What Does 2019 Hold for Japan Real-Estate Investment?

Japan Real Estate

Japan Properties

14 Feb, 2019 –

With 2019 now fully in swing, and with most major global companies having already published their end of year summaries, it is time for us to once more review last year’s trends, statistics and major developments in Japan’s property market, and look to industry experts in an attempt to see what they believe the coming year holds for the market. We have collated and categorized some of the main takeaways from the usual suspects, such as Price Waterhouse Coopers and the Urban Land Institute, CBRE, Mitsui Fudosan and Nomura Research Institute, and are happy to share their summaries and predictions with you. But first, to understand their outlook for Japan, we had better take into consideration a more global shift in attitudes from property investors worldwide, which mainly boils down to this –

Capital Gains are No Longer the Main Focus

Globally speaking, it has long been an underlying assumption of real-estate property investors worldwide that, over time, assets increase in value. The traditional cycle that realtor agencies and long term buy and hold investors have held fast to, used to refer to an average of 7 year gain periods, followed by another 7 years of flattened – or, in case of economic crisis, price drops – and back to another 7 years of gains. Market volatility over the last decade, however, has shattered this expectation in many places around the world, and the paradigm has now shifted to more creative, diversified investment styles, which are looking to utilize maximal yields on an annual basis, rather than banking on growth which, in today’s global political and economic climate, may or may not occur. This means that far more investors are now ready to venture outside of their familiar backyard property markets and many naturally turn to the Asia-Pacific region, where much of the world’s capital is now centered, as opposed to the Western dominance of previous decades.

Japan Remains Asia’s Safe Haven for Non-Speculators

Considering the fact that, of all the countries in the Asia-Pacific region, Japan is the only one with zero restrictions on foreign property ownership – barring a handful of historically protected locations and structures – the country remains the region’s largest real-estate property investment market, and its fully documented, legal-recourse entrenched business climate continues to make it the prime choice for non-speculative, high-yield-rental-income oriented investors worldwide.

European and North American institutional investors have continued to buy heavily into the country throughout 2018, as Asian assets offer better returns when comparing rental rates over the cost of borrowing. Diversification and creative investment plans have been on the forefront regardless of the size of investment, and this has been particularly attractive to US investors, for whom USD/JPY exchange rates, coupled with the uncertainty of interest rate hikes back home and more of the same projected for 2019. Inbound investment from the US into the Japan totaled 4.2 billion USD in 2018, and the flow isn’t likely to taper out this year either.

The trade and political grandstanding wars between China and the USA have also pegged a potential for increased capital inflow from China into Japan, as Chinese companies seek to relocate and investors seek to avoid heavy tariffs when considering investment in the USA – and would most likely seek to direct at least some of those funds towards other Asian countries instead.

Japan Overseas Property

Japan Construction

 Investors Aren’t Deterred by Slow and Steady Property Prices

Reflecting low inflation, low interest rates and low growth environment, residential land prices continued to remain stagnant in 2018 with only a slight increase in Greater Tokyo, slight decrease in Osaka and relatively unchanged in Nagoya. Similarly, Japan’s Real Estate Institute (JREI) forecasts only slight price hikes on condominiums until 2020, mainly cooperative housing (condominiums) of no less than three stories with reinforced concrete, steel-reinforced concrete and steel frame apartment buildings. With the belief that Tokyo condo prices are approaching their last pre-bubble peak of 1991, also comes the belief that further price hikes may be unlikely, pushing capital to other areas of the country such as Osaka, Yokohama and other regional centres such as Fukuoka and Nagoya. Of the major cities, Tokyo, Osaka, Nagoya, Sapporo, Kanto, Hokuriku, Hiroshima and Fukuoka held the highest number of condominium developments, with the average price in Greater Tokyo up from 59,000,000 JPY in 2017, and in Osaka, down from 40,000,000 JPY.

Commercial investors have not been deterred by stagnant/dropping rents in major cities either. The median price of rent on large scale industrial properties stood virtually unchanged from 2017 at 3,350 JPY/month per tsubo (35.5 sqft) in the Kansai area and a slight increase of 4,300 JPY in Greater Tokyo. Japan’s largest cities by population, will continue to be the target markets for commercial investment in 2019 as rural and provincial Japan ages. Tokyo’s Ginza has always held the highest roadside land price based on fixed property tax appraisement. In 2018 it stood at 35,200,000 JPY per sqm, a 70.9% increase from the previous year. The slow and steady appeal still offers relatively high returns compared to local interest rates.

Some investors have been switching over to more specific alternative assets. With Japan’s aging population no surprise that institutions for the elderly have also been gaining traction providing nursing care services such as bathing, meals, and other day to day accommodation services. The majority of care facilities for the elderly are long-term. Other active prospects for 2019 are data centres, shared offices, student housing, affordable housing, business parks, self-storage and resorts.

2nd Tier Cities’ Residential Properties Continue to Draw Attention

As projected in last year’s summaries, the more stable and higher yielding residential market continued to draw attention, and funds, away from the commercial arena in Japan – again, due to fears of economic volatility, which normally strike office and commercial markets first and foremost, and also due to the fact that over 20% of households in the country reside in private rental properties (non-wooden structures), a number which is projected to continue and grow. The lack of asset supply on the market, however, which has begun to plague investors in 2017 became a real issue last year, and further added to price inflation, far beyond any rise in wages and rents, which served to further compress yields. Osaka, Nagoya and Fukuoka have been on the main brunt of these price hikes, with Osaka, as pegged last year, overheating to nearly Tokyo-ite proportions. Lack of access to financing anywhere out of Tokyo still creates somewhat of a damper on what could potentially be a much bigger success story for Japan’s regional cities. As things stand, it is only the largest foreign investors who are able to finance purchases in these cities, while the rest of the investor cadre is forced to buy their properties in cash, unless they’re buying super-central, expensive and low yielding Tokyo assets – and even in those cases, many of them are facing insurmountable challenges in accessing reasonable term loans from Japanese financial institutions, in most cases.

Regardless, however, the lack of available and affordable assets, and over-heated demand in Tokyo, as well as the higher yields out of the city, have continued to buoy Japan’s regional cities, who are slowly but surely cementing their positions as mature economies. These cities are starting to cater more and more to non-resident foreigners, and not only to local investors – and are reaping the results in the form of ever-increasing inbound investment to the point where prices continue to rise and yields continue to compress. Regardless of this, however, and even with Tokyo now flagged as lowest on office rental yields in the Asia-Pacific region aside from Hong-Kong, this doesn’t seem to have deterred interest in the city, which is still one of the world’s most popular investment destinations.

The Osaka Story

Japan Real Estate

Osaka, Japan

Osaka, Japan’s second most popular property market internationally, still has lower office rents when compared with Tokyo, but has enjoyed similar property price hikes, which means that, as postulated by investors at the end of 2017, yields in the city have dropped to similar levels as in Tokyo. Regardless, however, both cities continue to top the recommended Asia-Pacific investment destinations lists by most publications, and are expected to continue to attract attention. There are far fewer office assets available for purchase in Osaka, when compared with Tokyo, but retail, hotel and residential properties in the city continue to hold major interest from overseas investors, and will most likely heat up even more in 2019 in those same sectors. Most investors interviewed are adopting a “buy and hold approach” to commercial property, with buying becoming more difficult and rare – with only a very low percentage of those queried indicating that they have any intention of selling their commercial assets in both cities. On the residential and hotel front, however, buying is still very much on equal priority for investors.

