefectures in 2017.

Net inflows of people to Greater Tokyo

Source: MIC “Jyumin Kihon Daichou Jinkou Idou Houkoku”


Net increaseNet decrease

140

100

120

-80

40

-60

20

220

-40

260

160

180

200

240

-20

0

60

80

2007

1991

1990

1999

2012

1993

2008

116.8

1992

65.7

1994

2017

2010

1995

1996

1997

1998

2000

2016

2001

2002

-5.0

74.3

2003

-16.9

76.0

2004

76.7

2005

2006

2009

84.2

2011

107.9

2013

119.4

2014

2015

73.1(58.3%)

125.3

62.4

155.2

1.2

43.3

18.339.7

88.0100.9

114.7132.0

95.0

117.5

92.8

62.867.2

96.5

116.0127.6 125.5

151.7

TokyoKanagawaChibaSaitama



However, the number of single-person households is expected to peak out in 2030. Households of couple with children will reduce from 2020, while the households of only couple or children with single parent will slightly

increase.

Amongst the number of households in Greater Tokyo, the tendency of single-person household to occupy higher ratio is expected to continue in the future.

Number of households by family composition in Greater TokyoHouseholds(thousand)

Source: National Institution of Population and Social Security Research and MIC “Population Census”Note 1: The solid line shows the actual value based on the population census. The dotted line shows the predicted value based on the data of population census in 2010.Note 2: Median-fertility (median-mortality) projection is used for household forecast.

Forecast →← Actual

1995 2000 2005 2010 2015 2020 2025 2030 2035

7,000

5,000

6,000

4,000

0

1,000

2,000

3,000

One-personCouple-onlyCouple-and-child(ren)One-parent and child(ren)Other


Population movements in central Tokyo

In 2045, only Adachi is expected to have a decrease in population by more than 10% compared to 2015. It is expected that population will continue to rise over the next 30 years in 18 wards excluding Nakano, Kita, Edogawa, Kats ushika and

Adachi.

Out of the 8 wards among the 23 wards of Tokyo, the population is projected to rise by more than 10% over the next 30 years

Population growth trends in the 23 wards of Tokyo (assuming the population of each ward is 100 in 2010)

Source: National Institution of Population and Social Security Research and MIC “Population Census”Note 1: Forecast of population is based on the data of “Population Census” in 2015. Median-fertility (median-mortality) projection is used for population forecast.

>110

105-110

100-105

100

90-100

<90

← Actual Forecast →Ward 2010 2015 2020 2025 2030 2035 2040 2045Chuo 87.0 100.0 110.4 118.7 125.2 129.9 133.1 134.9 Minato 84.3 100.0 111.0 119.4 125.8 130.2 132.9 134.4 Chiyoda 80.7 100.0 111.3 120.0 126.2 130.0 132.1 132.8 Koto 92.5 100.0 105.6 109.8 112.9 115.0 116.2 116.7 Taito 88.8 100.0 104.6 108.6 111.9 114.3 115.8 116.4 Shinagawa 94.4 100.0 104.5 108.2 110.9 112.8 113.8 114.2 Bunkyo 94.0 100.0 105.1 108.8 111.3 112.9 113.5 113.3 Nerima 99.2 100.0 103.8 106.5 108.4 109.8 110.3 110.1 Itabashi 95.4 100.0 103.7 106.1 107.8 108.7 109.0 108.6 Shibuya 91.1 100.0 102.6 105.1 107.0 108.2 108.6 108.3 Meguro 96.7 100.0 103.1 105.3 106.9 108.0 108.4 108.2 Arakawa 95.8 100.0 102.8 104.9 106.5 107.5 108.0 107.9 Sumida 96.6 100.0 102.0 103.7 104.8 105.4 105.6 105.4 Suginami 97.4 100.0 101.6 103.3 104.7 105.3 105.2 104.6 Ota 96.7 100.0 102.4 104.1 105.0 105.4 105.2 104.6 Shinjuku 97.8 100.0 102.0 102.9 103.3 103.2 102.5 101.3 Setagaya 97.1 100.0 101.2 101.9 102.5 102.6 102.1 101.2 Toshima 97.8 100.0 100.2 100.6 101.0 101.5 101.5 100.9 Nakano 95.9 100.0 100.2 100.1 100.1 100.2 100.0 99.2 Kita 98.4 100.0 100.7 101.0 100.9 100.4 99.7 98.6 Edogawa 99.7 100.0 99.4 98.0 96.3 94.6 92.9 91.0 Katsushika 99.9 100.0 99.1 97.8 96.2 94.5 92.8 91.0 Adachi 102.0 100.0 98.2 96.0 93.7 91.5 89.5 87.4


Population aging in central Tokyo

In 2015, the whole 23 wards of Tokyo had become super-aged society, and in 2040, all the wards will turn into a super-aged society

Population aging by ward

Source: National Institution of Population and Social Security Research and MIC “Population Census”Note 1: Forecast of population is based on the data of “Population Census” in 2015. Median-fertility (median-mortality) projection is used for population forecast.

← Actual Forecast→1990 1995 1800 2005 2010 2015 2020 2025 2030 2035 2040 2045

23 wards 11.2% 13.7% 16.4% 18.6% 20.0% 21.8% 22.1% 22.1% 22.9% 24.6% 27.0% 28.6%Nerima 9.5% 12.2% 15.4% 20.3% 19.3% 22.1% 23.9% 25.5% 27.7% 30.3% 33.0% 34.9%Suginami 11.8% 14.4% 16.8% 18.8% 23.1% 22.6% 23.6% 24.2% 25.6% 27.7% 30.6% 32.9%Setagaya 11.1% 13.4% 16.1% 17.3% 18.3% 21.5% 22.5% 23.4% 25.2% 27.6% 30.3% 32.2%Adachi 9.3% 11.9% 15.9% 19.9% 22.2% 25.1% 25.7% 25.4% 26.0% 27.7% 30.2% 31.4%Katsushika 10.6% 13.2% 16.6% 19.9% 22.0% 24.6% 25.1% 24.9% 25.7% 27.3% 29.5% 30.5%Shibuya 12.6% 15.2% 16.9% 18.5% 19.6% 20.6% 21.3% 21.7% 23.0% 25.1% 27.8% 29.9%Itabashi 10.0% 12.7% 16.3% 19.3% 21.3% 23.4% 23.9% 23.7% 24.3% 25.6% 27.9% 29.5%Nakano 12.1% 14.6% 16.3% 18.2% 19.9% 21.2% 21.9% 22.3% 23.3% 24.9% 27.1% 28.9%Taito 15.9% 18.8% 21.1% 23.1% 23.6% 23.8% 23.0% 22.0% 22.1% 23.7% 26.5% 28.6%Ota 11.6% 14.1% 16.3% 18.4% 20.4% 22.5% 22.7% 22.5% 23.1% 24.7% 26.9% 28.3%Edogawa 8.1% 9.9% 12.8% 15.4% 18.1% 20.7% 21.1% 20.9% 21.9% 23.9% 26.3% 27.3%Toshima 12.8% 15.7% 18.4% 21.1% 19.3% 20.0% 20.4% 20.5% 21.3% 22.8% 25.1% 26.9%Kita 12.7% 16.0% 19.3% 21.6% 24.0% 25.8% 25.4% 24.2% 23.7% 24.1% 25.6% 26.7%Koto 9.4% 12.2% 15.2% 17.3% 19.1% 21.3% 21.1% 20.4% 20.6% 22.2% 24.9% 26.7%Arakawa 13.7% 16.5% 18.9% 20.8% 21.9% 23.4% 22.8% 21.8% 21.7% 22.6% 24.5% 26.0%Minato 13.7% 16.3% 17.9% 17.8% 17.2% 17.6% 17.2% 17.3% 18.6% 20.8% 23.7% 26.0%Bunkyo 13.9% 16.4% 17.9% 18.3% 18.9% 19.8% 19.5% 19.3% 20.1% 21.7% 24.0% 25.8%Shinagawa 11.6% 14.5% 17.4% 18.0% 19.4% 20.9% 20.5% 19.9% 20.2% 21.6% 24.0% 25.8%Chiyoda 16.6% 20.2% 20.4% 20.2% 19.2% 18.1% 17.4% 17.2% 18.2% 20.2% 23.1% 25.3%Sumida 13.1% 15.5% 18.1% 20.2% 21.4% 22.9% 22.4% 21.3% 21.1% 22.0% 23.9% 25.2%Meguro 12.5% 14.8% 17.4% 18.6% 19.6% 20.0% 19.5% 19.1% 19.8% 21.1% 23.1% 24.7%Shinjuku 12.6% 15.3% 17.1% 18.7% 19.1% 20.1% 19.7% 19.3% 19.7% 20.9% 22.9% 24.4%Chuo 15.4% 17.6% 18.3% 16.3% 15.9% 16.1% 15.4% 15.0% 16.0% 18.1% 21.0% 23.3%

>30%

21-30%

17.5-21%

14-17.5%

7-14%

Super-aged society

Aged society

Aging society


Percentage of foreigners in central Tokyo

The percentage of foreigners in Tokyo are increasing, and there is a ward where the ratio is over 10%.

