Japan’s Real Estate Transaction Volumes Down 27% In Q3

Stagnant REIT transactions, smaller deals and lower cap rates blamed.

The volume of real estate sales in Japan declined 27% year-on-year in the third quarter of 2019 primarily due to smaller deals.

Transaction volumes fell to 694.3 billion yen (US$6.3 billion) in July to September, according to Nikkei Real Estate Market Report Issue 124 published in November. The report revealed that there were 407 real estate transactions in the period, unchanged from the same three-month period in 2018. 

Property acquisitions by J-REITs amounted to 254.4 billion yen (US$2.3 billion) in value, which is a 34% year-on-year decrease, the report said. Yosuke Ohata, a senior analyst in the Equity Research Department at Mizuho Securities, attributed the decline to an “excessive decrease in cap rate.” 

According to the report, Hanzomon PREX North, a new office tower acquired by Korea Investment Management for an estimated price of 14 billion yen, had the lowest cap rate of 1.8%. WeWork leases the building.

The most expensive transaction during the period was Blackstone Group’s 1.1 billion euros (US$1.2 billion) acquisition of Germany’s Allianz Real Estat’s residential portfolio. The deal helped to offset weakness in office transactions. The total deal volume could have been lower if not for the rise in residential real estate transactions during the period, the report said. Residences worth 219.1 billion yen were transacted during the period, accounting for 32% of the total quarterly sales amount.

In July, Blackstone also acquired multiple logistics facilities from Singapore-based Mapletree Investments for approximately 100 billion yen.

Overall, there were fewer large transactions in the quarter. There were three transactions worth between 20 billion and 30 billion yen and 10 transactions valued at between 10 billion and 20 billion yen. 

The quarterly drop in transaction value is in contrast to the positive unit-price performance posted by J-REITs during the period. 

The Tokyo Stock Exchange REIT Index continues to reach new highs. The index reached a record 2,000 points for the first time since 2007 in July, supported by monetary easing policies.

While investment appetite remains strong, supported by a favourable financing environment, it is not resulting in actual transactions, the report said.