Occupancy Rates Soaring – Rents Rising and Expected to Continue

Despite some fears concerning over-supply, vacancy rates continue to drop nation-wide in all of Japan’s big cities, which continue to absorb smaller dying townships due to the national decline in population – particularly for grade A buildings in large metropolitan city centres, more specifically Tokyo and Osaka, again. And, since new supply isn’t expected to hit the market before 2020, tenants are finding it difficult to secure the spaces they’re interested in, particularly in the office sector. The biggest unexpected surprise in those two cities has been increasing rents – as high as 3-7% in Tokyo, which was projected to flatten out in 2018. This has now led to an amended expectation of even higher rent hikes in 2019 – between an average expectation of 3% year on year in Tokyo, 4% in Nagoya, and a whopping 7-11% in Osaka, Sapporo and Fukuoka. In the hotel sector, as well, the expected additional 6,000 rooms or so, confirmed as entering the market this year, aren’t likely to alleviate the pressure on occupancy in light of the Rugby World Cup and upcoming Olympics in the next two years. Tokyo hotel occupancy is already around 80% on average throughout the year, with the rest of the country at a comfortable 70%. The same cannot be said for Japanese traditional inns (Ryokans) and natural hot spring resorts (Onsens) unfortunately, which, although growing in occupancy as well, are still averaging less than 50%, most likely due to their seasonality and the severe lack of catering capacity to non-Japanese speaking foreigners in the vast majority of sites. And, while Tokyo’s hotel market is most likely now peaking, and isn’t considered as opportune as it was until 2018,  the rest of the country’s hospitality segment is still ripe for the picking, and will most likely generate very healthy returns in coming years – particularly with the new casino legislation now in the making, which may just send the numbers of wealthy gambling tourists, most notably from China, through the roof.

Nagoya Emerges

Nagoya, which is one of Japan’s main industrial and commercial metropolitan centers, conveniently located between Tokyo and Osaka, and soon to be the beneficiary of the newest and fastest bullet train line from Tokyo, is doing phenomenally well, with overall 75% occupancies for office properties overall, general occupancy rates across all property types now the highest since 1993, and grade A office space at a historical high occupancy of 99.4%(!!!) Here, as well, CBRE expects even these already expensive rental spaces to go up by approximately 2.8% in 2019, as demolished properties along the new train line being built will mean more office tenant relocations.

 

Approaching the 2020 Olympics, Japan has also seen a substantial rise in visitor numbers and expected to continue to see strong growth through to the Tokyo Olympics. Tokyo still holds the top spot for preferred city for hotels. While, some observers believe it is too late to get into the hotel sector in Tokyo, others believe the increase in tourism numbers could boost growth in Osaka and regional cities suggesting underlying growth for hotel opportunities for investors. According to Nomura Research Institute, the weak yen and relaxed visa criteria account for the increase in number of travelers to Japan, impacting growth mainly in business hotels, but also in Japanese-style hotels, lodging houses and resorts. Where there are hotels, Japan and the Philippines could see a spur of integrated casino resorts developments where the clientele is expected to be mainly high-spending Chinese gamblers.

Getting Creative with Converted Properties

Considering Japan’s notorious obsession with the fresh and new, which is very prevalent in the real-estate sector as well, and the increasing lack of vacancies, it is perhaps no wonder that many investors have chosen to tear down or convert old buildings into newer, higher yielding constructions – whether it’s C grade blocks in less than ideal locations, which are being converted into B grade buildings, shoddy old hotels converted into co-living share houses near universities, and so forth. Similarly, as shared office space continues to become a popular trend for bootstrapped startups and small business operators, many office and other properties are being converted into co-working floors and even entire structures.

 

The E-Commerce & Logistics Boom Continues on Track

As projected in last year’s summary, e-commerce retail has continued to explode throughout the country, as it does in the rest of the world, and the cleanup of contaminated land near large cities, which was a unique and creative take by some investors as late as last year, has now become far more commonplace. Added to that is the concept of moving from large scale distribution and shipping centers located in the outskirts of the city to central city build-to-suit smaller facilities, which are a logical step for an e-commerce business that does well and isn’t likely to belly-up over the next few years. In this area, as well, it is widely believed that an economic downturn, or even a mild recession, isn’t likely to dampen growth significantly, considering the constant expansion of online services provided to consumers – and so investment in logistics facilities is considered to be a reliable, stable investment for many years to come, to the point where developers are now more than happy to build such facilities even without pre-commitments or leases from potential tenants.

The traditional retail sector, as a direct result of this e-commerce boom, has been suffering, again, as projected last year, with major brands focusing primarily on the very top locations nation-wide, and forsaking more out of the way shopping and retail centers, which are increasingly seen as risky prospects, and rents trending lower as a result as well. And while slight growth in salaries and tourist numbers have served to somewhat dampen the blow, the soon-to-come consumption tax hike, scheduled for this year, is forecasted to hit this particular market hard.

Co-authored by APAC Manager, Ziv Nakajima-Magen and Sales and Marketing Manger, Priti Donnelly

(Sources – “Emerging Trends in Real-Estate, APAC” – PwC/ULI, CBRE, Nomura Research Institute, Mitsui Fudosan, Pic – Fukuoka Tower / “Warren Antiola), Construction / “Hideya Hamano“, Osaka Umeda Skyline / “Loic Lagarde)

Success All-Round for Thriving Osaka Real Estate

Japan Real Estate

Japan Investment Properties

11 Feb, 2019 –

Osaka is fast emerging as an attractive real estate investment destination, supported by spillover demand from Tokyo and tourism. Last year, commercial real estate investment in Greater Osaka climbed 35 percent from 2016 to 651 billion yen (US$6 billion) the highest since 2007. Recent deals included PGIM real estate’s purchase of the Toyobo HQ Building for reportedly 20 billion yen and Japan Retail Fund’s acquisition of the Shinsaibashi GROVE for 15 billion yen. Capital values increased 20 percent year-on-year in the last quarter, according to data from JLL.

The region’s share of total investment into Japan also climbed – from 13 percent in 2016 to 16 percent in 2017 – for its fourth straight year of gains, according to JLL data. Tokyo’s share, in comparison, steadied between 2016 and 2017 but fell between 2014 and 2015. “Demand for assets in Tokyo has continually been strong, however a lack of sellers and high prices have led investors to shift their focus to regional markets including Osaka,” says Takeshi Akagi, Head of Research at JLL Japan. The annual government land survey results confirmed the market’s strength when they were released in March. According to the report, over 2017, commercial land prices climbed 4.7 percent in Osaka, compared with Tokyo’s 3.7 percent.

Tenant demand
Robust demand for property in Osaka has been underpinned by a strong leasing market, explains Akagi. “Corporate profits have reached record highs for selected industries, and tenant demand is strong, a situation not dissimilar to Tokyo,” he says. However, a key difference between the capital city and Osaka is that the latter has a limited volume of office supply going forward, he explained. New office supply in Tokyo will total about 1.6 million square meters in the next three years, compared with just 60,000 square meters in Osaka.

Rent in Tokyo is likely to peak this year and start to dip next year, according to Akagi. In contrast, Osaka is set to see rents grow for the next two years. JLL estimates that rent in the city will rise 6.4 percent this year and 7.5 percent in 2019. “In Osaka, tenants are finding it difficult to relocate or expand due to a lack of space,” he says.

