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Japan Real Estate Fourth Quarter 2013
October 2013
Research Report
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013
Table of Contents
Executive Summary ............................................................................ 1
Macro Economy .................................................................................. 2
Capital Market ..................................................................................... 4
Lending ................................................................................... 4
Pricing .................................................................................... 4
Transactions ........................................................................... 6
Performance ........................................................................... 7
J-REITs .................................................................................. 8
Market Fundamentals ....................................................................... 10
Office .................................................................................... 10
Residential ............................................................................ 13
Industrial ............................................................................... 15
Past Issues ....................................................................................... 17
Important Notes ................................................................................ 18
Research & Strategy Team – Alternatives and Real Assets .............. 19
Prepared By:
Koichiro (Ko) Obu
Head of Research & Strategy
Asia Pacific
+81 (0) 3 5156 6522
Minxuan Hu
Property Market Research
+81 (0) 3 5156 6525
Mark Roberts
Head of Research & Strategy
+1(212) 454-0974
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 1
Executive Summary
Economy: Abenomics — a policy that combines aggressive monetary easing and fiscal
stimulus — has put Japan’s economy on a path toward rapid recovery. GDP grew at an
annualised rate of 3.8% in the second quarter of 2013 as consumer sentiment improved
and exports increased. The Tankan Survey conducted by the Bank of Japan (BoJ) made
a large leap in the third quarter 2013, rising from an index value of 8 in June to 13 in
September, its highest level in five-and–a-half years. Encouraged by the healthy
economic recovery, the government moved ahead with its plan to increase the
consumption tax (VAT) rate from 5% to 8% in April 2014. The tax hike, intended to
address long-term public debt, is also expected to moderate near-term GDP growth in
2014.
Capital market: The current government’s “re-flation” policy to tackle the decade-long
spiral of deflation has started to produce results, with Japan’s core CPI inflation rate once
again entering positive territory. Japan’s credit conditions remain favourable for borrowers.
Fuelled by recovering real estate fundamentals in Japan, the J-REIT index rose to 1,500
at the end of September 2013, a 15.0% improvement in two months. This is unique
among other global REITs, most of which declined during this period due to an uptick in
long-term interest rates. The aggregate amount of capital raised by equity offerings by J-
REITs was JPY 625 billion in the last seven months (preliminary). Given this ample new
capital, J-REITs remained the most active purchasers in the local market.
Property markets: A new housing boom seems to have arrived to Japan. The average
sales price per unit for newly-built for-sale condos in Greater Tokyo rose to JPY 49.8
million in July/August 2013 (preliminary), an increase of 9.3% from the same period a year
earlier, and the highest average price in the last 20 years. Leasing markets, in general,
have made steady improvements, with vacancy rates recovering in the office, logistics,
and residential sectors. Signs of rental recovery are less consistent across sectors, with
the recovery still patchy and nascent. A robust recovery in rents across all property
sectors has yet to take hold.
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 2
Macro Economy
Aggressive monetary easing and fiscal stimulus — policies referred to as “Abenomics” in
reference to Shinzo Abe, Japan’s prime minister — have put Japan’s economy on a path
toward rapid recovery. GDP grew at an annualised rate of 3.8% in the second quarter of
2013 as consumer sentiment improved and exports increased. The buoyant sentiment
strengthened even further with Tokyo’s selection in September 2013 as the host city for
2020 Summer Olympic Games. Encouraged by the healthy economic recovery, the
government moved ahead with its plan to increase the consumption tax (VAT) rate from
5% to 8% in April 2014 just as initially scheduled. The tax hike, intended to address long-
term public debt, is also expected to moderate near-term GDP growth in 2014.
Exhibit 1 — GDP Growth Outlook for Japan
Notes: F = forecast, there is no guarantee forecast growth will materialise. Please refer to Important Notes (see end of report)
Sources: Deutsche Bank “Japan Economics Weekly”
As of October 2013
The Diffusion Index (DI) of the Tankan Survey conducted by the Bank of Japan (BoJ)
made a large leap in the third quarter 2013. The DI improved from an index value of 8 in
June 2013 to 13 in September 2013, the highest level in the five-and–a-half years since
March 2008. The outlook for December 2013 is stable. The recovery is evident especially
among large-sized manufacturers and construction firms. The Business Condition Leading
Index reported by Japan’s Cabinet Office remains at a six-year high, indicating a
sustainable, healthy recovery.
Exhibit 2 — Diffusion Index of Business Conditions
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Asset & Wealth Management
As of October 2013
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013E
2014F
2015F
2016F
2017F
Q1 Q2 Q3 Q4 annual growth
DB Forecast
Global Financial Crisis
Dot-com Bubble burst
Consumption Tax Increase Asian Financial Crisis Earthquake
aftermath
ConsumptionTax Increase
-50
-25
0
25
50
74
87
100
113
126
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Business Condition Leading Index (LHS) Diffusion Index of Tankan Survey (RHS)
Diffusion Index of Business Conditions:('favourable' minus 'unfavourable', % points)
(2010=100)
Dot.com Bubble burst
Global Financial CrisisConsumption
Tax increase
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 3
Long-term interest rates in Japan are expected to rise in accordance with the possible
tapering of quantitative easing in the United States later this year and in early 2014, but
the impact in Japan is expected to be limited compared to other Asian countries. The 10-
year government bond yield is forecast to rise only moderately from the current 0.7% to
around 1% by the end of 2013 or in early 2014.