Percentage of foreigners in the 23 wards of Tokyo (top 5)

The percentage in Shinjuku (over 10%) is the highest in Tokyo, and the percentages of Toshima and Arakawa are over 8%. In the other hand, the 23 wards as a whole have foreigners as 4.2% of their total population, indicating that the situation o f each ward is quite

different.

Source: MICOn January 1 of every year

0%

2%

4%

6%

8%

10%

12%

14%

2013 2014 2015 2016 2017 2018

Toshima

Minato

23 wards

Shinjuku

Arakawa

Taito

Copyright (C) 2014 Nomura Research Institute. All rights reserved.




Residential market


Hotel market



Office market


China

Japan

India

KoreaUK

US

0

5,000

10,000

15,000

20,000

25,000

30,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

(Billion USD)


Entering the 2020s, Japan will remain at third place globally in nominal GDP, ahead of developing countries such as India.

Japan remains one of the largest economies in the world and should not be ignored as an investment target

Source: Compiled by NRI from IMF “World Economic Outlook Database (2017 Apr.)” data

Nominal GDP of major countries

Forecast →←Actual


China

India

Japan

KoreaUKUS

-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 2020 2021 2022 2023

（％）


IMF forecasts estimate Japan’s GDP growth rate at around 0.5% for the next 5 years .

Japan’s economic growth is low compared to other major economies and high growth going forward looks unlikely

Real GDP growth rate of major economies

←Actual Estimate→




Main factor is that domestic demand, including personal consumption, capital investment and housing investment is poor.

There has been a positive growth for past two years, but most recently it has turned negative.

Quarterly real GDP growth and contributions to changes (seasonally adjusted series, YoY)

Source: Compiled by NRI from Cabinet Office “SNA (National Accounts of Japan)” data

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

2010 2011 2012 2013 2014 2015 2016 2017 2018

（％）

Private Consumption

Private Investment

Public Demand

Exports

Imports

Real GDP Growth


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0（％） Core CPI BOJ's Core CPI


Inflation rate has become stagnant and prices are rising slowly.

Although the core CPI turned positive from a year earlier, Bank of Japan core CPI excluding the fresh foods and energy contin ues to decline. Most recently, it shifted to negative territory.

Sources: Compiled by NRI from Ministry of Internal Affairs and Communications “Consumer Price Index (CPI)”

Inflation targetset by BOJ

Year-on-year comparison for the same month of the consumer price index



However, growth in money supply has slowed and JGB purchases by the BOJ is showing a downward trend.

The Bank of Japan continues a large-scale qualitative and quantitative accommodating policy.

YoY change of money supply (Average balance) BOJ’s holdings of JGBs

Source: Compiled by NRI from Bank of Japan “Monetary Base” data

(Trillion Yen)

Source: Compiled by NRI from Bank of Japan “BOJ Accounts” data

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60% Monetary Base Money Stock

0

100

200

300

400

500


In continuation of the negative interest rate policy of January 2016, the Bank of Japan introduced a long-term interest rate policy on September 2016 and announced a policy to buy long-term bond that shifts the long-term interest rate to 0%.

Although the short-term interest rates are still negative, the long-term interest rates are shifting towards positive territory.

Short-term interest rate (unsecured call rate) (Each end of the month) Long-term interest rate (10y-JGB) (Each end of the month)

Source: Compiled by NRI from Bank of Japan “Short-term Money Market Rates” data Source: Compiled by NRI from MOF “JGBs Interest Rate” data




Recent yen strength reflects mainly fading perceptions of a US rate hike, a risk -off mode by investors, and a Japanese current account surplus

In the middle of 2018, the exchange rate of yen is continuously moving without any sense of direction.

Yen-dollar exchange rate (each end of the month)

Source: Compiled by NRI from IMF “Exchange Rate Data” data



Current account surplus continues to be at a high level.

Trade balance return to its basic profitable tendency and the current account surplus tends to expand.

Current account balance

Source: Compiled by NRI from MOF “Balance of Payments” data


-12

-10

-8

-6

-4

-2

0

2

4（％） Japan United Kingdom United States

0

50

100

150

200

250

300（％）

Japan US UK

Japan US UK


The government debt to GDP ratio has becoming flat in recent years due to a reduction in the primary balance deficit and rest raint of interest payments due to monetary easing as well as the increase in nominal GDP that is the denominator of the ratio.

Government debt has plateaued at high level, while a primary fiscal balance surplus is not in sight.

Government debt to GDP ratio Primary balance to GDP ratio

Estimate →←Actual Estimate →←Actual


net debt

gross debt



Tokyo continues to be the world’s largest city in terms of population and GDP.

Population/GDP forecast for 2025 (Top 15 cities in terms of population or GDP)

Source：Compiled by NRI based on UN “World Urbanization Prospects” and Euromonitor data.

2025 nominal GDPby city

(in billion USD)

2025 populationby city

( in thousands)

*No data for GDP of Dhaka and Kinshasa

Tokyo

Delhi

Shanghai

DhakaCairo

São Paulo

Mexico City

Beijing

Mumbai

New York

Osaka

ChongqingKarachi

KinshasaLagos0

500

1000

1500

2000

2500

0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000



Tokyo has the second largest concentration of world-class enterprises.

Number of HQ of Fortune Global 500 companies by city (2018) Fortune Global 500 companies in Tokyo (within top 200)

Source： Compiled by NRI from Fortune “Fortune Global 500 (2018)” data.

Rank Company Revenue(Mil. USD)

30 Honda Motor 138,64645 Japan Post Holdings 116,61655 Nippon Telegraph & Telephone (NTT) 106,50079 Hitachi 84,55985 Softbank Group 82,66597 Sony 77,11699 JXTG Holdings 76,629

129 Mitsubishi 68,301130 Marubeni 68,057145 Dai-ishi Life Holdings 63,522177 Mitsubishi UFJ Financial Group 54,769179 Seven & I Holdings 54,217186 Tokyo Electric Power 52,809192 Sumitomo Mitsui Financial Group 52,026198 Nippon Steel & Sumitomo Metal 51,164

Beijing (CHN), 53

Tokyo (JPN), 36

Paris (FRA), 16

New York (USA), 16

London (GBR), 13

Seoul (KOR), 13

Hong Kong, 8Shenzhen (CHN), 7

Shanghai (CHN), 7Osaka (JPN), 7

Houston (USA), 6Nagoya (JPN), 5

Others, 313





Residential market


Hotel market



Office market


611 305 676 8951,772 2,031 1,679

628 439 604 7921,555

2,237 2,080 2,066 2,3191,833

0

2,236

3,307

4,439

5,159

6,242 7,205

2,210

1,359539

1,549

1,791

2,1563,433 3,302 2,510

2,934

0

2,000

4,000

6,000

8,000

10,000FY

2001

FY20

02

FY20

03

FY20

04

FY20

05

FY20

06

FY20

07

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12

FY20

13

FY20

14

FY20

15

FY20

16

FY20

17

Others J-REIT

Acquisitions of securitized real estate decreased in three consecutive years.

Although it was on a recovery trend after the bankruptcy of Lehman brothers, the complexity level of acquisition was going up along with the rise in prices of real estate, and it seems that it turned to a declining trend.


Acquisitions of securitized real estatebillion yen

Source: Compiled by NRI from MLIT “Real Estate Securitization” data


Office, 38.8%

Residential, 13.4%

Retail, 15.5%

Logistics, 15.2%

Hotel, 9.9%

Health care, 1.0%

composite facilities,

2.3%

Others, 3.9%

1,611710

1,516 1,7282,194 2,124 2,503

891 556 768 5121,092 1,501

2,3281,803 1,598 1,785

267

552

686808

1,293 1,5891,321

348235

441406

550603

784

614564 541161

270

404

835

7901,107 981

479

289252

309

452

788

758

773730 542615

746

550

770683 778

419662

494 525

0

2,000

4,000

6,000

8,000

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Office Residential Retail Logistics Hotel Health care composite facilities Others

Structure in which office, residential, commercial and logistics occupy the 80% of transaction value will continue.