Beyond office
Osaka’s success isn’t limited to the office market. The city’s retail and hotel sectors have also seen a revival as Japan aims to host 40 million foreign tourists in 2020, the year when Tokyo hosts the Summer Olympic Games. The number of foreign tourists to Japan grew 19.3 percent to a record 28.7 million in 2017. With one of the highest hotel occupancy rate across the country, Osaka’s visitors are generating demand for hotels, restaurants and retailers. In fact, Osaka’s prime retail area land price is the second-fastest growing across Japan, lagging behind only Hokkaido, according to Akagi.

Separately, the government’s Umekita development project, centred around Osaka rail station, is now in its second phase. The hub, already home to a handful of start-up incubators and business accelerators, is set to host pharmaceutical and biotech firms when it completes around 2024. Other projects for the city currently underway include the redevelopment of Nakanoshima into an art, culture, technology and science zone set to include a museum-complex zone and a global communication zone; and the development of Yumeshima, a 390-hectare man-made island near the Port of Osaka, where the Osaka government is planning to build an integrated resort.

Going forward, Akagi expects capital values to rise, reflecting rent growth and further compression of capitalisation rates as investors remain keen on the city.

 

 

(Source – “The Investor“, Pic – Osaka Cityscape Japan / “fwallpapers“)

Foreign Investors Driving Tokyo’s Luxury Property Market

Investment Properties Japan

Real Estate Investment Japan

01 Feb, 2019 –

More than 25 years after its bubble economy burst in spectacular fashion, Japan is still seen by many as a kind of economic cautionary tale, a country in a perpetual malaise, undergoing a long, slow deflationary spiral as its population shrinks and grows older. And yet, a split second in Tokyo reveals a city that could never feel stagnant, grey or moribund. From the glittering shopping temples of Ginza to the controlled chaos of Shibuya; from pop culture to ultra-refined design aesthetics to the world’s highest number of Michelin-star restaurants, few – if any – global cities can match the sense of energy and invention that Tokyo radiates in a neon-bathed glow.

The world has certainly taken note. Tourism is skyrocketing in Japan, with international visitors reaching a record high of more than 24 million in 2016. Tokyo, meanwhile, is preparing to flaunt its brand on the world stage again when it hosts the 2020 Olympics. Since taking power 2012, the reflationary policies of Prime Minister Shinzo Abe, dubbed “Abenomics”, have brought mixed economic results. However, the property market has been an undoubted beneficiary with demand and construction activity booming. Abenomics is based on “three arrows” of policy – devaluing the yen, increasing public infrastructure spending and quantitative easing by the Bank of Japan.

Incredibly low borrowing rates, a weak yen, and a slew of redevelopment and real estate investment projects saw transactions picking up in 2012 and rapid growth beginning in 2013.While some regions of the country are still shuffling along, the impact has been especially concentrated in the 23 wards of metropolitan Tokyo, and even more so inside the capital’s five central business districts of Chiyoda, Chuo, Minato, Shinjuku and Shibuya. The average price of a new condominium in the Tokyo metropolitan area has grown more than 35 percent between January 2013 and August 2017, according to figures from the Japan Real Estate Institute, from around JYP47.2 million (USD417,720) to JYP58.2 million.

Land prices have also risen consistently year-on-year since 2013. Land in the Ginza shopping district is among the most expensive in the world with prices per square metre hitting up to a staggering JYP40.3 million. The question now, for many observers, is whether the market has already peaked. New condo sale prices in Tokyo’s 23 wards grew at 4.3 percent in 2013, 6.1 percent in 2014 and 8.9 percent in 2015. However, they leveled off in 2016, at -0.1 percent, with a couple of sharp contractions at the end of the year, dropping 4.5 percent in November and another 1.6 percent in December. Prices ticked back up again in 2017, but have seen more month-to-month fluctuations than in previous years.

You Asked Us – What are the Top 4 Significant Differences Between the Sapporo and Fukuoka Real Estate Markets

Invest in Japan Real Estate

Invest in Japan Properties

02 Jan, 2019 –

1.     Of the two markets, Sapporo provides higher rental yields. This is because property prices haven’t gone up there as significantly as they have in Fukuoka. Fukuoka prices on the other hand, have risen as fast as Tokyo between 2012-2016.

2.     Sapporo units tend to have a bigger floor-plan on average, so we more often find family-sized properties there that generate reasonable returns. In Fukuoka, floorplans are generally smaller, single type units. Larger family-sized units in Fukuoka are available but tend to rise in price with size more sharply due to the city’s smaller footprint, and therefore generate lower yields.

3. Vacancies take longer to fill in Sapporo especially during the cold months. In Fukuoka winters are milder and vacancies are easier to fill any time of the year.

4.    Returns in Sapporo can be as high as 8-9% net pre-tax for residential/mixed purpose buildings. Returns would rarely go beyond 6% net pre-tax for attractive locations in Fukuoka.

Although both cities have strong demand, Fukuoka has risen sharply in recent years, and is definitely the better profile of the two as far as population growth and modern governance are concerned, as well as better potential for capital growth. But you will find higher yield in Sapporo.

(Source – Priti Donnelly, Nippon Tradings International”, Pic – Fukuoka Floorplan/ “Nippon Tradings International“)

Japan’s Rapidly Aging Population Presents Need for Retirement Communities

Real Estate for Japan’s Aging Population

28 Nov, 2018 –

Japan is dealing with an extreme version of the demographic challenges that face many rich countries. In an interview with The Economist, Shinzo Abe, the prime minister, said the population was both declining and ageing at “unprecedented speed”. The fertility rate—the number of children the average woman will have over a lifetime—is 1.4 and there are approximately 400,000 more deaths than births every year. At the same time, life expectancy in the Land of the Rising Sun is 84 years, the highest in the world. Over 28% of the population is older than 65, compared with 21% in Germany, 15% in America and 6% in India. More than half of babies born today in Japan can expect to live to 100.

The increase in life expectancy is good news, of course. Most people prefer to remain alive. But an ageing, declining population creates new problems. For starters, Japan has a severe labour shortage: there are currently 1.6 vacancies for every job applicant. The ratio of old retirees to young active people is rapidly increasing. People are spending ever more of their lives drawing on public funds, including through pensions and medical care, rather than paying into them. The social-security system is unsustainable. Public debt is 250% of GDP and the government reckons that by 2040 social-welfare costs will have risen from their current ¥121trn ($1.06trn) to ¥190trn a year.

Mr Abe’s government is trying several ways to ease the demographic crunch. To slow the shrinking of the labour force, it is encouraging more women (who have tended to drop out of jobs when they have babies) and more old people to work. Also, Japan’s parliament is debating a bill to allow thousands of blue-collar immigrants into the country, to work on farms, on building sites and in nursing homes. Only 2% of the workforce is foreign compared with 17% in America. The government has also mooted ideas including raising the retirement age and deferring the age when pensions can be drawn. It wants to reduce medical costs by encouraging people to stay healthy, and may raise the amount people have to pay towards their treatments. And it is promoting the use of robots and other technology to raise productivity.

