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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
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 “Abenomics” and its above-average economic growth rate and inflation in recent years, Japan has affirmed its attractiveness as an investment destination for global investors. According to Oxford Economics, Japan’s GDP expanded by 0.8% in 2018 and is forecast to expand by a similar pace this year. Economic growth is forecast to expand by an annual average rate of 0.7% YoY from 2020 to 2024; this is broadly in line with its long-term historical average. Its unemployment rate since 2018 has averaged just 2.4%, and by such measures, the country is experiencing its strongest labor market in over 30 years. Attracted by this economic backdrop and especially by its strong space market fundamentals and relatively wide yield spread, many domestic and foreign institutional investors have commenced investment or increased their original exposures to real estate markets in Japan. The latest ANREV Japan Funds index (levered, fund-level returns) to the end of 2018 saw a stunning 26.7% annual total return with the five-year annual total return averaging 20.3%.

SOLID TOTAL RETURN PERFORMANCE

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.

NOVEMBER 2019

22,927.04

5.4%

Nikkei 225

26,906.72

3.1%

Hang Seng

2,929.06

0.8%

Shanghai Composite

108.03

0.03%

Yen/Dollar

Data points through end of October 2019. Change represents month-over-month change.

JAPANESE ALL-PROPERTY TOTAL RETURNS
PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Juliet Cha
Akira Tani
INVESTMENT VOLUMES WELL DOWN IN 2019

Unless there is a strong volume of investments closing in 4Q 2019, Japan is facing the prospect of having the lowest annual real estate transaction volume since 2009. As of the end of 3Q 2019, the transaction volume was only 84.2% of the comparable period of 2018 and in fact last year had in turn been the slowest year since 2012. Office trades still dominate but they too have seen relatively low investment volume, despite the strong fundamentals in the sector and the high liquidity environment. The logistics sector has held and in fact grown, its share of total transaction volume, if not the actual amount. Some 12.5% of all property trades across Japan to 3Q this year have been logistics – its highest share on record.

JAPANESE PROPERTY INVESTMENT VOLUMES
Source: Real Capital Analycis as of October 2019
OFFICE VACANCY AT HISTORIC LOWS

In spite of an enhanced consciousness by businesses of more efficient/flexible working practices, robust demand has been easily absorbing much of the current leasable spaces and also a large part of the new supply being delivered. The national office vacancy rate has been falling almost continuously ever since 2011 with the latest figure of just 0.8% as of June 2019 (ARES). This is even lower that the pre-GFC economic boom period of 2005-08. However average rents have not reached the peak level recorded at the end of 2008 although the annual office rental growth rate to June 2019 was still a healthy 1.3%. Of course some office grades in specific submarkets of the major cities have seen far stronger rental growth.

JAPANESE OFFICE RENTS AND VACANCY RATES
Source: ARES, preliminary as of October 2019
LOGISTICS DEMAND STILL STRONG

Largely off the back of rapid growth in e-commerce, the demand for modern, multi-functional logistics assets has been robust, and the latest national vacancy rate of 1.0% was just above the trailing annual vacancy rate of 0.7% (ARES, preliminary as of October). Although absorption has been strong, monthly average rent performances have been volatile yet trending downwards since 2012 albeit with signs of a modest pick-up in rents in 2019. Assets which are anticipated to deliver in early 2020 have witnessed strong pre-leasing performances in the Greater Tokyo and Greater Osaka areas. Aside from occupier demand, investment demand has been strong: since June 2014, the national logistics cap rate has compressed 67 bps and the latest figure is 4.56% (ARES).

JAPANESE LOGISTICS RENTS AND CAP RATES
Source: ARES, preliminary as of October 2019
A DECADE OF RESIDENTIAL CAP RATE DECLINES

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.

JAPANESE RESIDENTIAL CAP RATES BY METRO
Source: JREI as of October 2019
Related Content

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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