Because of the sudden increase in the inbound marketing, the hotel investment is also becoming popular as one of the main objectives.


Acquisitions of securitized real estate by asset classbillion yen

Allocation of securitized real estate by asset classin the past 5 years

Source: Compiled by NRI from MLIT “Survey of the Current State of Real Estate Securitization” dataNote: Because the usage 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.


41.9%

51.9%

53.0%

66.0%

58.8%

47.9%

51.9%

45.9%

33.8%

38.0%

39.9%

12.1%

12.7%

10.5%

11.8%

12.0%

15.3%

15.8%

17.5%

17.3%

18.1%

20.9%

10.5%

8.8%

8.4%

6.9%

8.0%

9.5%

10.0%

10.2%

13.8%

12.9%

8.7%

6.4%

5.5%

6.9%

4.0%

5.1%

3.7%

5.8%

5.1%

6.9%

5.4%

23.1%

17.4%

17.2%

12.0%

14.9%

19.9%

15.2%

17.0%

26.0%

20.8%

20.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others

The ratio of Greater Tokyo area was on a declining trend after FY2010.However, it has increased its number after FY2016.

About the two-third of securitized properties focused on Greater Tokyo in FY 2010. However, it declined to about the one third of it in FY 2015.

Composition ratio of Tokyo reversed in FY 2016 and has gone up by 4%, and the ratio of Tokyo increased in FY 2017 also.


Number of properties securitized by region

Source: Compiled by NRI from MLIT “Survey of the Current State of Real Estate Securitization” dataNote: Securitization of TMK properties is not included because their use is unknown.


3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

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

Apr-

15

Oct

-15

Apr-

16

Oct

-16

Apr-

17

Office Tokyo CBD Office Osaka CBD Retail Tokyo Residential Tokyo Logistics Tokyo Multi

Cap rate is continuously declining


Cap rates in Japan for major investment areas

Source: Compiled by NRI from Japan Real Estate Institute “Japanese Real Estate Investor Survey” data.

Office Tokyo

Retail Tokyo

Residential TokyoLogistics Tokyo MultiOffice Osaka


-40

-30

-20

-10

0

10

20

30

2000

/320

00/9

2001

/320

01/9

2002

/320

02/9

2003

/320

03/9

2004

/320

04/9

2005

/320

05/9

2006

/320

06/9

2007

/320

07/9

2008

/320

08/9

2009

/320

09/9

2010

/320

10/9

2011

/320

11/9

2012

/320

12/9

2013

/320

13/9

2014

/320

14/9

2015

/320

15/9

2016

/320

16/9

2017

/320

17/9

2018

/3

Loose

Tight

Fierce competition among commercial banks continues to help boost prices.

Banks’ lending attitude toward the real estate industry is the most lenient since 2000 and the standard of the time of the global financial crisis in 2007 is exceeded. Many people in Japan believe there are too many banks, and spreads continue to fall with covenants loosening.

Along with mega-banks and other major banks, regional mid-tier banks are entering the market, so conditions look unlikely to change over the near term.


Financial institutions’ lending attitude DI toward the real estate industry

Source:Compiled by NRI from BOJ“TANKAN (Figures by Industry)” data.

Copyright (C) 2014 Nomura Research Institute. All rights reserved.



Office market

Residential market


Hotel market





Office floor space shares by major region

Office market

Tokyo area holds 61% 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 61% of the total.

Source: JREI “The Annual Japanese Office Buildings Survey”Note: Data is as of January 2016.Note: The survey focuses on the central area of each city.Note: Properties less than 3,000 square meters are excluded.

61.2%

4.6%0.9% 1.8%

14.3%

1.7% 1.0%5.5%

3.2%2.3% 2.0% 1.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Tokyo Yokohama Saitama Chiba Osaka Kobe Kyoto Nagoya Fukuoka Sapporo Sendai Hiroshima

(5.12million ㎡)

(68.55million ㎡)

(1.06million ㎡)(1.99million ㎡)

(16.01million ㎡)




(1.69million ㎡)

Tokyo Metropolitan Area68.5％

Osaka Area16.9％

12 major cities111.92million ㎡


Tokyo’s CBD has an accumulation of office buildings and is concentrated in an area of 5km square, concentrated in Chiyoda, Chuo, Minato, Shibuya, and Shinjuku wards.

Tokyo’s Central Business District (CBD) is concentrated in five wards

30 km

30 km

Tokyo13.52 million people

Kanagawa9.13 million people

Saitama7.27 million people

Chiba6.22 million people

SetagayaMinato

ItabashiKita

Adachi

Katsushika

Edogawa

Koto

SumidaTaito

ArakawaToshima

Bunkyo

Shibuya

ShinjukuChiyoda

Chuo

MeguroShinagawa

Ohta

Nakano

Nerima

Suginami

Office market


Monthly (Jan 2013 – May 2018)

Source: Miki Shoji Co., Ltd.

Office market

Vacancy rates in the Tokyo office market have been improving for more than five consecutive years.

Yearly (1998 - 2017)Vacancy rate movement in Tokyo CBD

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Chiyoda

Chuo

Minato

Shinjyuku

Shibuya

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Jan-

13Ap

r-13

Jul-1

3O

ct-1

3Ja

n-14

Apr-

14Ju

l-14

Oct

-14

Jan-

15Ap

r-15

Jul-1

5O

ct-1

5Ja

n-16

Apr-

16Ju

l-16

Oct

-16

Jan-

17Ap

r-17

Jul-1

7O

ct-1

7Ja

n-18

Apr-

18

Chiyoda

Chuo

Minato

Shinjyuku

Shibuya


Monthly (Jan 2013 – May 2018)


Note: One tsubo is 3.3 square meters.

Office market

Rents entered an upward phase from around 2013 in all 5 Tokyo wards.

Yearly (1999 – 2017)Rent trends in Tokyo CBD (yen/tsubo per month)

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

（yen/tsubo）

Chiyoda

Chuo

Minato

Shinjuku

Shibuya

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

Jan-

13Ju

n-13

Nov

-13

Apr-

14Se

p-14

Feb-

15Ju

l-15

Dec-

15M

ay-1

6O

ct-1

6M

ar-1

7Au

g-17

Jan-

18

（yen/tsubo）

Chiyoda

Chuo

Minato

Shinjuku

Shibuya


2000 2005 2010 2015

250

0

100

50

150

300

200

350

400

146.7

23区

324.3

366.0

141.5

202.0

346.1

198.8

147.4

188.4

316.8

189.2

142.25区

3区

From 2010 to 2015, the office workers decreased in 23 wards, whereas they slightly increased in 5 or 3 wards

Trend and forecast of office worker numbers in Tokyo

Office market

Central 3 wards(Chiyoda, Chuo, Minato)

Central 5 wards(Chiyoda, Chuo, Minato, Shibuya, Shinjuku)

23 wards

(1,000 people)

Source: MIC “Population Census”


26.8 27.5 28.3 28.7

21.4 20.6 19.9 19.1

24.426.0

26.9 27.4

16.215.1 14.4 14.6

11.2 10.8 10.5 10.2

0

5

10

15

20

25

30

2000 2005 2010 2015

渋谷区

千代田区

中央区

港区

新宿区

Since 2000, Chiyoda and Minato have been increasing their share of office workers.

Trend of office worker share in Tokyo’s CBD (23 wards ＝100%)

Office Market

Minato

Shibuya

Chuo

Chiyoda

Shinjuku

Source: MIC “Population Census”

（％）


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

87

10997

69

146

99

168

5242

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

2019

2020

2021

2022

# of buildingsSupplied floor area

(1,000 ㎡)

Office supply areaNumber of building supplied

Office space supply in Tokyo’s 23 wards

Source: Mori Building Company “Market Trend Survey of Large-Scale Office Buildings in Tokyo's 23 Wards”

Office market

Despite the dwindling number of office workers, new office supply will likely continue to grow.

forecast


Tokyo office market cap rate trend

Source: Japan Real Estate Institute “Real Estate Investor’s Survey”

Office market

The cap rates have continuously been declining since 2012, and it is currently at its lowest level.