All this is sensible and is already having some effect. There are 2m more women working than five years ago, albeit often in part-time and low-paying jobs. Several companies have raised retirement ages, and many re-employ people after they retire. Some 23% of people over 65 work in Japan, which is the highest proportion in the G7, a group of industrial nations. The government recently raised the amount that wealthy Japanese over 70 have to pay towards medical care. Yet the measures are still underwhelming. The number of new immigrants, for example, is expected to reach 345,000 over the next five years, which will not come close to ending the labour shortage. And the affluent old pay only a fraction of their own medical costs. There is no reason why Japan should not be able to cope with extreme ageing—it has had plenty of warning. But Mr Abe needs to be bolder if he is to set the nation on a sustainable path.

(Source – “The Economist“, Pic – Seniors in Japan / “Hiro Kokoro Photo“)

Osaka Office Rents at Record High

Japan Property

Osaka, Japan

31 Oct, 2018 –

Global commercial property consultant CBRE is reporting this week that grade A vacancy rates haven fallen below one percent in Tokyo, while the cities of Osaka’s grade A office rents are now at record high and Nagoya’s office market vacancy rates are at a record low.

Tokyo 

Four Grade A buildings were completed this quarter almost fully let says CBRE, driven by demand for consolidation and-or upgrades. Spaces at existing buildings were also taken up during the quarter, and Tokyo Grade A vacancy rate fell 0.5 points q-o-q to 0.9%, dropping below 1% for the first time since Q2 2007. The All-Grade vacancy rate declined 0.2 points q-o-q to 0.9%, a new record low. Very little space is left in recently completed Grade A buildings or those due for completion in 2018, and more than 70% of the space completing in 2019 is estimated to have been taken. CBRE has marginally revised up its rental forecast as the pre-leasing ratio for upcoming Grade A buildings is higher than originally anticipated. Grade A rents are now forecast to increase by 1.5% over the next year, but will then decline by around 1.1% in the following year.

Osaka 

CBRE says this quarter saw the completion of one Grade A building in Osaka, which came to market with a high occupancy. Although the Grade A vacancy rate rose due to some vacancy in this building, it remains under 1%. Vacancy for both Grade B and All-Grade are at record lows. Rents continue to rise, with Grade A rents now at the highest since the survey began in 2005, and Grade B rents hitting JPY 13,000 for the first time in nine years. The new building this quarter provided was insufficient to alleviate the tight supply-market conditions. With the next phase of new supply not until 2020, rents are likely to rise even further, with CBRE forecasting a 4.6% rise in Grade A rents over the next year.

Nagoya

CBRE is also reporting several large units of office space were taken up driven by expansionary moves and upgrades from the suburbs. Tenants also continued to expand within their existing buildings, taking up the little remaining available space. The Grade A vacancy rate fell to a new record low of 0.6%. Vacancy rates for Grade B and All-Grade were both also record lows. Grade A rents rose by 2.0% q-o-q.

The coming quarters are likely to see some relocations by tenants due to demolitions of buildings for the development of the new linear Shinkansen station. This, combined with the lack of large-scale new supply in the pipeline, is expected to ensure Nagoya remains a landlord’s market. CBRE forecasts a 2.8% rise in Grade A rents over the coming year.

 

(Source – “China Daily Asia“, Pic – Osaka Cityscape Japan / “fwallpapers“)

 

Q&A – “What is Your Opinion on Investing in Properties in Smaller Cities?”

23 Oct, 2018 –

Japan Properties

Japan Real Estate

As long as the city’s population is stable with a reasonably diverse economy, certainly worth considering. Take the city of Gifu, for example, smaller but stable. A quiet residential area, much smaller than Fukuoka, close to Nagoya, with more of a peaceful lifestyle, less large city hustle and bustle, therefore a popular choice for families. Residents are primarily employed through the city’s main industries of automotive manufacturing, traditional crafts and exports.

Similar smaller cities to consider are Kagoshima, Kumamoto, Niigata, Hiroshima, Saga, Saitama, Shizuoka and Yamaguchi.

Family-friendly areas with schools and amenities usually means longer tenancies, but can also mean longer vacancies. Generally speaking, to minimize your risk, finding a property close to the city as the main hub is easier to tenant.

Vacant units there are in the building, as well as comparable units in the area are good indicators of how difficult it might be to occupy should the unit become vacant.

(Source – Priti Donnelly, Nippon Tradings International”, Pic – Saitama, Japan / “Philipp Knall“)

Flipping Japan’s Depreciating Houses

Japan Cash Flow Properties

Japan Real Estate Investment

02 Oct, 2018 –

In the suburban neighbourhood of Midorigaoka, about an hour by train outside Kobe, Japan, all the houses were built by the same company in the same factory. Steel frames fitted out with panel walls and ceilings, these homes were clustered by the hundreds into what was once a brand new commuter town. But they weren’t built to last.

Daiwa House, one of the biggest prefabricated housing manufacturers in Japan, built this town in the 60s during a postwar housing boom. It’s not unlike the suburban subdivisions of the western world, with porches, balconies and rooflines that shift and repeat up and down blocks of gently curving roads. Most of those houses built in the 60s are no longer standing, having long since been replaced by newer models, finished with fake brick ceramic siding in beiges, pinks and browns. In the end, most of these prefabricated houses – and indeed most houses in Japan – have a lifespan of only about 30 years.

Unlike in other countries, Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years. When someone moves out of a home or dies, the house, unlike the land it sits on, has no resale value and is typically demolished. This scrap-and-build approach is a quirk of the Japanese housing market that can be explained variously by low-quality construction to quickly meet demand after the second world war, repeated building code revisions to improve earthquake resilience and a cycle of poor maintenance due to the lack of any incentive to make homes marketable for resale.

In Midorigaoka, even the newer homes built in the 80s and 90s are nearing the end of their expected lifespan. Under normal circumstances, their days might be numbered. But down at the end of one block, there’s a sign things are changing. Scaffolding surrounds a vacant house on a corner and workers from Daiwa House are clanging away inside. They’re not demolishing the house but refurbishing it – reorganising the floor plan, knocking down walls, opening up the kitchen and enhancing the insulation. Rather than tear down the house so the next buyer can build something new, they’re rebuilding it from the inside and putting it back on the market. It’s a relatively rare commodity, but something that is increasingly common across Japan: a secondhand home. “For the first time, Japanese people are beginning to appreciate living in older homes,” says Noboru Kaihou, a Daiwa House public information officer.

Shifting citizenry

Everywhere from major metropolitan areas such as Tokyo and Osaka to struggling mid-size cities to suburban housing estates, renovated buildings are an evolving niche in the property market, emblematic of the dramatic transformation under way in Japan. The country is shrinking, with a negative growth rate that’s expected to bring its current population of about 127 million down to 88 million by 2065. It’s also an ageing society, and within 20 years over a third of its inhabitants will be 65 or older. As the population shrinks and ages, it is also concentrating into metropolitan areas, leaving millions of suburban and rural homes vacant. The current vacancy rate nationwide is about 13%, according to the Nomura Research Institute, and that figure is expected to rise above 30% by 2033.

Coupled with Japan’s stagnant economy, these statistics have many convinced that the market for new buildings will begin to dry. Like Daiwa House, many other big housing manufacturers are getting into the refurbishing business. A 45-minute drive north of Tokyo, the country’s largest prefab builder, Sekisui House, operates a home park featuring its newest models. Most cater to the high end of the market, with large multistorey layouts and luxury finishings, but tucked in a corner is a more modest two-storey house. The first floor is furnished like a typical home built in the 80s: small rooms, highly compartmentalised spaces and even a recliner in the living room. Upstairs, the same floorplan has been updated so that the kitchen opens out onto the dining area and walls are pushed back or removed altogether. A traditional tatami mat sitting room in the old layout becomes a media room, with a low couch and a flatscreen television.