The current government’s “re-flation” policy to tackle the decade-long spiral of deflation
has started to produce results, with Japan’s core CPI inflation rate once again entering
positive territory. The upward momentum will likely reach its peak in the first half of 2014,
with CPI reaching around 1.3% on a like-for-like basis (excluding the effect of the planned
consumption tax increase), or 3.4% including the consumption tax effect.
Exhibit 3 — Forecast of Interest Rate and CPI
Notes: F = forecast, there is no guarantee rates forecasted will materialise. JGB = Japanese Government Bond. CPI = Consumer Price Index. Please refer to Important Notes (see end of report)
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Bank
As of October 2013
-3
-2
-1
0
1
2
3
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
E
20
14
F
20
15
F
20
16
F
20
17
F
Call Rate (overnight) 10y JGB
CPI CPI incl tax effect(%)
DB Forecast
Consumption Tax hike in April 2014
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 4
Capital Market
Lending
Japan’s credit conditions remain favourable for borrowers. The Bank of Japan’s DI for
lending attitudes of banks to the real estate industry (orange line in Exhibit 4) remained at
an index value of 16 in September 2013, the highest level in five years. The lending
volume to new real estate projects increased by 10.5% in the second quarter of 2013
(year-on-year), reflecting the active deal flow during the period.
Exhibit 4 — Real Estate Lending by Japanese Banks
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Asset & Wealth Management
As of October 2013
Vigorous J-REIT activities kept the volume of real estate transactions elevated in the third
quarter of 2013. The preliminary transaction volume in the rolling 12 months to September
2013 exceeded JPY 3.0 trillion for the first time since September 2008. This increase
occurred along with a recovery in the lending attitudes of banks. The positive trend is
expected to continue through the foreseeable future.
Exhibit 5 — Real Estate Transaction Volume and Lending Attitude DI
Notes: E = preliminary estimate. Please refer to Important Notes (see end of report)
Sources: Urban Research Institute, Bank of Japan, Real Capital Analytics, Deutsche Asset & Wealth Management
As of October 2013
F = forecast, there is no guarantee rate forecasted will materialise (see end of report)
Pricing
The TMAX all-property “economic” cap rate which incorporates actual market prices
tightened to 5.24% in June 2013, the lowest level in five years. This is in line with the
-40
-20
0
20
-40%
-20%
0%
20%2008.0
3
2008.0
6
2008.0
9
2008.1
2
2009.0
3
2009.0
6
2009.0
9
2009.1
2
2010.0
3
2010.0
6
2010.0
9
2010.1
2
2011.0
3
2011.0
6
2011.0
9
2011.1
2
20
12
.03
2012.0
6
2012.0
9
2012.1
2
2013.0
3
2013.0
6
2013.0
9
growth of lending to new projects (yoy, LHS)lending attitude DI to all industries (RHS)lending attitude DI to real estate industries (RHS)
Diffu
sio
n In
dex
-36
-24
-12
0
12
24
36
0
1
2
3
4
5
6
2000
.09
2001
.03
2001.0
9
2002
.03
2002
.09
2003
.03
2003
.09
2004
.03
2004
.09
2005
.03
2005
.09
2006
.03
2006
.09
2007
.03
2007
.09
2008
.03
2008
.09
2009
.03
2009
.09
2010.0
3
2010
.09
2011
.03
2011
.09
2012
.03
2012.0
9
2013
.03
2013
.09E
2014.0
3F
transaction volume (12 months, LHS) lending attitude DI (6 months prior, RHS)
(JPY tn)
Diffu
sio
n In
dex (D
I)
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 5
continuous compression of office appraisal cap rates in Tokyo, which reached a
preliminary 3.97% in June 2013. The gap between the cap rates of the office and
residential sectors widened, reflecting a stronger anticipation of rent increases in the office
sector. The average yield spread — the difference between the cap rates and 10 year
bond yields — declined by 40 basis points to 430 basis points in Tokyo. The city remains,
nevertheless, one of the most attractive spreads among the major global markets.
Exhibit 6 — Cap Rate (appraisal) and Yield Spread (transacted)
Average Appraisal Cap Rate for Assets Held by J-REITs
Average Office Yield Spread for
Actual Transactions
Notes: Past performance is no guarantee of future results
Sources: ARES, TMAX, Real Capital Analytics, Bloomberg, Deutsche Asset & Wealth Management
As of October 2013
The TMAX Commercial Property Price Index1, a measurement incorporating actual market
price trends, rebounded to 86.2 in August 2013, marking three consecutive quarters of
recovery. The TMAX index is expected to increase strongly through the remainder of the
year, aligning more closely with the J-REIT index, which is a leading indicator of
commercial real estate prices in Japan.
Exhibit 7 — Real Estate Capital Value in Japan
Notes: TMAX (Oct 2005=100) and ARES AJPI (31 December 2001=100).
Sources: ARES, TMAX, Bloomberg, Deutsche Asset & Wealth Management
As of October 2013
1 TMAX Commercial Property Price Index, provided by TMAX (a real estate appraisal and market research company in Japan), measures the current price of
commercial real estate owned by J-REIT.