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

Oct

-03

Apr-

04O

ct-0

4Ap

r-05

Oct

-05

Apr-

06O

ct-0

6Ap

r-07

Oct

-07

Apr-

08O

ct-0

8Ap

r-09

Oct

-09

Apr-

10O

ct-1

0Ap

r-11

Oct

-11

Apr-

12O

ct-1

2Ap

r-13

Oct

-13

Apr-

14O

ct-1

4Ap

r-15

Oct

-15

Apr-

16O

ct-1

6Ap

r-17

Oct

-17

Apr-

18

Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon)

Shinagawa Shinjuku Shibuya

ShinjukuShinagawaShibuyaMinato(Toranomon)Chuo(Nihonbashi)Chiyoda(Marunouchi)


Office rent trend in ex-Tokyo market


Office market

The vacancy rates have also been recovering in the local office market and the rent has started rising.

Office vacancy trend in ex-Tokyo market

Tokyo

Osaka

Nagoya

Sapporo

Sendai

Yokohama

Fukuoka

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

2015

2016

2017

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(yen/tsubo)

Tokyo

OsakaYokohama

FukuokaSendaiSapporo

Nagoya


3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Oct

-03

Apr-

04O

ct-0

4Ap

r-05

Oct

-05

Apr-

06O

ct-0

6Ap

r-07

Oct

-07

Apr-

08O

ct-0

8Ap

r-09

Oct

-09

Apr-

10O

ct-1

0Ap

r-11

Oct

-11

Apr-

12O

ct-1

2Ap

r-13

Oct

-13

Apr-

14O

ct-1

4Ap

r-15

Oct

-15

Apr-

16O

ct-1

6Ap

r-17

Oct

-17

Apr-

18

Ex-Tokyo office market cap rate trend


Office market

Liquidity is growing in ex-Tokyo as well as the real estate investment market rises and becomes overheated.

As property acquisition becomes more difficult in Tokyo, investment money must look to regional markets.

SendaiSapporoFukuokaNagoyaYokohamaOsaka




Office market

Residential market


Hotel market





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.

Source: MIC “Housing and Land Survey”

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 Households Living in Private Rental &

Apartm

ent House (non-w

ood)

Num

ber o

f Hou

seho

lds (

unit:

10,0

00)

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


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.

Housing choices of moving households 1984 - 2013

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 Households Living in Private Rental &

Apartm

ent Houses

Num

ber o

f Mov

ing

Hou

seho

lds

(Uni

t:10,

000)

Number of Moving Households in Past 5 YearsNumber of Households Moved into Rental HousesNumber of Households Moved into Private Rental (Apartment) HousesRatio of Households Moved into Private Rental (Apartment) Houses



Residential market

The majority of households moving to non-public rental apartments moved within the same city.

Looking at the former locations of households moving into non-public rental apartments in seven major cities, those that moved within the same city were greater in number than those that moved in from outside the city.

Tokyo’s 23 wards and Osaka saw a decline in households moving into non-public rental apartments from outside the city, while major regional cities saw no change.

Location choices of moving households

28 30 28 31 32 28 27 33

165 157 148 13756 57 55 55 73 61 53 50 27 27 23 22 47 46 41 48

50 46 48 55 25 24 24 27

266207 197 200

58 54 51 58105

86 77 7336 37 32 30

45 47 49 54

0

50

100

150

200

250

300

350

400

450

500

94-9

899

-03

04-0

809

-13

94-9

899

-03

04-0

809

-13

94-9

899

-03

04-0

809

-13

94-9

899

-03

04-0

809

-13

94-9

899

-03

04-0

809

-13

94-9

899

-03

04-0

809

-13

94-9

899

-03

04-0

809

-13

Sapporo Sendai Tokyo 23 Wards

Nagoya Osaka Hiroshima Fukuoka

Brea

kdow

n of

In-F

low

Hou

seho

lds M

oved

inPr

ivat

e Re

ntal

Hou

ses (

non-

woo

d) (U

nit:1

,000

)

Household moving in a cityHousehold moving out a city



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 stock by type 1988-2013


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

Hous

ing

Stoc

k (U

nit:1

mill

ion)

Number of HousesNumber of RentalHousesNumber 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

Grow

th R

ate

(198

8 =

100)

Number of HousesNumber of RentalHousesNumber of Rental & Apartment Houses (non-wood)


In 2017, the number of new constructions decreased by 3,000 houses since 2016 and reached to a level of 960 thousand houses. The number of new constructions for rental houses is 420 thousand, which remained at the same level as in 2016.

Residential market

The number of new constructions for rental houses remained high until 2017.

New housing supply trend: 1991-2017 Breakdown of new rental housing construction by region

Source: MLIT “Survey of Construction Work Started”

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 15 16 17

Ratio of Rental Houses

Num

ber o

f Con

stru

ctio

n St

arts

（U

nit：

1,00

0）

Own House Rental House Company House

House Built for Sale Ratio of Rental House

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 15 16 17

New

Ren

tal H

ousi

ng C

onst

ruct

ion

by R

egio

n(U

nit:1

,000

)

Provincial RegionKinki RegionChuubu RegionMetropolitan Region


The construction of rental apartment increased for avoiding tax with the basic deduction's of an inheritance tax being reduced from January, 2015. Because of number increasing in apartment supply due to the factors besides the actual demand, vacancy rates increased suddenly centering on the suburb part

with the high apartment ratio occupied in a rental apartment.

Residential market

Since 2015, the vacancy rates in Kanagawa prefecture have gone up suddenly.From the end of 2016, the vacancy rates are rising in Tokyo as well.

Vacancy Rates of Rental Housing (non-wood) in Major Cities

Source: TAS Corp. and At Home Co., Ltd. “Report on Rental Housing Market”

Vacancy Rates of Rental Housing in Tokyo Metropolitan Area


0%

5%

10%

15%

20%

25%

Sapporo Sendai Tokyo23 Wards

Nagoya Osaka Hiroshima Fukuoka

Vaca

ncy

Rate

of R

enta

l Hou

sing

(non

-woo

d) (U

nit:

%) '98 '03 '08 '13

8

9

10

11

12

13

14

15

16

17

18

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

2012 2013 2014 2015 2016 2017 2018

Rent

al H

ousi

ng V

acan

cy R

ate

(Uni

t: %

)All Tokyo areas23 Tokyo districtsTokyo citiesKanagawa


Residential market

Rent standard is still on a declining trend.

The rent level of non-public rental housing rose steadily from 1990, after which it gradually declined since 2000. This trend has continued not even changed recently.

Source: MIC “Consumer Price Index”

Rents in the private sector (annual average) – nationwide and central Tokyo

85.0

90.0

95.0

100.0

105.0

110.0

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Priv

ate

(Ann

ual A

vera

ge) R

ent I

ndex

(Bas

e Ye

ar 2

010)

Japan

Tokyo 23 Wards


90%

92%

94%

96%

98%

100%

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

May Sep

Jan

May Sep

2012 2013 2014 2015 2016 2017

Occ

upan

cy R

ate

(Uni

t:%)

Tokyo 3 central districtsTokyo 23 districtsNagoya cityOsaka cityFukuoka city

The operating ratio of Nagoya city and Fukuoka city hits the ceiling. The rent standard remains stable or decrease.

Residential market

The operating ratio of REIT case housing and the private placement fund has been at the highest level, and the rent standard in downtown 3 ward and Tokyo 23-ku‘s has continue to rise slowly.

Occupancy rates of REIT-owned and private fund-owned properties Monthly rents of REIT-owned and private fund-owned properties

Source: Association for Real Estate Securitization of Japan “ARES Japan Property Index”

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jan

Jun

Nov Ap

rSe

pFe

b Jul

Dec

May Oct

Mar

Aug

Jan

Jun

2012 2013 2014 2015 2016 2017

Mon

thly

Ren

t Lev

el (U

nit：

Yen/

m2 )

Tokyo 3 central districtsTokyo 23 districtsNagoya cityOsaka cityFukuoka city


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.

Housing ownership rate in Japan by 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





Office market

Residential market


Hotel market






The number of locations for large stores has been on a downtrend in recent years.

New retail space supply vs. number of development projects

Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication.Source: METI “Large-scale Retail Chain Site Expansion Report”

2,455

3,335 3,729

4,178 4,545

3,983 4,369

1,919 2,081 2,351 2,193 2,860 2,824 2,607

2,098 1,833 1,833

450

638

786 738 731 730 750

654

500

584 620

738 705

669

569 548 560

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 2014 2015 2016 2017

Num

ber of projects(cases)Fl

oor A

rea(

1000

m2)

（year）

Floor Area Number of projects


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 49.8 50.8 51.7 52.5

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 15.7 15.9 16.1 16.3

0

2

4

6

8

10

12

14

16

18

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Floor area per shopping centerO

vera

ll flo

or a

rea

(year)

Overall floor area Floor area per SC(in 1 million m2) (in 1000m2/store)


For shopping centers, the total floor area for all stores and the floor area per store are both on the rise.