For the company, these simple renovations can turn a vacant home into a new sale. “If we can remodel these old houses, their value will not decrease to zero and we won’t have to demolish them,” says Kenichi Ishida, a managing officer at Sekisui House. “Nowadays young people don’t have much money, so they won’t hesitate to buy older buildings.” In Takatsuki, halfway between Osaka and Kyoto, that economic reality is evident. “Many of the younger generation around my neighbourhood live in renovated homes,” says one 39-year-old resident. He himself lives in a renovated Sekisui House with his wife and two young children, and notes that the price of a renovated home was much lower than that of a new one. “We want to save money for taking care of our kids and parents,” he says. “For us, the renovated home located close to my parents’ home has much higher value than a newly built home that is far away.”

It’s not just the big housing manufacturers that are catching on. Zoe Ward is a Tokyo real estate agent and CEO of Japan Property Central, which specialises in finding homes for expats, and she says buyers are starting to reconsider the value of older buildings. New companies have opened in recent years that focus specifically on refreshing old spaces. “Sometimes they’ll gut the entire building to its concrete shell,” she says. “The outside won’t look any different from the buildings around it, but inside it’ll look like a brand new house.” As demand for housing grows in Tokyo, renovation companies are on the lookout for people ready to sell. “We get them calling every day,” Ward says.

‘A new lifestyle’

Renovation isn’t always an option. In the Tokyo suburb of Tachikawa, Shiro Kawashima and his wife, both middle-aged, are walking through a faux neighbourhood lined with model homes. Built by prefabricated-housing manufacturers and local carpenters, the homes are on display and available for tours guided by eager salespeople. The couple, who live nearby, are here shopping for a new home, albeit reluctantly. “I’m really proud of my old house,” he says. “It’s regrettable but I have to tear it down.”The house is 70 years old he says – a rarity – and suffering from structural damage that is prohibitively expensive to fix. Moving is also out of the budget, so his only option is to tear the old house down and build anew. The houses on display here don’t appeal to him. “Not at all,” he says, disappointed. “I just want a simple, basic structure,” he says. Like his current home.

Younger people, particularly in urban areas, have more flexible options. To accommodate them, new companies are looking beyond conventional housing. In recent years, a number of small development companies have been buying up older buildings and giving them new uses. The Tokyo-based company ReBITA has been converting apartment buildings, offices and company dormitories into shared live-work spaces – affordable rental units with common kitchens and work areas. Such spaces were uncommon in Japan just five years ago, says Azby Brown, director of the Kanazawa Institute of Technology’s Future Design Institute in Tokyo. “It’s a new lifestyle and I don’t think a lot of the big housing companies have picked up on it yet.” He says it’s as much about reducing the cost of housing as embracing a more community-oriented form of living. Some even see these types of social space as a roundabout way to reverse the country’s low birth rate. 

In the face of Japan’s demographic trends, the Tokyo Metropolitan Government is doing its own bit of social engineering as it focuses on refurbishing the mid- and high-rise apartment buildings that rose across the city during the 60s and early 70s. To give new life to these buildings, the capital is encouraging families with small children to move in by prioritising their applications. It is also helping people to qualify for housing slots if they choose to live close to their elderly parents. “All of these efforts are related to dealing with our ageing society,” says Hiroyuki Ebina, a director of planning and housing in the Bureau of Urban Development.

But it’s not just about freshening up the resident pool. The buildings in question are often maintained through tenant associations, and as older tenants die, there’s less money for upkeep and earthquake retrofits. To inject more contributions to those efforts, the national government’s Urban Renaissance Agency is trying to lure younger people into these buildings. One approach is by partnering with the minimalist retailer Muji. As well as being a global presence, the Japanese brand retains considerable cachet in its home country, where its simple, utilitarian products are widely popular. Through its association with the Urban Renaissance Agency, Muji has begun renovating and redecorating units in public housing blocks to attract younger tenants – tearing out walls, replacing clunky kitchen cabinets with open storage spaces and racks, clearing space for bicycle storage.“The old design doesn’t fit with younger people’s tastes,” says Koji Kawachi, director of Muji’s dwelling space operation, noting that many of the buildings have a cramped, overly partitioned layout. “The renovation is based on the idea that small, separated rooms can be integrated into larger spaces,” he says. The company strips the rooms of excessive finishes and replaces them with clean white surfaces and spare wood furnishings. Kawachi says the Muji units receive five to seven times as many applications as typical units.

The company has completed more than 500 renovations so far, and plans to continue with 150 to 200 units per year. With more than 750,000 housing units under its purview, the Urban Renaissance Agency has scope to experiment.

A new urban landscape

As Japan’s population shrinks and shifts, the demand for space has become increasingly uneven, which has left many small and mid-sized cities in a state of slow decline. The southern city of Kitakyushu, a former steel city, has seen its population growth rate fall to -1.5%. It’s just an hour by train from Fukuoka, the startup capital of Japan and the fifth largest city in the country, which has seen a population influx due to strategic tax incentives and foreign resident immigration reforms. But while Fukuoka is booming, Kitakyushu is emptying out.

For Mitsuhiro Tokuda, the decline was particularly evident in the city’s downtown area, a compact network of narrow commercial streets and large shopping arcades. Tokuda, a professor of architecture at the Kyushu Institute of Technology, launched a study of downtown Kitakyushu to quantify how much of the city had become vacant. With a team of students, he conducted a detailed survey to identify which buildings were partially or completely vacant and which could be reused. “But thinking can’t change anything,” he says. So he started a small business to work with property owners to renovate vacant spaces for new uses. Their first product took a vacant 5th floor and converted it into shared office spaces now used by graphics designers and video editors. Tokuda walks through the ground floor of a mid-rise building near the centre of Kitakyushu’s downtown. A former clothes factory, it had long been empty. Tokuda and his team converted it into a hodgepodge of new spaces – a community room, small offices, creative work spaces for local craftspeople, a cafe and various boutiques. One features vintage paperback books. Another display window holds a pair of leopard-print loafers. Almost all of the spaces are now rented out.

Nearby is Mizutama Shokudo, a restaurant in a renovated space. “We like old buildings, so when we started our business, we looked for an old property from the beginning,” says co-owner Yuka Ishikawa. “We liked the fact that this building is not facing a busy main street and it’s in the peaceful, old-style shopping neighbourhood. She admits there are some downsides to older buildings. Rain sometimes leaks through its old roof and a recent fire next door partially burned some of the wood structure. But it’s part of the character of the space, she says, and works alongside the theme of the restaurant, which serves “mother’s home cooking-style” meals. “By serving that kind of meal in this old building, we would like to keep conveying the beauty of old things that have been cherished by people for a long time.”

Tokuda says he saw a bigger potential for this type of building reuse and wanted to teach others to try it for themselves. In 2011 he launched what he calls a Renovation School in which students – architects, designers and businesspeople, mostly – develop business plans for reusing vacant space. It’s a crash course, and over one week teams identify vacant spaces, survey local needs and create plans. On the final day, they pitch their plans to the property owners. Tokuda says the school has resulted in dozens of projects. Renovation Schools have now been conducted in cities across Japan, creating new retail spaces, hotels, cafes and apartments out of once-vacant buildings.

