Japan’s Q1 Sales Volume Down; Tokyo Office Rent Declines

CBRE’s Japan Investor Intentions Survey 2021 showed that investors remained keen to invest in Tokyo and are eyeing the end of the pandemic.

May 17, 2021– Japan’s first-quarter (Q1) sales transaction volume fell by 38% year-on-year to 865.4 billion yen ($7.7 billion), as the number of deals decreased by 19% year-on-year to 326, according to data compiled by the Nikkei Real Estate Market Report. Out of the 326 transactions, 102 (31%) involved residential, 79 (24%) were offices, and 60 (18%) were land.

In terms of sector, hotel experienced a 65% plunge in the three months to March to 151.6 billion yen ($1.35 billion), retail dropped by 55% to 160.2 billion yen ($1.43 billion), and residential fell by 46% to 441.3 billion yen ($3.9 billion).

Other sectors, particularly office and logistics, did not suffer steep declines due to a series of large building transactions. Office building transaction volume increased 17% from 1,035.9 billion yen ($9.2 billion) to 1,209 billion yen ($11 billion), with Shinjuku Mitsui Building as one of the major transactions. Although logistics decreased by 25%, this decline was due to the large bulk transactions last year, and the sales transaction amount remained high compared to 2018.

Tokyo Office Rent in Some Areas Down 5% in Q1

Every quarter, the Nikkei Real Estate Market Report also surveys contracted rent for the office sector involving 28 areas in Tokyo, Kanagawa, and Osaka.

As of the end of March 2021, a downward trend continued in 11 areas in Tokyo. Rent in these areas, which include Kasumigaseki, Nagatacho, Hirakawacho, Shimbashi, Toranomon, Shiodome, Shinagawa Station, Shibuya Station, Ebisu Station, Tennozu, and Shinagawa Seaside, decreased by 5% or more from the survey conducted half a year ago.

Currently, the Tokyo rental office market is stagnant, with enquiries seen for buildings with a floor plate of less than 200 tsubos (661 sq. m.). Tenants are continuing a wait-and-see attitude but predict that the contracted rent level will continue to decline.

Investors eye end of Covid

The outlook of the market remained somewhat positive as investors eye the end of the COVID-19 pandemic. According to CBRE’s Japan Investor Intentions Survey 2021 conducted between November and December 2020, 44% of Japanese investors responded that they expected their real estate investment in 2021 to exceed the previous year.

The survey results also showed that foreign investors remained keen to invest in Japan, despite the current uncertain outlook. Among the overseas investors who viewed Japanese cities as among the most attractive investment destinations, 66% said they would increase their investment this year — far exceeding the 44% in the previous survey. On investment targets, those who preferred logistics facilities exceeded offices for the first time. Although the percentage of investors willing to bid above asking prices (16%) of logistics facilities was higher than the percentage of investors who responded that the price would be at a discount (7%), there’s a possibility that yields from logistics facilities will further decline.

Given that it is hard to predict when the pandemic will end, CBRE analysts expect cap rates to remain low.

The CBRE survey also found that the percentage of Japanese investors adopting an environmental, social and corporate governance (ESG) policy in investment criteria is only 28%. This represents a massive gap from the 49% of investors who do so in the whole Asia Pacific region. However, more than half of Japanese investors are considering or planning to adopt such a policy.

In CBRE’s previous survey, Tokyo had topped the ranking of investment destinations in the Asia Pacific region for two consecutive years, while Osaka climbed three spots to ninth place.

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Japan’s Q1 Sales Volume Down; Tokyo Office Rent Declines