Commercial Property Investment in Japan Dips 9 Percent Annually in Q3

Commercial Property Investment in Japan Dips 9 Percent Annually in Q3

Commercial News » Tokyo Edition | By Michael Gerrity | November 8, 2023 9:38 AM ET

Yet domestic investor activity doubled year-over-year

According to new data by CBRE, commercial real estate investment volume in Japan fell by 9% year-over-year to JPY 945.0 billion in Q3 3023, largely because of an 80% decline in investment by foreign investors.

Purchasing was underpinned by J-REITs and non-J-REIT domestic investors, both of which were 2.4x of the same quarter of the previous year.

The most significant increase in investment volume was seen for hotels, where transaction volume was 3.5x that of Q3 2022, reaching JPY 195.0 billion. J-REITs were responsible for 75% of this figure, with this quarter recording the highest ever acquisition volume of hotels by J-REITs, says CBRE.

Expected yields in Tokyo for the major asset types fell to new record lows in all sectors other than offices and retail, both of which were unchanged from the previous quarter. Expected yields for offices in regional cities also declined to historical lows.

CBRE says cumulative transaction volume for the first three quarters of 2023 is up 27% y-o-y, driven by a 60% increase in investment by J-REITs. By asset types, purchasing was driven by hotel and logistics deals.

Investment by domestic investors doubled year-over-year

Commercial real estate transaction volume (transactions of JPY 1 billion or larger) fell by 9% y-o-y to JPY 945.0 billion in Q3 2023, largely because of an 80% drop in investment by foreign investors. The number of large transactions worth more than JPY 50 billion also slipped to just one third of the figure from the same quarter last year. However, investment volume for the quarter exceeded pre-pandemic Q3 levels from 2016 to 2019. Investment volume by J-REITs and non-J-REIT domestic were both 2.4x that of last year.

Retail attracted the bulk of investment volume this quarter, at JPY 321.0 billion, up by 111% y-o-y, reports CBRE. This was almost entirely due to Yodobashi Holdings' purchase of a portfolio held by Fortress Investment Group. The portfolio includes the land currently occupied by Sogo & Seibu's Ikebukuro department store and is reported as having cost approximately JPY 300 billion.

Hotels and logistics also registered y-o-y increases in investment volume. The most significant increase was seen in the former, where transaction volume reached JPY 195.0 billion, some 3.5x Q3 2022's figure of JPY 56.0 billion. J-REITs were responsible for 75% of investment in the hotel sector, headlined by Invincible's acquisition from its sponsor of a hotel in Okinawa, Fusaki Beach Resort Hotel & Villas, for JPY 40.3 billion (at a 5.6% yield based on actual NOI).

While acquisition volume in the office and residential sectors fell y-o-y, Q3 2023 did see several transactions with record low yields or large deals of more than JPY 10 billion. In the office sector, Japan Real Estate acquired Forecast Sakaisuji Honmachi at an estimated NOI of 3.5%, while in the residential sector, Singapore's City Developments purchased a portfolio from Canada's BentallGreenOak for JPY 35.0 billion, says CBRE.

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