Japan’s economic growth rate has steadily recovered since the GFC. Although its pace is slow, and very much boosted by the Bank of Japan (BOJ)’s stimulus policy, this has been sufficient to generate space demand for such a large, advanced economy. Our base case does expect 2020 to be quite flat though – mainly due to the recent consumption tax rate hike from 8% to 10% and which may cause a technical recession. But from 2021 to 2024 growth improves to around 0.8% p.a. (Oxford Economics as of January 2020), which is consistent with the long-term average pace of growth. Inflation expectations though remain well under the BOJ’s current target figure of 2%, albeit much higher than the long term (2000-2018) historical range of just 0.1%.
Data points through end of January 2020. Change represents month-over-month change.
Heightened interest among both foreign and local institutions to increase their allocations to Japanese real estate has been backed by strong performance and very low debt costs. Therefore, it is surprising to see that property transaction volumes have declined every year since peaking in 2014. We believe this is best explained by a lack of investable stock coming to market with certain sectors being very tightly held. Almost USD 135 billion of property in Japan was traded for the full year of 2019 (RCA as of January 2020). The office sector continued to take the greatest share and saw around USD 73 billion of transactions last year, while the logistics sector saw less than USD 15 billion of assets trade hands, which is surprising considering its strong fundamentals.
Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.
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