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J-REITs’ Q2 Property Acquisitions At Lowest Since 2011 

The weak REIT market pulled down overall Japan’s property transactions volume as investors restructure their portfolios in light of rising global interest rates and changing market conditions.

August 10, 2022 – J-REITs’ property acquisitions during the second quarter (April to June) dropped 64% to 92.3 billion yen (US$680 million), the lowest since the second quarter of 2011, when 53 billion yen (US$390 million) was recorded, just after the Great East Japan Earthquake, the Nikkei Real Estate Market Report said.

Overall, REITs sold about 80.8 billion (US$600 million) worth of properties, roughly the same amount acquired.

Rising concerns about global interest rates have caused the J-REIT market to “stagnate” in recent months, causing a ripple effect that lowered overall property transaction volumes by 40% in the second quarter, the report said in its latest issue.

“Against the backdrop of the rise in global interest rates, investors are increasingly avoiding risk assets, weakening investment unit prices across asset types. The Tokyo Stock Exchange REIT Index has also been stagnant since the beginning of the year,” it said. 

Just last month, the US Federal Reserve decided to raise its rates by 75 basis points. While the Bank of Japan (BOJ) has kept its interest rates low in its July meeting, other central banks in Asia Pacific – such as the Monetary Authority of Singapore (MAS) and the Reserve Bank of Australia (RBA) – have raised interest rates. 

Japan had two REIT public offerings (POs) in the second quarter: Heiwa Real Estate REIT and Hoshino Resorts REIT. The two raised 14.3 billion yen (US$110 million), the lowest fundraising amount in 10 years.

The REIT market’s slowdown affected Japan’s property markets. The overall number of transactions compiled by the Nikkei Real Estate Market Report during the second quarter of 2022 decreased by 2% to 319. 

Transaction volume fell 40% year on year to 529.1 billion yen (US$3.9 billion), the lowest since the first wave of coronavirus (Covid-19) in the second quarter of 2020. According to Nikkei, this indicated that this slump cannot be explained by seasonal factors alone. 

Transactions for logistics facilities, office buildings and retail were hit particularly hard. Logistics facilities declined 84% to 21.6 billion yen (US$160 million), offices down 61% to 190.9 billion (US$1.4 billion) and retail down 54% to 44.1 billion (US$320 million).

While REIT transactions were muted, there were activities that showed that REITs were restructuring their portfolios in response to the economic changes.

For example, Japan Real Estate, a REIT affiliated with Mitsubishi Estate, is selling the Harumi Center Building for 24.33 billion yen (US$179 million). 

Sekisui House REIT sold its stake in The Ritz-Carlton, Kyoto to its sponsor for 23 billion yen (US$170 million), judging that full-scale recovery of the hotel business will take considerable time. To stabilise its earnings, it acquired Prime Maison Egotanomori, a mixed-use facility in Nakano-ku, which has mainly rental apartments.