The impact is easy to see in Kitakyushu. Walking down a commercial street, Tokuda points to four different buildings on one block that have been reused or redeveloped through the Renovation School. The property owners and businesspeople have even formed an association that raised funds to re-landscape the street. Cracked asphalt on the narrow street has been replaced with square concrete paving stones, their varying shades of grey laid out like a long mosaic. Streetlights have been painted bright green and some shopkeepers, like those running a bar inside an old shipping container, have added benches and seating outside for public use. Tokuda says this approach to reusing space can be a kind of catalyst for change. “By stimulating the building, we can stimulate the neighbourhood,” he says. “It’s a form of town renovation.”

Ishikawa, the restaurant co-owner, says renovated buildings like hers represent hope for the future in Kitakyushu. “We want to create a new cycle of ‘live in the town, work in the town, and patronise the businesses in the town’.”

(Source – The Guardian, Pic – House, Tokyo / “jonathan Sare“)

Japan Land Values Rise in Urban, Commercial and Ski Resort Sectors

Japan Investment Properties

Japan Real Estate

25 Sept, 2018 –

The benchmark land values as of July 1, announced by the Land, Infrastructure, Transport and Tourism Ministry, show that the national average of all-purpose land prices has increased for the first time in 27 years. It is hoped that the land-value recovery will be utilized to facilitate sustainable economic growth.

The greatest factor behind the recovery was accelerated land-price increases in the three major urban areas of Tokyo, Osaka and Nagoya. Even greater land-value rises were shown in the regional major cities of Sapporo, Sendai, Hiroshima and Fukuoka. Against the backdrop of the corporate sector’s favorable performance, there was solid demand for office space. The opening of one commercial facility after another also supplied a favorable tailwind for the trend.

The recovery trend spread to areas popular among foreign visitors to Japan, too. Of the 10 spots ranked highest in the list of land-price increase rates in commercial districts, five were in Kyoto. The town of Kutchan in Hokkaido’s Niseko area, known for its ski resorts, headed the list of high land-value increase rates in commercial districts, and all three highest-ranked spots in residential areas were also in Kutchan.

The stable land-price increase can make the sentiment of corporations and investors positive, thereby revitalizing economic activities. It is important to secure a continued mild land-price rise based on genuine demand. The government should steadily promote regulatory reforms aimed at supporting new businesses and its growth strategy with which to boost private-sector vitality. However, what is worrying is the movement of money generated by the Bank of Japan’s extremely low-interest policy. Excessive loans seem to have brought about excessive real-estate investment. Originality, ingenuity needed.

One of the survey points in Tokyo’s Ginza area led the list of land values nationwide, marking a second yearly consecutive record high. The government and the central bank need to keep a more careful watch on the possibility of a “mini-bubble economy” in which land prices could soar in particular spots. Meanwhile, land-price falls have not been halted in areas where the economy is continuing to decline because of the population decrease and increased aging. Land values have continued to drop in somewhat more than 60 percent of all survey spots in provincial areas.

Another feature of the latest survey result is that there are distinct disparities in land prices even among areas in and around Tokyo, reflecting the convenience of each area. For instance, land values have dropped in suburban areas with poor access to transportation. There are cases in which original measures taken by some local governments, among others, were favorably viewed, leading to land-price rises in their areas.

Naoshima — a town on remote islands in Kagawa Prefecture — has achieved success in promoting community development efforts featuring art museums set up in the town, and this has resulted in an upward trend in land values there. Beppu, Oita Prefecture, has positively accepted people who wish to move to the city from outside, and the land prices of residential areas there have taken the first upward turn in 19 years. Each area has its own distinctive features. Local governments and economic circles should exert originality and ingenuity with which to make sure people want to visit and live in their areas.

The latest survey did not reflect the impact of natural disasters that have taken place this summer, such as the torrential rains that hit western Japan and the Hokkaido Earthquake. There are concerns about how the impact will affect land-price trends, including damage caused by negative misperceptions. The government must extend swift assistance to disaster-stricken areas.

 

(Source – The Japan News, Pic – Osaka Japan / “Douglas Sprott“)

Tokyo Aging Buildings Spurs Real Estate Investment Incentive

Japan Properties

Japan Real Estate

09 Sept, 2018 –

The Tokyo government is working towards introducing a system to encourage the redevelopment of ageing apartments by offering developers additional floor space ratios on other projects. The new system could potentially be introduced in 2019.

Under the proposed change, if a developer buys an older apartment block they may receive a floor area ratio allowance that can be used towards a new apartment tower to be built somewhere else. The older apartment building they purchased can be demolished, and, if the developer buys an additional older apartment block nearby, they can then obtain further floor area ratio allowances to apply to the redevelopment. The idea is that this will spur on the reconstruction of ageing buildings. Buildings that were once not appealing to developers due to floor size limitations could potentially become more appealing.

Due to changes in zoning and height restrictions, some of the older apartment buildings in Japan are no longer compliant. In other words, if they were to be rebuilt, they may not be able to be built to the same scale or height as the older building. If they were to go ahead and rebuild, apartment owners would have to settle for smaller apartments in the new building – something not many find agreeable. Developers, too, are not willing to assist with these redevelopments as they cannot obtain extra floor space that can be sold to cover the cost of rebuilding.

The purchase of old Building 1 allows additional floor space to be added to the construction of new Building 2. The purchase of old Building 3 allows additional floor space to be added to the reconstruction of old Building 1, which is replaced by new Building 4.

There are approximately 1.81 million units in condominium buildings across the Tokyo metropolitan area. Of those, approximately 130,000 units, or 7%, were over 40 years old as of 2013. By 2023, the number is expected to triple to 430,000 units. 30% of the condominiums in Japan are located in Tokyo.

(Source – Japan Property Central, Pic – Tokyo / “B Lucava“)

Is Co-Working & Co-Living Japan’s “Next Big Thing”?

Japan Properties

20 Aug, 2018 –

Living, cooking and saving together

While share-houses have existed in Japan for many years, and have been quite popular particularly since the 1990’s, their character is changing fast. While in the past these residences were known as “Gaijin houses” (foreigner houses), and hosted mostly foreigners who were short on cash and had no access to guarantors, who are required for most normal property rentals – these days more than half of the residents are actually Japanese. And while, in the past, the only Japanese who lived in these homes were those who wanted to study English or otherwise associate with foreigners, there are now all types of homes which fall under the “share house” category in most bigger cities in the country, local Japanese web portals where companies running these residential operations advertise their living spaces, and even themed guest houses to suit all tastes, focused around common interests, such as art, design, music and even love of animals.

The main advantages, aside from the obvious mingling opportunities, are cost and location. While a central Tokyo apartment for a single or couple can cost the same as a private room in a share-house – the move-in fees, which can often come up to several months of rent for normal properties, are far cheaper – and there are less securities required. This suits mainly younger people, in their twenties and thirties, who are wary of committing to a rental lease and are reluctant to spend thousands of dollars (hundreds of thousands of yens), without being able to afford living where they really want or need to, often compromising on long commutes and less than desirable suburbs in the process. Many Japanese who have studied or lived abroad find themselves stranded upon their return to Japan, while looking for a new job and having depleted their cash reserves – and having most likely already experienced co-living while overseas, often with foreigners as well, these arrangements suit them perfectly.

Last but not least, while Japanese apartments are notoriously small, often with just enough room to place a sleeping mat and some clothes in, these larger homes often have gardens or back/front years, large entertainment areas, and far better equipped kitchens – and so, those who do not mind sharing the common areas with other, hopefully like-minded individuals, can enjoy a far more spacious living space.

