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OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2018 revenues of $21.3 billion and more than 90,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #146 in 2019. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $106 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Mike Lafitte, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

No global real estate portfolio can ignore Japan, given the depth of opportunity to access the large quantity – and especially the high quality – of its real estate. Although the country has been the poster child of low growth/inflation for three decades since its real estate bubble burst in the early 1990s, it remains one of the world’s largest, most liquid markets and one comparatively easily accessed by foreign and local investors alike. Its pockets of economic and demographic growth mean that investors must be highly selective, and this makes its geographic and sector overlays critical when investing there. In a world where national politics has grown highly divisive, and quite unstable coalitions have clung to power in a number of countries, Prime Minister Abe last November became one of the longest-serving PMs in Japanese history. Having seen no less than 16 different PMs in the 23 years between 1989 and 2012, Abe has clearly brought policy stability and clarity, while his eponymous stimulus policy – “Abenomics” – has revived the economy somewhat. But Japan will likely never regain the dynamism that it enjoyed for much of the last century as it is now a very highly advanced, urbanized and wealthy country. Still, we see great potential in the upgrade of its property stock and in the replacement of old, near-obsolete buildings with higher-grade facilities befitting such a sophisticated economy. Additionally, the global spotlight shines on Tokyo this year as it hosts the Summer Olympic Games.

POSITIVE GROWTH CONTINUES

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%.

FEBRUARY 2020

23,205.18

1.9%

Nikkei 225

26,312.63

7.8%

Hang Seng

2,976.53

2.4%

Shanghai Composite

108.03

0.03%

Yen/Dollar

Data points through end of January 2020. Change represents month-over-month change.

GDP AND CPI HISTORICAL AND FORECAST TRENDS
PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Juliet Cha
Akira Tani
URBAN POPULATION INFLOW AS A DRIVER

Japan’s population is shrinking and average annual change of -0.5% p.a. is forecast nationally between 2020 to 2030 (Oxford Economics as of January 2020). But with a jobless rate well below 3%, thousands of workers continue to move to the larger cities and serve as a key demand driver. This is particularly so for Tokyo prefecture, which has seen a net population inflow of 70,000 to 85,000 p.a. recently. Osaka has a flatter migration profile; thus, ward level analysis becomes essential: its inner wards enjoy good growth even as its outer, suburban wards decline. Much greater caution is needed in those prefectures where the outflow of people is greater and as family formation rates are lower in those same areas, demographics outside the very largest cities is quite weak.

HISTORICAL NET POPULATION INFLOW
BY PREFECTURE
Note: Figures include foreigners.
Source: Ministry of Internal Affairs and Communications of Japan as of January 2020
LAND VALUES AND LABOUR COSTS ARE RISING

Residential land values fell across Japan during and after the GFC – sharply so for the largest cities. But following Tokyo’s lead, they have staged a recovery. According to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the price of residential land in Japan, Tokyo and Osaka increased by 0.6%, 2.9% and 0.2%, respectively in 2019. Furthermore, construction costs including labour have been on the rise given recent labour reforms and the sheer demand for their services, thus many developers have struggled to secure an adequate supply of workers for their projects. The average YoY construction-sector wage growth rate as of October 2019 is 3.4% (contractual cash earnings basis and in firms with 30 employees or more), which is much higher than its historical average figure of 0.7% (2014 to 2018)(Ministry of Health, Labour and Welfare of Japan, January 2020).

HISTORICAL LAND VALUE CHANGE
IN JAPAN, TOKYO AND OSAKA
Note: The figures are of the land for residential.
Source: Ministry of Land, Infrastructure, Transport and Tourism of Japan as of January 2020
LOWER RECENT RESIDENTIAL SUPPLY

With residential commencements of over 87 million SqM in 2013 (just over 10 million SqM in Tokyo and another 5.4 million in Osaka), the post GFC residential construction cycle peaked that year and ever since then has moderated further. In fact the most recent 5 full year period of 2014 to 2018 (full year 2019 is not yet available) saw average residential construction starts in Japan, Tokyo and Osaka of 76.3 million SqM, 9.2 million SqM and 4.7 million SqM respectively, but which were just 73.0%, 74.2% and 66.0% of their average annual construction starts between 2000 and 2008. With new residential supply suppressed and pockets of demographic demand strong, it is unsurprising that vacancy rates (of JREIT quality assets) are just 2.5% in Tokyo and 3.0% in Osaka (ARES as of January 2020).

HISTORICAL RESIDENTIAL CONSTRUCTION STARTS
(BY AREA)
Source: Ministry of Land, Infrastructure, Transport and Tourism of Japan as of January 2020
TRANSACTION VOLUMES COOL FURTHER

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.

INVESTMENT VOLUME BY PROPERTY TYPE
Note: Includes property or portfolio sales USD10 million or greater. Figures of 2019 are preliminary.
Source: Real Capital Analytics
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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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