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2
2007 2008 2009 2010 2011 2012 13
Tokyo Office Osaka Office
Tokyo Residential Osaka Residential
TMAX Economic
preliminary
-1%
0%
1%
2%
3%
4%
5%
6%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2007 2008 2009 2010 2011 2012 13
Tokyo Manhattan
Central London Hong Kong
Singapore Sydney
0
800
1600
2400
70
90
110
130
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
TMAX Property Price Index (LHS) J-REIT (stock, RHS)
Sep 08Global Financial Crisis
Mar 11Tohoku Earthquake
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 6
Transactions
Among the transactions completed or announced since July 2013 that exceed JPY 10
billion, J-REITs continued to be the most active buyers, but corporate investors, high net
worth individuals, and private REITs also actively bought assets, including Tiffany Ginza
(acquired by Masayoshi Son, an individual investor, for JPY 32 billion) and Tamagawa
Renaissance City (acquired by NEC Corporation for JPY 58 billion). The largest
transaction in value was Shiba Park Building, a JPY 110 billion purchase by a consortium
of Asia Pacific Japan (APJ), Secured Capital, Abu Dhabi Investment Council (ADIC), and
CV Starr. The most expensive unit price was recorded by the sale of Tiffany Ginza, at JPY
5.6 million per square metre.
Exhibit 8 — Major Transactions in the Third Quarter 2013
Notes: Non-office deals, assets outside Tokyo, and acquisitions by foreign managers are highlighted in gray. This table is prepared solely for information purposes and not intended to recommend or endorse any specific company's shares or other products.
Sources: Real Capital Analytics, Nikkei Real Estate Market Report, Deutsche Asset & Wealth Management
As of October 2013
Tokyo’s volume of commercial real estate transactions for the rolling 12-month period
ending in September 2013 was US$29.0 billion, a 23% increase from the previous 12-
month run ended June 2013. Tokyo ranked third among global cities in transaction volume,
up from fourth place at the end of June 2013. Within the Asia Pacific region, Tokyo
maintained the top position for transaction volume. About 60% of these transactions were
by J-REITs, according to Deutsche Asset & Wealth Management’s (DeAWM’s) own
estimates.
Month Type Asset
Price
(JPY
billion)
Unit price
(JPY m
/sqm)
Cap
rates
Pre-
fectureAcquired by
Investor
origin
Mar-13 residential MUSEUM TOWER - - - Hyogo Private Investor Hong Kong
Apr-13 residentialApartments in Tokyo
(9 properties)- - - Tokyo Goldman Sachs US
May-13 office/retail MG Yakuin Bldg - - - Fukuoka Goldman Sachs US
May-13 office Aoyama Kyodo Bldg - - - Tokyo Goldman Sachs US
May-13 office/retail Creglanz Shimbashi ll - - - Tokyo Private Investor Taiwan
Jun-13 retail Aeon Mall Kashiwa 約130 - 約6% Chiba Diamond Realty Management Japan
Jun-13 retail/office Quartier Blanc GINZA - - - Tokyo Global Investments Japan Malaysia
Jul-13 office Akasaka Business Place 9 0.68 4.8% Tokyo Daiwa Office (REIT) Japan
Jul-13 office TKS Musashi Kosugi Bldg 9 0.56 - Kanagawa Kenedix Japan
Jul-13 retail/officeKaleido-Shibuya etc
(3 properties)25 1.15 5.2% Tokyo TOKYU REIT Japan
Jul-13 dev. siteNissan Motor's Shonan No.1
Factory16 0.11 - Kanagawa Mitsui Fudosan Japan
Jul-13 officeFormer HQ of Kirin in Shinkawa
and Harajuku20 - - Tokyo
Tokyo Tatemono , Stern Chuo,
Kyoju no kaiJapan
Jul-13logistics /
officeShiomi Bldg 14 0.26 - Tokyo Senko Co. Japan
Aug-13 logisticsMusashi Murayama Logistics
Centre9 0.21 - Tokyo Japan Logistics Fund (REIT) Japan
Aug-13 hotel Sheraton Grande Tokyo Bay 42 0.39 - Chiba Fortress US
Aug-13 office Shiba Park Bldg 110 1.13 - Tokyo
Asia Pacific Land, Secured
Capital, Abu Dhabi Investment
Council, CV Starr
US/UAE/
Japan
Aug-13 office2.8% of Roppongi Hills Mori
Tower22 2.54 4.0% Tokyo Mori Hills REIT Japan
Aug-13 office50% of Nihonbashi-Muromachi
Center Bldg14 1.23 - Tokyo Mitsui Fudosan Japan
Aug-13 office/retailItopia Nihonbashi SA Bldg,
Ginza 4chome Tower12 1.44 - Tokyo Kenedix REIT Japan
Aug-13 dev. site Ginza Branch, Tokyo Electric 24 2.97 - Tokyo Yomiuri Shimbun Japan
Aug-13 dev. site Dev. Site in Ariake, Koto-ku 42 1.16 - Tokyo Daiwa House Industry Japan
Sep-13 logistics GLP Urayasu III 18 0.27 - Chiba GLP REIT Japan
Sep-13 retail Value Plaza Ageo Atago 6 0.14 - Saitama Morgan Stanley US
Sep-13 retailKawasaki Le Front etc
(8 properties)74 0.53 6.2%
Kanagawa,
Osaka and
others
Japan Retail Fund (REIT) Japan
Sep-13 logisticsSG Realty Yokohama etc
(2 properties) and a dev. site19 0.33 5.3%
Kanagawa, Gifu
and othersJapan Logistics Fund (REIT) Japan
Sep-13 dev. site Dev. Site in Ibaraki City, Osaka 1 0.07 - Osaka Digital Realty Trust (REIT) US
Sep-13 health care senior housing (7 properties) 5 0.22 -Mie, Ehime and
othersParkway Life REIT Singapore
Sep-13 retail Recipe SHIMOKITA 10 1.22 4.4% SetagayaNomura Real Estate Master
FundJapan
Sep-13 office Tamagawa Renaissance City 58 0.31 - Kanagawa NEC Japan
Sep-13 retail Tiffany & Co 32 5.64 2.6% Tokyo Private Investor Japan
Oct-13 office/retail J Tower etc (20 properties) 75 0.45 5.9%Tokyo, Osaka
and others
Simplex Investment Advisors
(REIT IPO)Japan
Nov-13 retail
AEON Lake Town and AEON
Taman Universiti Shopping
Centre etc (16 properties)
142 - -
Saitama,
Malaysia and
others
Aeon REIT (IPO) Japan
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 7
Exhibit 9 — Real Estate Transaction Volume by City (12 months to Sept)
2013)
Notes: Commercial real estate transactions exclude non-income producing assets, such as development site transactions
Sources: Real Capital Analytics, Deutsche Asset & Wealth Management
As of October 2013
Performance
IPD reported that the average annual total return for unlevered direct real estate
investment in Japan edged up to a preliminary 4.5% in June 2013 (the latest period
available), representing an improvement from 3.9% in March 2013. Among the major
property sectors, office returns still lagged at 2.9% for the 12 months ended in June 2013,
while all the other sectors, including retail, residential, and logistics posted 6%-7% returns
during the period.
