While Global Commercial Transactions Dip 20 Percent in 2022, Japan Was Spared

While Global Commercial Transactions Dip 20 Percent in 2022, Japan Was Spared

Commercial News » Tokyo Edition | By Michael Gerrity | March 30, 2023 8:30 AM ET

CBRE Japan is reporting that while commercial real estate transaction volume declined by 20% year-over-year globally in 2022, investment volume in Japan remained largely unchanged, with only a 2% fall from the previous year. This resilience was largely due to the Bank of Japan (BoJ) maintaining its easy monetary policy, in contrast to most of the other major central banks pursuing a monetary tightening policy to counteract inflation.

Conducted in November 2022, CBRE's 2023 Asia Pacific Investor Intentions Survey found more than half of the investors active in the Japanese market (including overseas-based investors) expect the BoJ to raise interest rates in 2023. Despite this assumption, appetite for investment in Japanese real estate shows no signs of weakening.

However, more investors expect prices for some asset types to decline as a result of higher interest rates, while other asset types are attracting stronger interest due to potential upside in cashflow. It therefore appears that while many investors foresee interest rates rising, they plan to take the opportunity to calibrate their investment strategies based on the specific market situations of each asset type.

Highlights from CBRE's survey include:

  • 52% of investors anticipate that their investment volume in 2023 will exceed that of the previous year, only a slight decline from the 54% who said the same in 2022.
  • 56% anticipate that the Bank of Japan will raise interest rates during 2023, while 42% expect any increase to come in 2024 or beyond.
  • While offices remain the most preferred asset type, the number of investors selecting offices as their primary focus declined from the previous year, with increases seen for residential as well as hotels & resorts.
  • When asked which asset type was most likely to see transaction prices exceed sellers' asking prices, hotels were the most selected answer. The number of investors selecting logistics facilities, last year's leader in this category, declined.
  • While "core" remains the most popular investment strategy, interest in this approach fell slightly compared to the previous year. In contrast, "opportunistic" showed a significant surge, being selected by twice as many investors as last year and emerging as the second most preferred strategy (compared to fourth place last year, behind core, value-added, and core-plus).

Robust appetite among Japanese investors

CBRE's survey also found that the number of Japan-focused investors (including both Japanese investors and foreign-based investors selecting Japan as their primary investment market) are planning to increase their investment volume in 2023 was 52%, almost unchanged from the 54% of respondents to the previous year's survey who indicated that they planned to increase their investment in 2022.

Some 29% of the investors indicated that they plan to increase their disposition volume in 2023, a small increase from the previous year's 24%. However, almost 70% of respondents intending to increase disposition also stated that they intend to increase their investment. This shows that even those investors planning to sell some of their assets retain a positive view towards the Japanese commercial real estate market as a whole. The findings indicate that many investors see the market reaching a turning point, with interest rates bottoming out but transaction prices remaining high for some asset classes and seeing it as an opportune timing to review their portfolios.

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