From an investment perspective, these homes can generate far higher income than standard tenancy arrangements, and with the growing popularity of the co-living theme, there are now plenty of companies operating such spaces on behalf of investors and owners, making this a viable, relatively hassle-free property investment for owners as well.

Creative, affordable co-working office spaces

While Japan has been long lagging in its start-up & entrepreneurial spirit compared with other countries around the world, the last decade has seen a rapid disintegration of the unwritten “lifelong employment” contract between Japanese companies and their employees – which has long been the staple of the risk-averse Japanese psyche. As companies struggle with lack of efficiency, and are forced to let long time employees go, the Japanese have become more accustomed and willing to take bigger leaps of faith, resulting in a budding start-up atmosphere that, while not quite gripping the country by storm, is certainly taking shape, and is accelerating quite quickly across the country – with the two main locations for would-be entrepreneurs being Tokyo and Fukuoka cities, on opposite sides of the country. While Tokyo boasts huge international appeal and plenty of opportunities to connect with like-minded business-folks from all walks of life, Fukuoka, which enjoys a lower cost of living and advanced governance, is a close contender for the “start-up capital” crown. Of the two, Tokyo has a larger number of co-working spaces and “hot-desk” offices, while Fukuoka is becoming more famous internationally, and also has better support – being the only place in Japan that has instated special “entrepreneur visas” for foreigners who wish to try and set up a business in the city – enabling them to bypass required bureaucracy for up to six months – and also offers a number of government programs offering to provide mentorship, advice and locations for both local and foreign business owners who wish to make their idea a reality.

There are now hundreds of co-working spaces all around the country, of various styles, sizes and in many more or less central locations – as well as an ever- increasing presence of angel investors and business incubators active in the Japanese start-up market – and the more daring Japanese out there are taking notice of this expanding infrastructure, and forego standard employment in a large Japanese firm in lieu of taking a shot at their dream. And while both Fukuoka and Tokyo are still a far cry from the hub and hum of Silicone valley or Tel-Aviv, compared to the typical Japanese working environment of the past, something has definitely begun to stir in this regard here as well. And in this space, as well, there are plenty of management companies ready to facilitate their services in leasing, maintaining and managing those assets on behalf of investors, who are already capitalizing on this prominent trend.

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Pic – Japan Properties / “Ziv Nakajima-Magen“)

Investment Opportunities in the Japanese Hotel Market as Revenues Increase

Hotel Investments Japan

Japan Hotel Investment Market

16 Aug, 2018 –

With the 2020 Summer Olympic Games in Tokyo just over two years away, investors are taking a closer look at Japan’s hotels. According to the Japan National Tourist Organization, more than 25.5 million travelers visited Japan last year, an increase of 19 percent over 2016 and more than 300 percent above the 6.2 million visitors recorded in 2011. And as the games draw closer, JLL Hotels & Hospitality Group expects these numbers to grow—offering a great opportunity for investors and developers.

The Olympic Effect

Tourism demand is expected to grow significantly toward the 2020 Tokyo Olympic Games,” Kei Sumiyoshi of JLL Hotels & Hospitality Group said. With this demand, Sumiyoshi expects transactions between buyers and sellers to increase significantly, a turn from the past year when there was a shortage of hotels for sale, making it difficult for investors to access the market, Sumiyoshi said. This is likely to change, he added, as investors start selling hotel assets in their portfolio, creating a bit more liquidity in the market.

“Asian investors led by China remain keenly interested in hotel investment,” he added. As do other foreign and domestic companies who will be competing for the assets, he said. “Japanese investors, such as developers and railway companies, are actively entering the hotel investment market along with overseas investors.” What’s more, Sumiyoshi expects both foreign and domestic companies to fight over the assets, which could trigger a bidding war.

The Value of Japan’s Hotels

Investors have good reason to snap up Japanese properties as they become available. Hotels in the country account for 28 percent of tourist spend on average, second only to shopping. As recently as last November, revenue per available room at five-star hotels in Tokyo was ¥47,756 (USD$436), an increase of 5.8 percent from the same period the year prior. The Japanese government is taking steps to keep the numbers growing, with a goal of 40 million international visitors in 2020 and 60 million by 2030. These steps include the possible legalization of casinos, relaxing visa requirements, repair and maintenance of 200 cultural assets across Japan and implementation of multi-language services.

Airlift Factor

If Japan expects to get 40 million visitors in 2020, it will need to expand its airlift capacity. As such, Japan Airlines, the nation’s flag-carrier, is establishing a new low-cost brand for the international market with medium- to long-haul flights. The company will be a consolidated subsidiary of the JAL Group and plans to operate flights from Narita International Airport to Asia, Europe, and the Americas.

In the first stages of its establishment, the carrier will operate two Boeing 787-8 aircraft and is targeting to launch commercial flights from the summer of 2020 when Narita Airport completes enhancements to its facilities—just before the Olympics begin. JAL will invest 10 billion yen to 20 billion yen ($91.44 million to $182.88 million) in the business, with the aim of reaching profitability within three years from the launch, the company said. “Full-service airlines typically have high costs, but in Japan this is especially so,” Will Horton, senior analyst at research consultancy CAPA Center for Aviation, told Reuters. “Japan needs new platforms to capture foreign visitors. They are not like the Japanese who are sticky in wanting to fly a costly Japanese full-service airline.”

 

(Source – Hotel Management, Pic – Hotel Trinity Lobby, Sapporo / “David McKelvey“)

Japan Maintains Position as Second Largest Real Estate Market in the World

Investment Properties Japan

Real Estate Investment Japan

24 Jul, 2018 –

The global real estate investment market increased by more than a trillion dollars in 2017 as favourable foreign exchange effects and capital-value growth helped lift the market’s size by 15%. According to the annual MSCI Real Estate Market Size Report, the real estate investment market was up from $7.4trn in 2016 to $8.5trn in 2017.

The report – which estimates the size of the professionally managed global real estate investment market – stated that, due mainly to currency appreciation, the UK and Germany increased by more than $100bn in 2017. During the period, the euro rose 14% against the US dollar, the report said. The British pound also had a 9% boost against the dollar, whereas, in 2016, the pound depreciated by 16% as a result of the Brexit vote.

Capital-value growth and new developments in the market, such as new construction and sale-and-leaseback transactions, also contributed to the growth in market size. Jay McNamara, the head of real estate for MSCI, said: “While currency fluctuations have undoubtedly impacted relative weights of countries within the index over time, capital-value growth has also been a long-term feature driving the shape of the market today and many countries showed positive capital value growth in their local currency in 2017.

“Additionally, it is important to remember the impact that the global financial crisis had on the landscape we see today. Both the UK and the US suffered from substantial negative capital growth. Currently, the absolute market sizes of these two countries has increased by 40% and 70%, respectively, from their lowest levels recorded during 2008 and 2009.”

This has not been the case in all markets globally, McNamara said, adding that Japan’s market size, for example, is still below its 2009 level despite rising in each of the past three years. The US remained the largest market in 2017 as it added $244.5bn to its size to reach $2.97bn but saw its weighting decrease after seven successive years of increases. Japan and UK maintained their second and third positions at $798bn and $720bn, respectively.

The report said Germany replaced China as the fourth-largest market. Germany gained the position with a market size of $520bn overtaking the world’s most populous country which had a $482bn market size.