Exhibit 10 — Real Estate Total Returns in Japan (unlevered)
Total Return by Component Total Return by Sector
Notes: There is a time lag because of raw data being collected through semi-annual reports. Past performance is not indicative of future results
Sources: IPD Japan Monthly Indicator, Deutsche Asset & Wealth Management
As of October 2013
0 10 20 30 40 50
NYC Metro
London Metro
LA Metro
SF Metro
DC Metro
Paris
Hong Kong
Chicago
Singapore
Sydney
Seoul
Shanghai
Beijing
Guangzhou
Taipei
Office Retail Apartment Industrial Hotel
Tokyo
($bn)
othersJ-REITs
Osaka
~
~
-15%
-10%
-5%
0%
5%
10%
15%
20
04
20
06
20
08
.03
20
08
.09
20
09
.03
20
09
.09
20
10
.03
20
10
.09
20
11
.03
20
11
.09
20
12
.03
20
12
.09
20
13
.03
20
13
.09
Total Return Income Return
Capital Growth
preliminary
-15%
-10%
-5%
0%
5%
10%
15%
20
04
20
06
20
08
.03
20
08
.09
20
09
.03
20
09
.09
20
10
.03
20
10
.09
20
11
.03
20
11
.09
20
12
.03
20
12
.09
20
13
.03
20
13
.09
Office Retail
Residential Industrial
preliminary
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 8
J-REITs
Fuelled by recovering real estate fundamentals in Japan, the J-REIT index rose to 1,500
at the end of September 2013, a 15.0% improvement in two months. This is unique
among other global REITs, most of which declined during this period due to an uptick in
long-term interest rates.
Exhibit 11 — J-REIT Index and Long-Term Global Comparison
J-REIT Index and Nikkei 225 (5-year) Global REIT Comparison (10-year)
Notes: Past performance is not indicative of future results. Tokyo Stock Exchange REIT Index (J-REIT), FTSE NAREIT All Equity REITS Index (US-REIT),
S&P/ASX 200 A-REIT Index (A-REIT), FTSE ST REIT Index (S-REIT)
Sources: Bloomberg, Deutsche Asset & Wealth Management
As of October 2013
On average, the expected J-REIT dividend yield was 4.2% overall (and 3.4% for office
REITs) in August 2013. This represents an increase of more than 90 basis points in just
five months from March 2013 while the long term bond yields edged up only 6 basis points
during the same period. The J-REIT dividend yield, therefore, provides a healthy spread of
more than 340 basis points (and 270 basis points for office REITs) over the 10-year
government bond yield. The spread is believed to have compressed in September due to
the stock price recovery but is still healthier than that of the US-REIT and the UK-REIT
(about 100 basis points or even below).
Exhibit 12 — J-REIT Expected Dividend Yield
Notes: Past performance is no guarantee of future results. JGB = Japanese Government Bond. Commercial real estate transactions exclude non-income producing assets, such as development site transactions
Sources: Sumitomo Mitsui Trust Research Institute, Bloomberg, Deutsche Asset & Wealth Management
As of October 2013
7,000
10,000
13,000
16,000
19,000
700
1,000
1,300
1,600
1,900
20
08
.10
20
09
.04
20
09
.10
20
10
.04
20
10
.10
20
11
.04
20
11
.10
20
12
.04
20
12
.10
20
13
.04
20
13
.10
J-REIT Index (LHS)
Nikkei 225 (RHS)
(JPY)
50
100
150
200
250
300
350
400
20
03.0
92
00
4.0
32
00
4.0
92
00
5.0
32
00
5.0
92
00
6.0
32
00
6.0
92
00
7.0
32
00
7.0
92
00
8.0
32
00
8.0
92
00
9.0
32
00
9.0
92
01
0.0
32
01
0.0
92
01
1.0
32
01
1.0
92
01
2.0
32
01
2.0
92
01
3.0
32
01
3.0
9
J-REIT US-REIT
A-REIT (Australia) S-REIT (Singapore)
(Mar-09 = 100)
0%
2%
4%
6%
8%
2001.0
8
2002.0
2
2002.0
8
2003.0
2
2003.0
8
2004.0
2
2004.0
8
2005.0
2
2005.0
8
2006.0
2
2006.0
8
2007.0
2
2007.0
8
2008.0
2
2008.0
8
2009.0
2
2009.0
8
2010.0
2
2010.0
8
2011.0
2
2011.0
8
2012.0
2
2012.0
8
2013.0
2
2013.0
8
J-REIT Office REIT 10Y JGB
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 9
The J-REIT market has continued to attract new capital from retail investors. Three new
listings and many other secondary offerings have occurred or were announced since July
2013. The aggregate amount of capital raised by these offerings was JPY 625 billion in
the last seven months (preliminary), still at a very buoyant level allowing continuous active
purchase activities.
