By Jeff Wynkoop
The Japanese real estate market has been slowing over the last 12 months. For the first time in the last four years, the total volume of transactions in real estate shrunk year-on-year during the period from April 1, 2015-March 31, 2016. The total volume of transactions by listed companies and J-REITs was down 23% to 4.896 trillion JPY, and the total number of transactions was down year-on-year 19% to 1014 deals, according to data compiled by the Urban Research Institute Corporation, an affiliate of Mizuho Trust Bank. The total number of transactions dropped for the first time in four years as well.
Foreign Funds Putting the Brakes on Deals
The behavior of foreign firms was especially conspicuous. The total volume of deals by foreign funds or entities dropped approximately 50% during the 2015 fiscal year to 543.1 billion JPY. The number of deals involving foreign funds was down from 97 during the 2014 fiscal year to only 29 deals for this past year. At the present, foreign funds seem to be taking a wait and see approach to the real estate market here.
Wait and See
Interestingly, this data coincides nicely with the widely-reported data that foreigners were large net sellers of the Tokyo Stock Exchange last year. It seems many equity funds are waiting to see how the Japanese economy will evolve in the midterm.
The proposed April 2017 consumption tax hike is certainly affecting economic forecasts, which in turn is causing some Japanese companies to be more reluctant in expanding operations or moving to new offices. This is negatively affecting the potential for growth of future rents in the eyes of many market players.
Good Yield Gap But Lack of Investable Properties
Nevertheless, rents in prime office buildings are still far from pre-Lehman year levels. Although cap rates in major Japanese cities have climbed over the last few years, the yield gap here continues to be an especially attractive aspect to diversifying into Japanese real estate. In addition, the lack of supply of good investable properties is likely at least partially responsible for the relative inactivity of foreign firms over the last year.
Source: Nikkei Shinbun evening edition, April 12, 2016
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