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CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. 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.

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CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 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
Danny Queenan, 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

Thanks in large part to the efforts of “Abenomics” and the resulting above long-term average economic growth rate and inflation, Japan has affirmed its attractiveness as an investment destination for global investors. According to Oxford Economics, Japan’s GDP expanded by 1.7% in 2017 and is anticipated to have grown by 1.2% in 2018. Economic growth is forecasted to continue at an average of 0.8% YoY from 2019 to 2023, a rate which is more in line with its long-term historical average. The unemployment rate dipped below 3% in 2017 and is expected to remain below the LTA for the next 5 years: by such measures, Japan is experiencing the strongest labour market in over 30 years. To ensure this economic expansion is maintained, the government has planned a new public works spending program. It also disclosed fiscal stimulus to help protect domestic demand from the negative impact anticipated to arise from the consumption tax hike due in October 2019. As the 2020 Summer Olympic Games approaches, the country – and especially the host city Tokyo – have been enjoying some benefits from planning and construction for the event, as well as enjoying an increasing number of foreign visitors. The sizable domestic institutional investor community in Japan is typically underweight to real estate, and even small strategic increases to the asset class will trigger a large wave of capital into the Japanese real estate universe.

TOTAL RETURN PERFORMANCE STABILIZES

Japan’s all-property total returns in the past two years have stabilized following the strong acceleration of performance starting from 2009. The latest (through August 2018 as of December 2018) annualized all-property total return for Japan was 6.4% (unlevered, denominated in local currency terms) albeit down from the annual performance of 8.8% recorded in late 2015/early 2016, the post-GFC peak. While income returns have marginally decreased from around the 5% range to around mid-4% since late 2015/early 2016, capital returns decelerated more, from 3.8% to the latest 1.7%. Latest total returns for logistics, office, residential, retail and hotel were 6.7%, 6.6%, 6.4%, 5.8% and 5.7% respectively. Debt remains accretive in Japan and thus many investors are currently enjoying notably higher levered returns than these unlevered benchmark returns.

JANUARY 2019

20,014.77

-10.5%

Nikkei 225

25,845.70

-2.5%

Hang Seng

2,493.89

-3.6%

Shanghai Composite

109.65

-3.3%

Yen/Dollar

Data points through end of December 2018. Change represents month-over-month change.

ANNUALIZED ALL-PROPERTY RETURN

Source: MSCI IPD

PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Juliet Cha
Stephanie Zhou
 
 
INVESTMENT VOLUMES MODERATED IN 2018

Japan has experienced strong commercial property transaction volumes for the last several years. Japanese transaction volumes peaked in 2014 at USD 48.6 billion, and the market then slowed before bouncing back in 2017 with a total of USD 34.5 billion. However, with the soft performance of the 2018 transaction volumes, we have seen the lowest annual amount since 2010. Industrial and hotel sectors remained at, or slightly above, the levels seen in 2017 while the other three sectors will likely be notably down on the volumes of the previous year. The apartment sector transaction volume was especially modest with just USD 1.8 billion traded last year, well down from the peak of USD 5.8 billion in the year 2013.

TRANSACTION VOLUME BY SECTOR
Note: Transactions include properties and portfolios USD 10 million and greater as of end December 2018. Development sites are excluded.
Source: Real Capital Analytics
OFFICE VACANCY VERY LOW

The national office vacancy rate moved down from the high of 6.4% in November 2010 to just 1.9% in early 2017, which was around the historically low level of 2007 (ARES). Since then, conditions have grown even tighter: the July 2018 vacancy rate was just 0.8%, which is the first time that it fell below 1.0% over the 16 years of the ARES data availability. New office supply is needed to satisfy the robust demand from tenants. Average rental levels have not yet reached the peak level in 2008, however, office rents in September 2018 recorded a strong annual growth of 11.8%. Given tight supply-demand conditions and considerable dry power in the market, office yields compressed further in 2018, especially in the secondary cities.

JAPANESE OFFICE RENT AND VACANCY RATE
Source: ARES
LOGISTICS PRE-LEASING STILL STRONG

Japanese logistics cap rates settled at 5.4% for much of the period between 2009 and 2012 (ARES). Roughly 10 bps to 20 bps of compression has taken place each year since then. The latest national blended average cap rate as of August 2018 was 4.8%. The logistics cap rates are currently at record low levels in the major markets. However, rental growth has not been that strong in recent years with rental performances highly variable depending on the supply-demand balance at the submarket level. Quality spaces that delivered to the market in latter 2018 or are to be delivered in early 2019 have seen high occupancy rates or strong pre-leasing activities in the Greater Tokyo and the Greater Osaka areas.

JAPANESE LOGISTICS RENT AND CAP RATE
Source: ARES
RESIDENTIAL CAP RATES AT RECORD LOWS

Residential cap rates of major metro areas started compressing from the second half of 2009 and have compressed by roughly 200 bps since then. Cap rates are now at historically low levels across Japan, led by Tokyo at 3.8% as of mid-2018, followed by Osaka at 4.3%, Yokohama at 4.4%, Nagoya at 4.6%, Fukuoka at 4.7% and Sapporo at 5.1%. Newer residential towers in the inner wards of these cities which are close to transit, are lower still. Over the same period, the yield of the Japanese 10-year government bond was also on a declining trend and has broadly hovered around zero and even ran into negative territory in 2016. With the low government bond yield, wide spreads to the residential markets are still available.

RESIDENTIAL CAP RATES BY METRO
Source: JREI
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This information is for our clients and investors only. 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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