Exhibit 13 — Capital Raising and Transactions by REITs in Japan
Notes: Commercial real estate transactions exclude non-income producing assets, such as development site transactions
Sources: ARES, Nikkei, Deutsche Asset & Wealth Management
As of October 2013
The volume of commercial real estate transactions in Japan in the six months to
September 2013 was a preliminary JPY 1.39 trillion, about 70% of which involved
acquisitions by listed J-REITs. This marked the highest six-month total on record,
surpassing the previous six months ended in March 2013 (66%).
Exhibit 14 — Real Estate Transactions in Japan and J-REIT Share
Notes: E = preliminary estimate. Commercial real estate transactions exclude non-income producing assets, such as development site transactions
Sources: ARES, Urban Research Institute, Real Capital Analytics, Deutsche Asset & Wealth Management
As of October 2013
Name of REIT Month JPY bn
Public Offerings
previous POs total Apr-Jun 126
Japan Logistics Fund Sep-13 16
GLP J-REIT Sep-13 23
Japan Retail Fund Oct-13 43
Mori Hills REIT Oct-13 11
other POs Jul-Sep 109
Total 329
Initial Public Offerings
other IPOs Apr-Aug 161
Hoshino Resorts REIT Jul-13 10
Simplex Investment Advisors Oct-13 35
Aeon REIT Nov-13 90
Total 296
Planned: Hulic, Shinsei Bank, SMBC (NEC), Kenedix
0.0
0.5
1.02001.0
92002.0
32002.0
92003.0
32003.0
92004.0
32004.0
92005.0
32005.0
92006.0
32006.0
92007.0
32007.0
92008.0
32008.0
92009.0
32009.0
92010.0
32010.0
92011.0
32011.0
92012.0
32012.0
92013.0
32013.1
0E
Bond3rd Party AllotmentPublic OfferingIPO
JPY tn
Net Acquisitionby J-REITs
-20%
0%
20%
40%
60%
80%
-1
0
1
2
3
4
2000.0
9
2001.0
3
2001.0
9
2002.0
3
2002.0
9
2003.0
3
2003.0
9
2004.0
3
2004.0
9
2005.0
3
2005.0
9
2006.0
3
2006.0
9
2007.0
3
2007.0
9
2008.0
3
2008.0
9
2009.0
3
2009.0
9
2010.0
3
2010.0
9
2011.0
3
2011.0
9
2012.0
3
2012.0
9
2013.0
3
2013.0
9
Acquisition by others
Acquisition by J-REITs
Disposition by J-REITs
(JPY tn)
J-REIT share (%) of all transactions (RHS)
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 10
Market Fundamentals
Office
The amount of new office supply in Tokyo peaked in 2012, and the office vacancy rate in
the central five wards has since been recovering. The average office vacancy rate was
8.2% in August 2013, a healthy improvement from 9.2% in the same month of the
previous year. The vacancy rate for newly developed buildings rose to 17.9% in August
from 11.1% last quarter. This uptick followed a rapid, continuous recovery in the previous
five quarters. At 17.9%, this represented a manageable level compared to the peak
vacancy of 39.2% a year earlier.
Exhibit 15 — Office Vacancy Rate in Central Tokyo (5 wards)
Notes: GFA = gross floor area. sqm = square metres
Sources: Miki Shoji, Deutsche Asset & Wealth Management
As of October 2013
In the eight months to August 2013, the vacancy rate in Tokyo steadily declined across all
categories of floor plate sizes. For larger assets with a floor plate size of more than 200
tsubos2 (660 square metres), the vacancy rate dropped from 6.6% to 5.7% in the period
while it declined from 11.5% to 9.7% for the smallest category of assets, i.e., floor plates
of 50-100 tsubos (165-330 square metres).
2 The tsubo is a traditional measure of floor area in Japan. It is equivalent to 3.3 square metres (35.6 square feet)
Building Date Floors Phase GFA (sqm)
Mar-12 10 East 39,025
May-12 21 South 190,000
Sumitomo RD Shibuya Garden Tower Jun-12 22 61,600
Ark Hills Sengokuyama Mori Tower Aug-12 47 143,720
Sep-12 31 North 110,000
Sep-12 35 South 132,500
WATERRAS TOWER Feb-13 41 129,223
New Kabuki-za Theater Building Feb-13 29 94,097
Tokyo Square Garden Mar-13 24 117,025
Ochanomizu Sola City Mar-13 23 102,179
Lazona-Kawasaki Toshiba Bldg Mar-13 15 104,594
ARK Hills South Tower Sep-13 20 55,033
Major Office Supply in Tokyo
Nakano Central Park
Otemachi Financial City
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 11
Exhibit 16 — Office Vacancy Rate in Central Tokyo by Building Floor Plate
Notes: sqm = square metres
Sources: Sanko Estate, Deutsche Asset & Wealth Management
As of October 2013
Historically, office rental growth rates correlate inversely to the vacancy rate. The vacancy
rate for buildings with floor plates of 200 tsubos (660 square metres) or more was 5.7% in
Tokyo in September 2013, close to the pivotal 5% threshold. Average office rents in this
category rose by 3.8% in the second quarter from the previous year.
