Office And Retail Sectors Show Recovery In Japan
Office property acquisition activity continues to pick up while retail rental prices are rising on the back of recovering retail appetite.
September 24, 2021 – Office and retail properties, which were among the most affected sectors at the height of the pandemic, are starting to show signs of recovery in Japan through increased acquisitions and rising rental rates.
In its September issue, the Nikkei Real Estate Market Report said office property acquisitions are “alive and well,” with one high-value 50 billion yen (US$440 million] transaction closing successfully.
Office acquisition inquiries
Koji Naito, a research director for Jones Lang LaSalle’s capital markets division, told Nikkei that over the past year, they had received an increasing number of inquiries from investors about offices, particularly in Nagoya.
“One can still expect cap rates to be 0.3 to 0.5 percentage points higher for Nagoya offices than Tokyo’s, so overseas investors are paying more attention. The acquisition of Hirokoji Cross Tower feels like a message from buyers to actively invest in major regional cities like Nagoya as well,” Naito said.
Hirokoji Cross Tower is a modern office building with 21 floors above ground, one below and a gross floor area of 41,913 square metres. Mitsubishi Estate recently sold the office building to Canadian real estate investment fund Bentall GreenOak for 45 to 50 billion yen (US$400 to US$440 million).
Junichi Miyazaki, director of CBRE’s Advisory & Transaction Services, however, said that office vacancy rate is expected to continue to increase for a while.
“Accordingly, the contracted rental level may decline, but that should be moderate. Market conditions are unlikely to deteriorate significantly,” Miyazaki said.
This outlook, however, has not stopped acquisition activities in the office space in Japan.
Goldman Sachs Group, for example, is set to acquire Marunouchi One Building, which is currently under construction.
Nikkei noted that real estate investment trusts (REITs) also made significant office transactions in recent months.
Nippon Building Fund acquired Nagoya Mitsui Main Building and Nagoya Mitsui New Building for 26.25 billion yen (US$230 million). Orix JREIT also incorporated Pacific Square Nagoya Nishiki into its portfolio for approximately 6.8 billion yen (US$60 million).
Retail rental prices starting to rise
Nikkei also reported that a pick-up in inquiries on street-facing retail stores has caused retail rental rates in selected areas to rise.
The report said rental rates in retail spaces, particularly in Ginza and Omotesando, have started to rise as sales of luxury brands, jewelry and precious metal recovers.
While concerns remain that demand may stay weak in locations other than tier 1 locations, rent may recover more quickly compared to past recessions once the Covid-19 crisis abates, it added.
Japanese REITs Better Than Traditional Assets, GPIF Report Says (Bloomberg)