Overall floor area and per-store floor area for shopping centers

Note: 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.

Source: Council of Shopping Centers “SC White Book”

Old SC Standard New SC Standard



In 2017, the annual sales of existing shopping centers increased by 0.6% compared to the previous year.

YoY comparison of existing shopping centers’ annual sales

Source: Council of Shopping Centers “Overall Sales Statistics Report”

-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 0

-1.1

0.6

-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 2015 2016 2017

(％)


0

10

20

30

40

50

60

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

Jul

Oct

Jan

Apr

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


Abenomics has not changed consumer outlook dramatically.

Consumer outlook index chart

Source: Cabinet Office “Consumer Trends Survey”

Note: 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 participants answer “Won’t change” for all available items.

▼ Dec. 2012Liberal Democratic Party

becomes the ruling party again


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Late2011

Early2012

Late2012

Early2013

Late2013

Early2014

Late2014

Early2015

Late2015

Early2016

Late2016

Early2017

Late2017

Ginza

Omotesando

Ikebukuro

Shinjuku

Shibuya

Yokohama

Shinsaibashi

Oodori (Sapporo)

Sannomiya (Kobe)

Sendai

Tenjin (Fukuoka)

Shijokawaramachi (Kyoto)

Sakae (Nagoya)

（yen / month / tsubo）

Ginza

Omotesando

Shinjuku


Compared to other areas, rent levels in Ginza and Omotesando are still high.

1st floor rent ranking in 13 principal business areas (yen/month/tsubo)

Source: Japan Real Estate Institute, BAC Urban Projects, and Attractors Lab “Retail Chain Rental Trends”Note1: Rent in Yokohama is shown to have spiked in the early half of 2012, but this can be attributed to the extremely small sample sizeNote 2: 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 propertiesNote 3: 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

Tokyo Metropolitan

Area

Provincial Areas

*2

*1 *3



Cap rates have been falling from around 2011, and hit a record low in all regions.

Commercial establishment cap rates (expected yield)


Definition:Metropolitan high-class specialty stores:

Length of time after construction -or- large-scale repair/improvement: less than 5 yearsTenants: 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 Shibuya’s Omotesando 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 schemesAreas: Along main thoroughfares within about an hour from metropolitan Tokyo.

Stores for areas outside Tokyo follow similar locational conditions as above.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Apr-

05O

ct-0

5Ap

r-06

Oct

-06

Apr-

07O

ct-0

7Ap

r-08

Oct

-08

Apr-

09O

ct-0

9Ap

r-10

Oct

-10

Apr-

11O

ct-1

1Ap

r-12

Oct

-12

Apr-

13O

ct-1

3Ap

r-14

Oct

-14

Apr-

15O

ct-1

5Ap

r-16

Oct

-16

Apr-

17O

ct-1

7Ap

r-18

Metropolitan , GinzaMetropolitan , Omotesando

Suburban, Nagoya

Metropolitan , NagoyaMetropolitan, Osaka

Suburnban, TokyoSuburban, Osaka




Office market

Residential market


Hotel market






The truck-based transport volume (in tons), which forms the bedrock of Japan’s cargo industry, has continued to decline in recent years.

Truck-based (automobile) transport is the primary transport method that constitutes a large share of Japan’s freight traffic. In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for private use.

Cargo quantity by transport method (FY2015) Automobile cargo quantity movement

Note: The chronological continuity of data from prior to 2009 could not be guaranteed due to the changes made to the tallying methodology in the middle of 2010.Source: MIC “Transport quantity by transport method” and MLIT “Automobile Transport Statistics Survey”

(Unit: 1 million tons)

Motor vehicles 4,289

Coastwise vessels 365

Domestic aviation 1

Railways43

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 '15

Business Personal（1 million tons）


The movement to smaller logistics lots progresses across the whole industry. The number of home delivery service handled has increased by an average of approximately 3% per year, and reaching 4.2 billion in FY2017.


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.

Industry-wide distribution quantity by lot size Number of home deliveries (million)

Source: MLIT “Logistics Census”

46.4%

59.2%

72.4%

79.2%

0% 50% 100%

2000

2005

2010

2015

Below 0.1t 0.1～0.5t 0.5～1t 1～5t Above 5t

2,751

3,2323,526

4,251

2007（FY）

2002 2012 2017

+2.9%

Source: MLIT “Release of Reports on the Number of home deliveries”



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 2019.

Market size of B-to-C e-Commerce

Note: Business -to-consumer e-commerce: sale of products and services to consumers in general via the InternetSource: NRI

(trillion JPY)

15.416.6

18.019.3

20.621.8

23.124.5

25.9

20222016 20232015 20182017 2019 2020 2021


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.


While new supply has stopped dwindling, facilities are growing larger due to businesses consolidating their logistics capabilities.

Nationwide number of supplied warehouses including warehouses for transport and transport industry share

Floor space per warehouse building

Source: MLIT “Construction Statistics”

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

'14

'15

'16

'17

(Buildings)Transport industry Other than transport Transport industry share

0

500

1,000

1,500

2,000

2,500

'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

'14

'15

'16

'17

（㎡）Entire industry Other than transport Transport industry


0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(1 billion yen) Real estate industry Transport industry Others


In response to the growing demand of logistics used by e-commerce, the volume of order to build warehouses/logistics facilities has been increasing.

Order volume for construction of warehouses/logistics facilities by ordering industry

Note: Only contracts worth 500 million yen and above are includedSource: MLIT “Construction Order Trends, Statistics and Survey”

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 66

Logistics property marketMajor foreign-based logistics property players and Japanese real estate developers are gearing up for roadside development ahead of new expressway construction.

Narita Airport

HanedaAirport

Ken-OEXPWY

Gaikan EXPWY

Joban EXPWY

ChuoEXPWY

Tomei EXPWY

Kan-etsuEXPWY

Tohoku EXPWY

13

01

0241

23

03

31

07

2904

0622

36

37

21 0912

15

16

1730

35

05 10

1425

24

26

2728 32

3334

3839

40

0811

18

19 20

PROLOGIS Park hurukawa3

PROLOGIS Park Tsukuba1

ESR KUKI Distribution Center

No. Project

MFLP Prologis Park Kawakoshi

MFLP Haneda

MFLP KawasakiⅠ

MFLP HunabashiⅡ

Tokyo Rail Gate EAST

GLP Sagamihara Project

DPL Satte

Chibashi Wakamatutyou Logistics Center

Logicross Yokohama Kouhoku

Logiport Kawasaki Bay

Logicross AtsugiⅡ

Landport Shinonome

Landport OumeⅠ

Landport OumeⅡ・Ⅲ

Landport Atsugiaikawamachi

Landport Kawaguchi

Landport Koshigaya

Landport Higashinarashino

ESR ICHIKAWA Distribution Center

MFLP KawaguchiⅠ

GLP Niiza

0101

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

02

22

23

24

Landport NarashinoDPL ShinnarashinoMCUD IchikawaⅠMCUD IchikawaⅡSOSiLA Kawakoshi

I Missions Park Ichikawashiohama

SOSiLA EbinaSOSiLA Kasukabe

25

26

27

28

29

30

31

32

ExpresswayExpressway (planned)New devts

Source: Compiled by NRI from companies’ respective websites

I Missions Park Inzai2

I Missions Park haku2

Atsugi ⅡLogistics Center

Hasuda Ⅱ Logistics Center

Matsubushi Logistics Center

PROLOGIS Park Chiba1

PROLOGIS Park Chiba2

GLP NagareyamaⅢ

GLP KenouGoka

33

34

35

36

37

38

39

40

41

GLP YachiyoⅡ

GLP Twin City PRJ(AtsugiⅢ)

42

43

43

42

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 67Source: Compiled by NRI from companies’ respective websites Note) * Total leasable area, ** Site area

