Japan’s all-property total returns in the last two years have been relatively moderate compared to the rebound of performance following the GFC related correction. The latest (to May 2019 as of October 2019) annualized all-property total return for Japan was 6.9% (unlevered, local currency basis), down from the highest, post GFC, annual figure of 8.8%. The income returns have compressed from the 5% range in around 2015 to mid 4%, while the capital returns have decreased from a high 3.7% annually to 2.3% as of May 2019. In the current financial environment – with the Bank of Japan committed to keep its policy rate and its 10-year government bond yields lower for longer, many investors are enjoying amplified returns and we expect they will do so in the foreseeable future.
Data points through end of October 2019. Change represents month-over-month change.
With the inflow of large amounts of capital by both domestic and foreign investors seeking relatively stable returns and wide yield spreads, the cap rate of rental residential markets has been decreasing ever since the end of 2009. So too the residential sector has been recently experiencing record low cap rates: led by Tokyo at 3.6% as of mid-2019, followed by Osaka and Yokohama both on 4.3%. The latest vacancy rate and trailing annual average vacancy rate for Japan overall is just 3.2% and 2.9% respectively (ARES, preliminary as of October) and the biggest cities have even lower vacancy (of just 2.0% in Tokyo for example). Savills reported (October 2019) that mid-market asking rents in the Tokyo 23 wards area were up 6.9% YoY to the end of 3Q 2019.
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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