Exhibit 17 — Vacancy Rate and Rent Growth in Tokyo (floor plate > 660 sqm)
Sources: Miki Shoji, Sanko Estate, Deutsche Asset & Wealth Management
As of October 2013
The average rent for prime offices in Tokyo stepped up 2.1% in the two months to August
2013 while rent for newly-built offices posted a temporary decline following rapid growth in
previous two quarters. The all-class average rent softened slightly during the same period,
falling -0.8%. Given a steady recovery in the vacancy rate, rent stabilisation is expected in
late 2013 or early 2014.
0%
4%
8%
12%
19
96
.08
19
97
.02
19
97
.08
19
98
.02
19
98
.08
19
99
.02
19
99
.08
20
00
.02
20
00
.08
20
01
.02
20
01
.08
20
02
.02
20
02
.08
20
03
.02
20
03
.08
20
04
.02
20
04
.08
20
05
.02
20
05
.08
20
06
.02
20
06
.08
20
07
.02
20
07
.08
20
08
.02
20
08
.08
20
09
.02
20
09
.08
20
10
.02
20
10
.08
20
11
.02
20
11
.08
20
12
.02
20
12
.08
20
13
.02
20
13
.08
Floor Plate : 165 sqm - 330sqm Floor Plate : 330 sqm - 660 sqm Floor Plate > 660 sqm
1%
3%
5%
7%
9%
11%-12%
-8%
-4%
0%
4%
8%
19
95
.09
19
96
.09
19
97
.09
19
98
.09
19
99
.09
20
00
.09
20
01
.09
20
02
.09
20
03
.09
20
04
.09
20
05
.09
20
06
.09
20
07
.09
20
08
.09
20
09
.09
20
10
.09
20
11
.09
20
12
.09
20
13
.09
Actual Rent Growth (QoQ, 3Q rolling avg.) Vacancy Rate (RHS)
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 12
Exhibit 18 — Office Asking Rent in Central Tokyo by Building Floor Plate
Notes: F = forecast, there is no guarantee forecast rents will materialise. Please refer to Important Notes (see end of report)
*The tsubo is a traditional measure of floor area in Japan. It is equivalent to 3.3 square metres (35.6 square feet)
Sources: Miki Shoji, Sanko Estate, Deutsche Asset & Wealth Management
As of October 2013
Due to limited supply of new buildings, office vacancy rates continued to recover in most
of Japan’s regional cities. The vacancy rate in Osaka declined to 10.3%, a significant
improvement from 11.3% at the beginning of the year, while it widened marginally in
Sapporo due to weak demand among call centres.
Exhibit 19 — Office Vacancy Rates in Major Cities in Japan (all grades)
Notes: P = plan. Please refer to Important Notes (see end of report)
sqm = square metres
Sources: Miki Shoji, Sanko Estate, Deutsche Asset & Wealth Management
As of October 2013
10,000
20,000
30,000
40,000
50,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008.0
32008.0
62008.0
92008.1
22009.0
32009.0
62009.0
92009.1
22010.0
32010.0
62010.0
92010.1
22011.0
32011.0
62011.0
92011.1
22012.0
32012.0
62012.0
92012.1
22013.0
32013.0
62013.0
82013.1
2F
(JPY/tsubo*/mon) (USD/sqf/year)
109
182
145
73
Prime Buildings in CBD
floor plate > 660 sqm
All classesfloor plate > 330 sqm
Newly builtfloor plate > 330 sqm
DB Forecast
0
4
8
12
16
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
.03
20
13
.06
20
13
.08
Sapporo Fukuoka Nagoya Osaka Tokyo(%)
Building Date Floors GFA (sqm)
ORE Nishiki 2 chome (Nagoya) Aug-12 13 21,105
Nakanoshima Festival Tower (Osaka) Oct-12 39 146,395
Daibiru Honkan (Osaka) Feb-13 22 48,153
Grand Front Osaka A/B (Osaka) Mar-13 38 net 236,800
Nagoya Tokio Marine-Nichido Bldg May-13 15 10,854
NTT Shin Aoba dori Bldg (Sendai) 2013P 14 29,574
Fuji Film Orix Sakae 1-chome (Nagoya) 2013P 14 21,637
Major Office Completion in Regional Cities
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 13
Retail Average high street retail rents started to rise in the first quarter of 2013 in the top
submarkets in Tokyo, and the trend continued in the second quarter. Rents increased
4.8% in Ginza and 7.2% in Omotesando in the second quarter compared to the same
period last year. Improved consumer confidence and the increasing number of foreign
visitor arrivals contributed to the recovery for high street retail stores. Among other
submarkets in Tokyo, however, average rents softened marginally.
Exhibit 20 — Average High Street Retail Asking Rents in Tokyo and Osaka
Sources: Attractors Lab, Miki Shoji, Deutsche Asset & Wealth Management
As of October 2013
Sales at shopping centres, department stores, and chain stores were broadly flat in July
and August 2013, compared to the same period a year earlier (on an existing store basis).
This indicates the combination of continuous strong demand for luxury goods and
stagnant demand for consumer staples such as groceries and daily commodities.