# Name of Project Name of Developer Map No. Completion Scale (Total floor area)1 PROLOGIS Park Hurukawa3 PROLOGIS 1 2018.8 31,256㎡2 PROLOGIS Park Tsukuba1 PROLOGIS 2 2018.8 About 70,000㎡3 I Missions Park Haku2 ITOCHU Corporation 34 2018.8 Unknown4 Atsugi ⅡLogistics Center ORIX 35 2018.8 32,909㎡5 ESR KUKI Distribution Center ESR 3 2018.9 155,853㎡6 MFLP Prologis Park Kawakoshi Mitsui Fudosan/PROLOGIS 4 2018.10 About 130,800㎡7 GLP KenouGoka GLP 41 2018.10 140,031㎡8 Landport OumeⅠ NOMURA REAL ESTATE DEVELOPMENT 19 2018.11 61,121㎡9 DPL Shinnarashino Daiwa House Industry 26 2018.11 14,084㎡10 ESR ICHIKAWA Distribution Center ESR 5 2019.1 229,715㎡11 Hasuda Ⅱ Logistics Center ORIX 36 2019.1 26,073㎡12 SOSiLA Kawakoshi SUMITOMO CORPORATION 29 2019.1 21,823㎡13 GLP YachiyoⅡ GLP 42 2019.1 About 54,000㎡14 GLP NagareyamaⅢ GLP 40 2019.2 91,440㎡15 I Missions Park Inzai2 ITOCHU Corporation 33 2019.3 Unknown16 SOSiLA Kasukabe SUMITOMO CORPORATION 31 2019.3 52,900㎡17 Matsubushi Logistics Center ORIX 37 2019.3 77,326㎡18 GLP Niiza GLP 7 2019 Spring About 31,000㎡19 MFLP KawaguchiⅠ Mitsui Fudosan 6 2019.4 About 54,100㎡20 Logiport Kawasaki Bay MITSUBISHI ESTATE 16 2019.5 296,799㎡21 MFLP Haneda Mitsui Fudosan 8 2019.6 About 84,400㎡22 Logicross Yokohama Kouhoku MITSUBISHI ESTATE 15 2019.6 About 16,400㎡23 Landport Kawaguchi NOMURA REAL ESTATE DEVELOPMENT 22 2019.6 19,742㎡24 Landport Higashinarashino NOMURA REAL ESTATE DEVELOPMENT 24 2019.7 74,725㎡25 I Missions Park Ichikawashiohama ITOCHU Corporation 32 2019.8 Unknown26 Logicross AtsugiⅡ MITSUBISHI ESTATE 17 2019 Summer About 34,700㎡27 MFLP KawasakiⅠ Mitsui Fudosan 9 2019.9 About 41,500㎡28 PROLOGIS Park Chiba1 PROLOGIS 38 2019.9 146,805㎡29 MFLP HunabashiⅡ Mitsui Fudosan 10 2019.10 About 225,000㎡30 GLP Twin City PRJ (AtsugiⅢ) GLP 43 2019.10 About 42,000㎡31 Landport Shinonome NOMURA REAL ESTATE DEVELOPMENT 18 2019.12 Unknown32 PROLOGIS Park Chiba2 PROLOGIS 39 2019 About 66,000㎡33 Landport Narashino NOMURA REAL ESTATE DEVELOPMENT 25 2020.1 142,742㎡34 SOSiLA Ebina SUMITOMO CORPORATION 30 2020.2 76,568㎡35 Landport Atsugiaikawamachi NOMURA REAL ESTATE DEVELOPMENT 21 2020.3 93,428㎡36 Landport OumeⅡ・Ⅲ NOMURA REAL ESTATE DEVELOPMENT 20 2020.6 Unknown37 Landport Koshigaya NOMURA REAL ESTATE DEVELOPMENT 23 2020.6 31,981㎡38 Tokyo Rail Gate EAST Mitsui Fudosan 11 2021.10 About 161,000㎡39 GLP Sagamihara Project GLP 12 From 2022 655000㎡40 DPL Satte Daiwa House Industry 13 Unknown 115,600㎡**41 Chibashi Wakamatutyou Logistics Center ITOCHU Corporation 14 Unknown About 10,478㎡42 MCUD IchikawaⅠ Mitsubishi Corporation Urban Development, Inc. 27 Unknown About 17,300㎡**43 MCUD IchikawaⅡ Mitsubishi Corporation Urban Development, Inc. 28 Unknown About 3,300㎡**



While the supply of logistics properties is increasing, vacancy rates are rising since 2016.On the other hand monthly rent offers are also rising in Greater Tokyo.

Monthly rent offers and vacancy rates of logistics properties

Note: Logistics facilities which have a total lot area or total floor area of 10,000m2Source: Ichigo Real Estate Information Service “Survey on the Logistics Facilities Rental Market”

Rent offer

Vacancy rates

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15 Apr-16

Apr-17

Apr-18

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16 Apr-17

Apr-18

3,000

3,500

4,000

4,500

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

(yen / month / tsubo) Tokyo area Osaka area


4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Oct

-05

Apr-

06O

ct-0

6Ap

r-07

Oct

-07

Apr-

08O

ct-0

8Ap

r-09

Oct

-09

Apr-

10O

ct-1

0Ap

r-11

Oct

-11

Apr-

12O

ct-1

2Ap

r-13

Oct

-13

Apr-

14O

ct-1

4Ap

r-15

Oct

-15

Apr-

16O

ct-1

6Ap

r-17

Oct

-17

Apr-

18

Chiba(inland)Tokyo(inland)Tokyo(bay)

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

Oct

-05

Apr-

06O

ct-0

6Ap

r-07

Oct

-07

Apr-

08O

ct-0

8Ap

r-09

Oct

-09

Apr-

10O

ct-1

0Ap

r-11

Oct

-11

Apr-

12O

ct-1

2Ap

r-13

Oct

-13

Apr-

14O

ct-1

4Ap

r-15

Oct

-15

Apr-

16O

ct-1

6Ap

r-17

Oct

-17

Apr-

18

Chiba(inland)Tokyo(inland)Tokyo(bay)


Cap rates have been falling since 2012, with Tokyo hitting all-time low.

Single tenant Multi-tenant

Note: Single tenant: 2-3 floors; total floor area of around 10,000m2

Multi-tenant: 3-4 floors; total floor area of around 50,000m2





Office market

Residential market


Hotel market





15.4 14.8 15.0 15.4 13.9 15.8 16.0 16.1

5.1 5.0 4.4 4.84.5

4.6 4.9 5.01.1 0.8 1.1 1.4

2.03.5 3.7 4.421.6 20.6 20.5 21.6 20.4

23.9 24.7 25.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

'10 '11 '12 '13 '14 '15 '16 '17

Japanese Stay Travel Japanese Day Trip Foreigners Travel

Hotel market

Foreign travelers in 2017 accounted for 17% of total domestic travel expenditure

Domestic travel expenditure in 2017 was the largest in the last 7 years, driven by an increased number of foreigner travelers to Japan.

Trends in domestic travel expenditure

(trillion yen)

Sources: Compiled by NRI from Japan Tourism Agency “Ryokou・Kankou Sho-hi Doukou Chosa” and “Consumption Trend Survey for Foreigners Visiting Japan” daｔa

-Consumption tax increase

-:Great East Japan earthquake

＋:depreciation of yen progress

＋：”Silver Week”Start

＋：the number of national holidays

is the most

＋：foreign travelersIncrease

significantly


372 360 368 383 349 365 385 386

143 145 138 141134 130 144 143

117 108 107 107112 109

111 118

632 613 613 631595 605

641 648

0

100

200

300

400

500

600

700

'10 '11 '12 '13 '14 '15 '16 '17Sightseeing/Recreations Homecoming/Friend VisitBusiness Trip

318 314 316 320 297 313 326 323

314 299 297 311298 292 315 324

632 613 613 631595 605

641 648

0

100

200

300

400

500

600

700

'10 '11 '12 '13 '14 '15 '16 '17

Stay Travel Day Trip

Hotel market

The number of travelers among Japanese residents has edged sideways.

Cumulative domestic traveler numbers (Overnight Travel/Day Trip)

(Million)

Source: Compiled by NRI from Japan Tourism Agency “Ryokou ・Kankou Sho-hi Doukou Chosa” dataNote: Cumulative domestic traveler numbers do not include foreign travelers to Japan.

Cumulative domestic traveler numbers(by trip objective)

(Million)


China, 736, 26%

Korea, 714, 25%Taiwan,

456, 16%

Hong Kong, 223,

8%

Thailand, 99, 3%

U.S., 137, 5% Others,

504, 17%

6.7 7.3 8.3 8.46.8

8.66.2

8.410.4

13.4

19.7

24.0

28.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

Hotel market

Measured by departure country, Chinese visitors will account for about 53% of the total in 2030.

Conversely, the number of travelers to Japan increased rapidly and reached about 28.7 million, thanks to the weak yen and relaxed visa criteria. It accounts for approximately 75% of the four neighbouring Asian countries/regions.