(Source – “IPE Real Assets“, Pic – Blue Hour Over Tokyo / “Balint Foeldesi“)

Record Breaking Tourists Push Up Japan’s Land Prices

Japan Investment Properties

Japan Real Estate

11 July, 2018 –

TOKYO — A growing flood of visitors from overseas and numerous new urban redevelopment projects continued to drive demand for land in Japan, which propelled prices upward for the third consecutive year in 2017, the National Tax Agency said Monday. A plot in Tokyo‘s Ginza shopping district was the most expensive land in Japan for the 33rd straight year, and prices rose sharply in other tourist destinations and downtowns popular with foreign visitors, including Hokkaido’s Niseko ski resort, Kyoto and Okinawa.

The nation’s foreign visitors totaled 28.7 million in 2017, breaking the previous record, and the number has been increasing so far this year at a pace that could see it once again shatter the record by the end of this year. Domestic and foreign investors alike are pouring funds into areas where hotel and other development projects are underway. This is pushing up land prices, but it is also making some locals uneasy.

Tokyo saw a hefty 4.0% rise thanks to demand related to the 2020 Olympic and Paralympic Games. A plot in the capital’s Ginza shopping district was assessed at 44.32 million yen ($400,000) per square meter, the national record for the 33rd straight year. Some analysts expect the capital’s average land price, which has risen for five years in a row, to peak ahead of the Olympics.

The Hokkaido resort town of Niseko, well-known internationally as a ski resort, and which includes the towns of Niseko and Kutchan, accommodated 433,000 foreign visitors in the year ended March 2018, almost 30 times its resident population of about 15,000. In particular, the price of land along Niseko-kogen Hirafu-sen Street rose 88% from a year ago, the fastest-appreciating land nationwide. Tokyu Resort, a Tokyo real estate company specializing in resort properties, set up an office in Niseko at the end of last year to bolster sales activity in the area. The company said wealthy customers in Singapore, Hong Kong and Taiwan tend to show interest in condominiums priced at over 100 million yen near ski hills.

“Land prices and apartment rents are rising nonstop. We’ve been seeing an abnormal bubble in the past few years,” said a women’s clothing shop operator in Kutchan, sounding alarmed at the continuing rise in real estate prices in his area. “It’s good to see some growing activity, but you never know how long this is going to last,” said the man in his 60s. “I’m also worried the tax burden may increase.” According to the agency’s annual report, the increase in Japanese land prices as of Jan. 1 was 0.7% on average from a year earlier.

Kyoto Prefecture as a whole posted a 2.2% rise. In particular, land prices on Shijo Street in the Gion entertainment district in Kyoto’s Higashiyama Ward ascended 25.9%, scoring the second steepest rise in Japan for the second consecutive year following last year’s 26.2% increase. The shopping street leading to Yasaka Shrine is home to numerous duty-free shops and is crowded with tourists from abroad. “Shops here have frequently changed over the past three years,” said a woman in her 70s operating a local food store founded more than 100 years ago. While plans to open stores along the street have been increasing sharply to take advantage of the inbound tourism boom, “land plots offered for sale are limited in number compared with those in Osaka and other places,” Takumi Moriguchi, a real estate appraiser, said. “Squabbles about land in commercial districts are expected to continue.”

Meanwhile, Okinawa saw an increase of 5.0%, the sharpest of all the prefectures. Okinawa keeps attracting tourists mainly from Asian countries. The number of visitors to the prefecture from abroad in fiscal 2017 increased 26.4% to 2,692,000, setting a record high for the 10th consecutive year, according to the prefectural government. In the central section of the prefectural capital Naha, land prices along Kokusai Street, which is filled with souvenir shops, restaurants and other businesses, climbed 10.4% year-on-year.

Y’s Cabin & Hotel Naha Kokusaidori, which opened in late May, has added information in Chinese and Korean to its website. The hotel is developing programs to attract tourists during the coming tourism season in cooperation with Taiwanese and South Korean companies, an official said. Many hotels are expected to begin operating in the area along the road. The official said, “We want to attract as many foreign visitors to Kokusai Street as possible.”

 

(Source – Nikkei Asian Review, Pic – Tokyo / “Glen Darrud“)

High Occupancy Ratios Driving Up Investment Activity into Tokyo’s Office Buildings

Japan Investment Properties

Japan Real Estate

25 Jun, 2018 –

Tokyo overtook London as the world’s busiest real estate market in the first quarter of 2018, with mega-deals and an unusually positive economic outlook driving demand. Investment volumes in the Japanese capital more than doubled to US$9.1 billion in the three months to March (2017: US$4.3 billion), just beating New York (US$9 billion) and way ahead of third-placed London (US$5.9 billion). Global deal volumes rose 15 percent to US$165 billion, making the start of 2018 the biggest quarter for commercial real estate deals since 2007. Asia Pacific transactions rose 34 percent to US$40 billion.

“On the one hand, sellers are increasingly focused on the slowing rental growth due to expected new office supply, and on the other, high occupancy ratios in existing buildings are driving transaction up volumes,” says Manabu Taniguchi, Research – JLL Tokyo. Tokyo will see substantial office construction between now and 2020, which is expected to depress rental growth. But in the short term, rents are still rising (1.8 percent in the 12 months ending April) and Tokyo’s overall office vacancy rate is only 3 percent. Japan saw 1.8 percent GDP growth in 2017 and unemployment is down to a record 2.5 percent, which bodes well for future office demand.

Furthermore, despite rising prices, Tokyo Grade A office capital values are 27 percent below the previous cycle’s peak in 2007, according to research by DWS. The office yield spread — the difference between the office capitalisation rates and ten year bond yields — remains attractive at 2.9 percent in Tokyo, compared to 2.7 percent in London or around 1.7 percent in New York, DWS said.

A big quarter generally comes with big deals and this was no exception with the sale of Shiba Park Building, known as the ‘Battleship’. This 1 million square foot, 14-storey office building was sold to a joint venture between utility companies Kansai Electric and Tokyo Gas for around JPY150 billion, or close to US$1.4 billion. This makes it one of the largest single asset deal in Japan’s history. The building was sold by a consortium of foreign investors, comprising PAG Asia, CV Starr and Asia Pacific Land, which bought it in 2013 for JPY120 billion (US$1.2 billion at that time) after the collapse of owner daVinci Holdings.

Domestic investors were very much at the fore in the first quarter; foreign buyers accounted for only 17 percent of transactions, JLL research shows, compared with 26 percent for the whole of 2017. Japanese real estate investment trusts (J-REIT) were also more active, Taniguchi explains. “Listed REITs prices have stopped falling so J-REITs gained momentum, backed by improved fundraising conditions. Rebalancing of portfolios in time for the fiscal year end among REITs also contributed to investment activity.”

At the same time, outbound investment by Japanese investors fell sharply to US$240 million in Q1, after substantial outflows of US$34 billion in 2017 (up 70 percent on 2016). “However, pension funds and other institutional investors will maintain acquisition interest in overseas markets and major developers, trading companies, and private funds will continue to seek opportunities in overseas properties,” says Taniguchi.

He expects Tokyo and other major Japanese cities to maintain investment activity for the rest of this year, with national investment volumes set to increase 5 to 10 percent from 2017 to JPY4.3-4.5 trillion.

(Source – “The Investor”, Pic – Tokyo 756 / “Tokyoform“)