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J-REITs on a Path of Divergent Recovery

Only 30 out of the 58 comparable REITs posted growth in unit prices; the other 28 remained down. 

August 10, 2021 – Japan’s real estate investment trust (REIT) index is almost back to its pre-pandemic performance, but a closer look at its components reveals lingering effects of the global health crisis on the property sector.

In its August issue, the Nikkei Real Estate Market Report said that investment appetite for the property sector had shown a significant improvement in the first half of the year, but the recovery remains highly divergent. 

As of end-June this year, the Tokyo Stock Exchange REIT Index reached 2,151 points, approaching the high pre-pandemic figure of 2,251, based on the closing price on February 20, 2020.

Investor appetite for the coming months is also expected to rise. Nikkei noted that an investor intentions survey conducted by CBREfrom November to December 2020 showed that 44% of investors said they would increase their investment in the real estate sector from last year.

“These factors are setting up an environment for real estate market recovery. However, the degree of recovery in investment unit prices varies widely between sectors,” the report read.

According to the report’s data, between the end of December 2019 – before the spread of Covid-19 – and the end of June 2021, only 30 out of the 58 comparable REITs are up. The other half, or 28 REITs, remained down during the period. 

Source: Nikkei Real Estate Market Report, August 2021

Similar to regional trends, Japan’s logistics REITs have gained strength while hotel REITs have been down. The report also noted that office REITs and diversified type REITs with a high percentage of office buildings have been struggling as a whole due to remote work. 

The report also said that retail REITs that mainly have suburban retail facilities had been re-evaluated for their strength as lifestyle infrastructure. These REITs rose slightly during the period.

Meanwhile, the number of sales transactions in Japan’s real estate market also continued below the normal range. 

In particular, the number of transactions – as compiled during the second quarter of 2021 – increased by 16% year-on-year to 327. The sales transaction amount, meanwhile, increased 107% year-on-year to 878.5 billion yen (US$7.8 billion)

This is double that of a year before when the first state of emergency was issued. However, it has been almost flat since last quarter, down 9% from two years ago. 

The data also showed that the residence sector had the highest number of sales transactions with 95 or 29% of the total. There were 80 office building transactions and 70 for land, followed by retail, hotels and logistics. On a monetary basis, offices accounted for more than half, at 493 billion yen (US$4.4 billion).

“Despite signs of recovery, it appears it will take some time for the market to mount a full comeback,” Nikkei Real Estate Market Report said. 

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