No. of foreigner travelers to Japan

Sources: Compiled by NRI from (Actual numbers) JNTO

No. of foreigner travelers to Japan by departure country (2016)

Source: Compiled by NRI from JNTO data

(Million)

←Actual Forecast→

* Assumes the base scenario below

2,870 Ten thousand

(Ten thousand visitors)

Four neighboring countries in Asia account for about 75%.


106 106 106 103 106 103 98

61 65 69 68 72 74 72

160 170 184 194 211 207 212

62 67 73 75 80 78 808 9 10 9

26 24 28417 439 466 474504 494 498

0

100

200

300

400

500

600

'11 '12 '13 '14 '15 '16 '17

Japanese-Style Hotel Resort HotelBusiness Hotel City HotelLodging House Company/Group Loidging

417 413 432 429 438 423 420

18 26 33 45 66 71 78417 439466 474

504 494 498

0

100

200

300

400

500

600

'11 '12 '13 '14 '15 '16 '17

Domestic Customer Foreign Customer

Hotel market

Viewed by facility type, the rise in foreign travelers is impacting growth in business hotels.

The ratio of foreign nationals to the number of accommodation is rising and was 15.7% in 2017.

Domestic accommodation(Domestic/Foreign)

(Million)

Source: Compiled by NRI from Japan Tourism Agency “Syukuhaku Ryokou Toukei” data

Domestic stays (by accommodation type)

(Million)

*Business Hotel：Budget Hotel


756 781 798 803 814 815 827 835 846 870

823 808 792 764 761 741 735 710 702 692

1,579 1,588 1,590 1,568 1,576 1,556 1,562 1,545 1,548 1,562

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Japanese-style Hotel Hotel

Hotel market

The total number of the accommodation facilities remains stable.By type, however, the proportion of hotels continues to rise

Trend in number of guest rooms

Source: Compiled by NRI from MHLW “Report of Health Administration and Services” data

(Thousand rooms)

(Fiscal year)


327 345419 412

547

819

1,205

393 448615 675

848

1,822

2,678

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

200

400

600

800

1,000

1,200

1,400

'11 '12 '13 '14 '15 '16 '17Number of Ridge(Left Axis)Floor Space(Right Axis)

1,2021,298

1,4671,639

1,550

2,224 2,222

0

300

600

900

1,200

1,500

1,800

2,100

2,400

'11 '12 '13 '14 '15 '16 '17

Hotel market

Floor space per building is 1.25 times higher than 2011, as large buildings are being built

The number of accommodation facilities and area of floor space continues to expand owing to a stable economic environment and growing demand for accommodations.

Accommodation facilities* No of buildings and floor space

Source: Compiled by NRI from MLIT “Statistics on Construction Undertaken” data

Accommodation facilities * Floor space per building

*Accommodations assume a hotel.Surveyed buildings are those built with steel framed reinforced concrete, ferroconcrete and steel frame

(Buildings) (thousand ㎡)(㎡)


Hotel market

c13,000 rooms are expected to open in Tokyo over the next 3 years

Main new hotel development projects in Tokyo* 1/2

Source: Compiled by NRI from Ohta Publications Co., Ltd. ”Weekly HOTERES” dataNote: A hotel development project is chosen as the area where weekly HOTERES investigated.

Operator Area Opening year

Number of rooms

APA Group Shintomicho 2018 141Shinjuku 2018 176Akasaka 2018 306Nihonbashi-Bakurocho 2018 193Ayase 2019 170Ueno 2019 129Otuska 2019 613Komagome 2019 184Shinjuku 2019 166Shinjuku 2019 217Nagatacho 2019 500Nihonbashi-Bakurocho 2019 281Roppongi 2019 875Higashi-Shinjuku 2020 565Nihonbashi-Bakurocho 2020 281Ryogoku 2020 1111Roppongi undecided 670

Kyoritsu Maintenance Ginza 2019 undecidedKeikyu EX Inn Hamamatsucho 2019 111

Nihonbashi-Kayabacho 2020 142JR Kyushu Railway Company

Shinbashi 2019 267


Number of rooms

JR East Japan RailwayCompany

Shinkiba 189Akihabara 2019 196Gotanda 2020 166Takeshiba 2020 200-300

JR West Japan RailwayCompany

Iidabashi 2018 295Nihonbashi 2019 240

Daiwa Royal Shinbashi 2018 undecidedAriake 2018 undecidedKyobashi 2019 about 200

Daiwa House Industry Toyosu 2019 330Tokyu Hotels Shibuya 2018 180Toyoko Inn Shinjuku-Gyoen 2018 undecided

Inagi 2018 263Akabane 2019 220

Hankyu Hanshin Hotels Kyobashi 2019 270Ginza 2019 238

Four Seasons Hotels and Resorts

Otemachi 2020 190

Fujita Kanko Asakusa 2018 125Hamamatsucho 2019 190Asakusa 2020 undecided


Hotel market

c13,000 rooms are expected to open in Tokyo over the next 3 years

Main new hotel development projects in Tokyo* 2/2

Source: Compiled by NRI from Ohta Publications Co., Ltd. ”Weekly HOTERES” dataNote: A hotel development project is chosen as the area where weekly HOTERES investigated.


Number of rooms

Prince Hotels Ebisu 2020 82Shiomi 2020 605

Hotel Keihan Tsukiji 2018 300Ginza 2019 undecided

Hotel Livemax Ueno 2018 -Takadanobaba 2018 -Asakusabashi 2018 -Okachimachi 2018 -Akabane 2018 -Shintomicho 2018 -Ayase 2019 -

Marriott International Yaesu 2022 98Mitsui Fudosan HotelManagement

Kanda 2018 191Gotanda 2018 370Nihonbashi-muromachi 2018 260Ginza 2019 338

Mitsui Fudosan Kasumigaokamachi 2019 undecidedRoppongi 2019 260Toyosu 2020 200Otemachi 2020 190Yaesu 2022 98

Resorttrust Nihonbashi-hamacho 2019 223


Hotel market

Over 6,000 rooms are expected to open in Osaka as well over the next 3 years

Main new hotel development projects planned in Osaka prefecture*

Note: A hotel development project is chosen as the area where weekly HOTERES investigated. Source: Compiled by NRI from Ohta Publications Co., Ltd. ”Weekly HOTERES” data


Number of rooms

APA Group Osaka 2018 193Osaka 2019 917Osaka 2019 161Suita 2019 119

AB Hotel Osaka 2019 168Sakai 2019 125

Candeo Hospitality Management Global Headquarter

Suita 2018 111

Kuretakeso Osaka 2018 141Sakai 2018 122

JR West Japan Railway Company

Osaka 2018 400Osaka 2018 88Osaka 2019 220

Sotetsu Inn Osaka 2018 176Osaka 2018 276

Daiwa Royal Hotel City Osaka 2019 undecidedDaiwa House Industry Osaka 2019 undecidedTokyu Hotels Osaka 2019 360


Number of rooms

Toyoko Inn Osaka 2018 undecidedOsaka 2018 542

Hankyu Hanshin Hotels Osaka 2019 250Hotel Keihan Osaka undecided undecidedHotel Monterey Group Osaka 2018 345Unizo Holdings Osaka 2019 291

Osaka 2021 487Hotel Livemax Osaka 2019 undecided

Osaka 2019 undecidedMarriott International Osaka 2020 288

Osaka 2021 337Route Inn Japan Kishiwada 2019 210


83 80 73 72 68 68 66 66 66 66 64 64 62 62 58 58 58 58 58 58 58 56 56 55 55 55 55 55 54 53 52 52 52 51 51 50 49 49 49 48 47 47 45 43 42 41 38

0102030405060708090

100

Osa

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kyo

Fuku

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Aich

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Kyot

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naga

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Oki

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Saita

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Hokk

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Ishi

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Miy

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Hotel market

Occupancy rates at hotels in Osaka and Tokyo have risen to c80% are approaching full capacity.

Guest room occupancy rates vary widely by prefecture


Average occupancy rate by prefecture(%)


58

91 85 89

57

7385 83

31

61

79 84

31

56

79 80

31

8474

80

0102030405060708090

100

Japa

nese

-Sty

le H

otel

Reso

rt H

otel

Busin

ess H

otel

City

Hot

el

Japa

nese

-Sty

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otel

Reso

rt H

otel

Busin

ess H

otel

City

Hot

el

Japa

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-Sty

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Reso

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Busin

ess H

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City

Hot

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Japa

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Reso

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ess H

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City

Hot

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Japa

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Reso

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Busin

ess H

otel

City

Hot

el

Osaka Tokyo Fukuoka Aichi Chiba

Hotel market

Looking at the type of accommodation in the top 5 prefectures, the occupancy rates in hotels often exceeds 70%.On the other hand, the occupancy rates of Japanese-style inns is less than 50% excluding the Tokyo area.