Improved consumer sentiment is expected to boost retail demand in coming months while
gradually increasing consumer prices present a potential deterrent to demand.
Exhibit 21 — Retail Sales Growth in Japan (year on year)
Sources: JCSC, JDSA, JCSA, Deutsche Asset & Wealth Management
As of October 2013
Residential
A new housing boom seems to have arrived to Japan. The average sales price per unit for
newly-built for-sale condos in Greater Tokyo rose to JPY 49.8 million in July/August 2013
10,000
20,000
30,000
40,000
50,000
2008.0
3
2008.0
6
2008.0
9
2008.1
2
2009.0
3
2009.0
6
2009.0
9
2009.1
2
2010.0
3
2010.0
6
2010.0
9
2010.1
2
2011.0
3
2011.0
6
2011.0
9
2011.1
2
2012.0
3
2012.0
6
2012.0
9
2012.1
2
2013.0
3
2013.0
6
Ginza Omotesando Shinjuku
Shibuya Shinsaibashi Office (Central Tokyo)(JPY/tsubo/mon)
-15%
-10%
-5%
0%
5%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
.03
20
08
.06
20
08
.09
20
08
.12
20
09
.03
20
09
.06
20
09
.09
20
09
.12
20
10
.03
20
10
.06
20
10
.09
20
10
.12
20
11
.03
20
11
.06
20
11
.09
20
11
.12
20
12
.03
20
12
.06
20
12
.09
20
12
.12
20
13
.03
20
13
.06
20
13
.08
Shopping Centre Department Store Chain Store
(for existing stores for all categories)
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 14
(preliminary), an increase of 9.3% from the same period a year earlier, and the highest
average price in the last 20 years. The number of units sold rose 40.2% over the same
period a year ago, the fastest rate of growth in five years. The contract rate exceeded
80.0% in the period, also the highest rate in the last five years. This recovery was broadly
in line with our previous forecasts, and is believed to be driven by the current buoyant
economic sentiment, strong anticipation of possible inflation ahead, and an expectation
that the consumption tax will be increased in April 2014.3 We expect the average sales
price to remain strong for the remainder of the year.
Exhibit 22 — New Condo Unit Price and Contract Rate in Greater Tokyo
Sources: REEI, Deutsche Asset & Wealth Management
As of October 2013
Limited development of new residential rental units kept the vacancy rate on a recovering
trend in Tokyo in the last two years, although it widened marginally to 10.1% in July 2013
from 9.99% in January in the 23-ward area of Tokyo (orange line in Exhibit 23). Rents
increased 0.29% in the 23-ward area (gray bar) in the same period while they rose 0.70%
in central five-ward area (dark blue bar).
Exhibit 23 — Residential Rent and Vacancy in Tokyo
Notes: The tsubo is a traditional measure of floor area in Japan. It is equivalent to 3.3 square metres (35.6 square feet)
Sources: TAS Corporation with data sourced from At Home Co. Ltd. (23-ward vacancy), Leasing Management Consulting (5-ward asking rent), IPD-RECRUIT Residential Index (23-ward rent index)
As of October 2013
3 The housing mortgage tax incentive will be increased together with the consumption tax hike in April 2013, so the average net effect is expected to
be minimal (if any), while many house buyers do not seem to fully understand it. Please refer to the research topic of the past edition of this report, Japan Real Estate Quarterly First Quarter 2013.
-60%
-30%
0%
30%
35
40
45
50
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007.0
32007.0
62007.0
92007.1
22008.0
32008.0
62008.0
92008.1
22009.0
32009.0
62009.0
92009.1
22010.0
32010.0
62010.0
92010.1
22011.0
32011.0
62011.0
92011.1
22012.0
32012.0
62012.0
92012.1
22013.0
32013.0
62013.0
8
Avg. unit price (LHS) Units Sold YoY (RHS)(JPY mn/unit)
7
8
9
10
11
13,100
13,500
13,900
14,300
14,700
20
05
.03
20
05
.12
20
06
.09
20
07
.06
20
08
.03
20
08
.12
20
09
.09
20
10
.01
20
10
.04
20
10
.07
20
10
.10
20
11
.01
20
11
.04
20
11
.07
20
11
.10
20
12
.01
20
12
.04
20
12
.07
20
12
.10
20
13
.01
20
13
.04
20
13
.07
23 ward Rent Index5 ward Asking Rent
(JPY/tsubo) (%)(Index)
103
106
109
100
97
23 ward Vacancy (RHS)(%)
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 15
The vacancy rate of high-end apartments in Tokyo declined from 9.15% in the first quarter
of 2013 to 8.0% in the second quarter of 2013 reflecting a demand recovery in the high
end market. This uptick in demand has yet to impact rents, which held almost flat in the
same period. The rental market for high-end residential units correlates closely with the
office sector, and seems to be stabilising.
Exhibit 24 — High-end Residential Rent and Vacancy Rate in Tokyo
Sources: Ken Real Estate Investment Advisors Ltd., Miki Shoji, Deutsche Asset & Wealth Management
As of October 2013
Industrial
Due to a combination of limited supply and healthy demand for modern spaces, the
leasing market for multi-tenant logistics assets remained tight in the second quarter of
2013, with 2.4% vacancy in Greater Tokyo and 1.2% in Greater Osaka. Given this tight
market, average logistics rents increased 3.2% in Greater Tokyo in the first half of 2013
while it was almost flat in Greater Osaka.