Average occupancy rate in top 5 prefectures (by type of accommodation)


(%)


Hotel market

Besides Tokyo, Osaka and Kyoto, we are capturing foreign demand in Hokkaido and Okinawa, which are tourist spots.In Oita, Gifu and Chiba, it is expected that there would be demand seeping in from large cities.

Room occupancy rate by prefectures and share of foreigners in total number of guests (2017)

出所：観光庁「宿泊旅行統計」（2017年速報値）より野村総合研究所作成

Hokkaido

AomoriIwate

Miyagi

Akita

Yamagata

Fukushima

Ibaraki

TochigiGumma

SaitamaChiba

Tokyo

Kanagawa

Niigata

Toyama

Ishikawa

Fukui

Yamanashi

Nagano

Gifu

Shizuoka

Aichi

Mie

Shiga

Kyoto

Osaka

Hyogo

Nara

Wakayama

Tottori

Shimane Okayama

Hiroshima

Yamaguchi

Tokushima

KagawaEhime

Kochi

Fukuoka

Saga

Nagasaki

Kumamoto

Oita

MiyazakiKagoshima

Okinawa

30%

40%

50%

60%

70%

80%

90%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Share of foreigners

Occupancy rate


02,0004,0006,0008,000

10,00012,00014,00016,00018,000

1月 5月 9月 1月 5月 9月 1月 5月 9月 1月 5月 9月 1月 5月 9月 1月 5月 9月 1月 5月 9月 1月 5月 9月

10年 11年 12年 13年 14年 15年 16年 17年

Month

ly r

ent

stan

dar

d

Unit: y

en/ts

ubo※

23 wards of Tokyo Nationwide

Hotel market

Hotel REIT earnings are expanding due to high occupancy rates

Rents at hotel REITs

Source: Compiled by NRI from ARES “J-REIT Property Database” data.

Note: 1tsubo=About 3.3㎡



Overview of real estate investment market in japan

Office market

Residential market


Hotel market





16.5

13.4

2.6

16.7

0

4

8

12

16

20

Listed REIT Private Fund Private REIT RMBS CMBS

(¥tn)

Unlisted open-ended private REITs were offered in November 2010, and the size of the 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

Residentialmortgage

Commercialmortgage

Overview of real estate investment instruments in Japan and AUM

Note: Listed REIT figure is updated as of end of Dec 2017, private fund figure is updated as on end of Dec 2017, private REIT figure is updated as of end of Mar 2018, RMBS/CMBS figure is updated as of end of Mar 2018

Sources: Compiled by NRI from Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association data


0

10

20

30

40

50

60

70

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2001/9 2003/1 2004/5 2005/9 2007/1 2008/5 2009/9 2011/1 2012/5 2013/9 2015/1 2016/5 2017/9

(No. of J-REITs)(¥bn)

Market Capitalization No. of J-REITs

J-REITs began trading on the stock market in September 2001 with two companies and a market capitalization of 250 billion yen. As of end of August 2018, there were 59 J-REITs traded worth approximately 12.6 trillion yen.


Launched in September 2001, J-REIT market capitalization has reached approximately 13 trillion yen.

J-REIT market cap and number of J-REITs

Source: Compiled by NRI from ARES “ARES J－REIT Databook” data.


5 Central Wards of

Tokyo33.4%

23 Wards of Tokyo

16.7%

Kanto Area22.0%

Chubu Area4.6%

Kinki Area14.1%

Other Areas9.2%

Office42.8%

Residential15.3%

Retail18.4%

Hotel7.1%

Logistics14.7%

Others1.7%


c73% 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 owned, and a healthcare REIT was launched in November 2014.

c73% of J-REIT assets are located in the Tokyo metropolitan area and 43% are portfolios of office properties.

Asset mix of J-REITs by area and asset class

Greater Tokyo Area73.0%

Approx.16.2

trillion yen

Approx.16.2

trillion yen

Source: Compiled by NRI from ARES data

Note: As of the end of June 2018


0

500

1,000

1,500

2,000

2,500

3,000

2003/3 2004/6 2005/9 2006/12 2008/3 2009/6 2010/9 2011/12 2013/3 2014/6 2015/9 2016/12 2018/3

TSE REIT Index TOPIX TOPIX Real Estate Sector Index

The TSE REIT index dropped sharply from its peak in May 2007, but has recovered rapidly from late 2012.


The TSE REIT index surged in late 2012 and remain firm.

TSE REIT Index, TOPIX, and the TOPIX Real Estate Sector Index

Source: Compiled by NRI from ThomsonReuters data


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2002/1 2003/1 2004/1 2005/1 2006/1 2007/1 2008/1 2009/1 2010/1 2011/1 2012/1 2013/1 2014/1 2015/1 2016/1 2017/1 2018/1

Spread J-REITs Dividend Yield JGB 10-Year-Yield

Yield spreads are currently around 4%


J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 4%.

J-REIT dividend yield and JGB 10-year yield

Sources: Compiled by NRI from Thomson Reuters and MoF data


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 territory in terms of capital return and has been firm since.


Capital return is firm.

ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI)

Sources: Compiled by NRI from ARES “ARES Japan Property Index” and “ARES Japan Fund Index” data.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2002/12 2005/8 2008/4 2010/12 2013/8 2016/4

AJPI: Total ReturnAJFI: Total Return

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2002/12 2005/8 2008/4 2010/12 2013/8 2016/4

AJPI: Income Return

AJFI: Income Return

AJPI: Capital Return

AJFI: Capital Return


9,743

14,81516,935

32,44730,260

21,282

16,276 16,81112,217

7,93511,113

8,787 8,34111,287

15,06412,030 11,148 9,894 10,760 9,465 8,235

10,42513,562 13,614

17,83415,423 14,782 14,670

3,470

1,994

6,937

4,234 7,418

7,352

8,7559,879

1,964

1,303

980

45 138

258

563

0 1400 5

00

0

0 10

04 0 0

0

10,000

20,000

30,000

40,000

50,000

60,000

20041stHalf

20042ndHalf

20051stHalf

20052ndHalf

20061stHalf

20062ndHalf

20071stHalf

20072ndHalf

20081stHalf

20082ndHalf

20091stHalf

20092ndHalf

20101stHalf

20102ndHalf

20111stHalf

20112ndHalf

20121stHalf

20122ndHalf

20131stHalf

20132ndHalf

20141stHalf

20142ndHalf

20151stHalf

20152ndHalf

20161stHalf

20162ndHalf

20171stHalf

20172ndHalf

(¥100m)

RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/Commercial Bills Others


Most recently, about 64% 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 are issued on a ongoing basis.

Source: Compiled by NRI from Japan Securities Dealers Association data

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 1H2014FY 2H2015FY 1H2015FY 2H2016FY 1H2016FY 2H2017FY 1H2017FY 2H

Housing Finance Agency Banks/Trust Banks Regional Banks Non-bank Others

Asset backed securities breakdown by type of backing and RMBS breakdown by originator


Authors

Contact： Nomura Research Institute, Ltd.Consulting [email protected]

溝口卓也Takuya MIZOGUCHIConsultantSection in Charge

Hotel marketExpertise

Tourism, MICE and hotel business strategy and research. In addition, supporting area development.

大西直彌Naoya ONISHIConsultantSection in Charge

Real estate investment productsExpertise

Real estate, energy and logistics business strategy and research.

荒木康行Yasuyuki ARAKISenior ConsultantSection in Charge

Macro fundamentals of JapanExpertise

Real estate development, investmentand TECH/DX business strategy planning and research. In addition, international market entry support.

大道亮Akira DAIDOConsultantSection in Charge

Overview of real estate investment market in Japan, Residential market, Logistics Property marketExpertise

Residential, real estate and energy business strategy and research.

沼田悠佑Yusuke NUMATAConsultantSection in Charge

Population movements in JapanExpertise

Real estate and energy business strategy and research. In addition, industrial policy planning and monitoring.

亀井敬太Keita KAMEIConsultantSection in Charge

Office market, Retail property market, Expertise

Real estate, residential loan and infrastructure business strategy and research.

the japanese real estate investment market 2018€¦ · the japanese real estate investment market...

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