Exhibit 25 — Logistics Leasing Market in Greater Tokyo and Greater Osaka
Vacancy Rate of Multi-tenant Logistics Logistics Rent
Notes: F = forecast, there is no guarantee forecast returns will materialise. Past performance is not indicative of future results.
Sources: Ichigo Real Estate Service, Deutsche Asset & Wealth Management
As of October 2013
0
3
6
9
12
15
7,000
10,000
13,000
16,000
19,000
22,000
25,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008.0
3
2008.0
6
2008.0
9
2008.1
2
2009.0
3
2009.0
6
2009.0
9
2009.1
2
2010.0
3
2010.0
6
2010.0
9
2010.1
2
2011.0
3
2011.0
6
2011.0
9
2011.1
2
2012.0
3
2012.0
6
2012.0
9
2012.1
2
2013.0
3
2013.0
6
office rent high end residential rent
office vacancy high end residential vacancy(Yen/tsubo/month) (%)
QuarterlyAnnually
0%
5%
10%
15%
20%
20
08
.06
20
08
.12
20
09
.06
20
09
.12
20
10
.06
20
10
.12
20
11
.06
20
11
.12
20
12
.06
20
12
.12
20
13
.06
20
13
.12
F
Greater Tokyo Greater Osaka
forecast by Ichigo
1,000
2,000
3,000
4,000
5,000
2008.0
6
2008.1
2
2009.0
6
2009.1
2
2010.0
6
2010.1
2
2011.0
6
2011.1
2
2012.0
6
2012.1
2
2013.0
6
2013.1
2F
Greater Tokyo
Greater Osaka (JPY/tsubo/month)
forecast by Ichigo
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 16
With a number of new completions scheduled in the second half of 2013 and 2014,
however, the vacancy rate is expected to increase again moderately to the high single
digits in the next 6-12 months in both Greater Tokyo and Greater Osaka. Logistics rents,
therefore, are not likely to rebound strongly during this period, despite continuous, healthy
demand for quality spaces from major tenants.
Exhibit 26 — Logistics Supply and Vacancy Rate in Greater Tokyo
Sources: Ichigo Real Estate Service, Deutsche Asset & Wealth Management
As of October 2013
0%
5%
10%
15%
0.0
0.5
1.0
1.5
04
05
06
07
08
09
10
11
12
13F
14F
New Supply (LHS) Vacancy Rate (RHS)(million sqm)
Forecast
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 17
Past Issues
Vol Year
1 Q2 Jun-08 Making sense of the rental market in Japan
2 Q3 Sep-08 Impact of the credit crunch
3 Q4 Dec-08 Revitalisation of ailing J-REITs
4 Q1 Mar-09 Tokyo office market in its global context
5 Q2 Jul-09 Japan residential market
6 Q3 Oct-09History repeats itself? A comparison of the ‘Year 2003
Problem’ with 2009
7 Q4 Jan-10 Introducing unit pricing analysis in Japan
8 Q1 Apr-10 Portfolio optimisation analysis in Japan
9 Q2 Jul-10 Japan’s capital market in a global context
10 Q3 Oct-10 Quarterly Report
11 Q4 Jan-11 Cross-border investment into and out of Japan
12 Q1 Apr-11The Great Tohoku Earthquake and its impact on the
Japanese real estate market
13 Q2 Jul-11 Adapting Japan’s land price index for real estate analysis
14 Q3 Oct-11 Quarterly Report
15 Q1 Jan-12 The J-REITs next 10 years
16 Q2 Apr-12 Quarterly Report
17 Q3 Jul-12 Quarterly Report
18 Q4 Oct-12The inward-looking focus of the real estate investors in
Japan
19 Q1 Jan-13 Can the housing tax credit boost demand?
20 Q2 Apr-13 Quarterly Report
21 Q3 Jul-13Logistics : Rapid Modernisation
Underway in the Asia Pacific Region
22 Q4 Oct-13 Quarterly Report
Publication Research Topic
2008
2009
2010
2011
2012
2013
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Fourth Quarter 2013 | October 2013 18
Important Notes Deutsche Asset & Wealth Management represents the asset management and wealth management
activities conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche
Asset & Wealth Management products or services by one or more legal entities that will be identified to
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An investment in real estate involves a high degree of risk, including possible loss of principal amount
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Asset & Wealth Management’s opinion of the market at this date and are subject to change dependent on
the market. Past performance or any prediction, projection or forecast on the economy or markets is not
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The forecasts provided are based upon our opinion of the market as at this date and are subject to change,
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© 2013 Deutsche Asset & Wealth Management. All rights reserved. I-033020-1.1
www.rreef.com
Research & Strategy Team – Alternatives and Real Assets
Global
Mark Roberts
Head of Research & Strategy
Americas
Ross Adams
Industrial Specialist
Bill Hersler
Office Specialist
Ana Leon
Property Market Research
Andrew J. Nelson
Retail & Sustainability Specialist
Jaimala Patel
Quantitative Strategy
Alexander Makarovski
Performance & Risk Analysis
Alex Symes
Economic & Quantitative Analysis
Brooks Wells
Apartment Specialist
Jay Wengang
Performance & Risk Analysis
Europe
Simon Durkin
Head of Research & Strategy, Europe
Tom Francis
Property Market Research
Matthias Naumann
Property Market Research
Lisa Strohbuecker
Property Market Research
Maren Vaeth
Property Market Research
Simon Wallace
Property Market Research
Asia Pacific
Koichiro Obu
Head of Research & Strategy, Asia Pacific
Natasha Lee
Property Market Research
Minxuan Hu
Property Market Research
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