- Deutsche Asset & Wealth Management

Transcription

Marketing Material
Research Report
Japan Real Estate
Second Quarter 2015
April 2015
Please note certain information in this presentation constitutes forward-looking statements. Due to various risks, uncertainties and
assumptions made in our analysis, actual events or results or the actual performance of the markets covered by this presentation report
may differ materially from those described. The information herein reflect our current views only, are subject to change, and are not
intended to be promissory or relied upon by the reader. There can be no certainty that events will turn out as we have opined herein.
Certain DeAWM Real Estate investment strategies may not be available in every region or country for legal or other reasons, and
information about these strategies is not directed to those investors residing or located in any such region or country.
For Professional Clients (MiFID Directive 2004/39/EC Annex II) only.
For Qualified Investors (Art. 10 Para. 3 of the Swiss Federal Collective Investment Schemes Act (CISA)). Not for distribution.
For institutional investors only.
Prepared By:
Table of Contents
Koichiro (Ko) Obu
Head of Research & Strategy,
Asia Pacific
+81 (0) 3 5156 6522
koichiro.obu@db.com
Executive Summary ............................................................................. 1
Natasha Lee
Property Market Research
+65 6423 5431
natasha-j.lee@db.com
Minxuan Hu
+81 (0) 3 5156 6525
minxuan.hu@db.com
Macro Economy ................................................................................... 2
Capital and Investment Market ............................................................ 4
Lending .................................................................................... 4
Pricing...................................................................................... 5
Transactions ............................................................................ 6
Performance ............................................................................ 7
Mark Roberts
Head of Research & Strategy
+1(212) 454-0974
mark-g.roberts@db.com
J-REITs.................................................................................... 8
Market Fundamentals ........................................................................ 10
Office ..................................................................................... 10
Residential ............................................................................. 14
Industrial ................................................................................ 15
Research Topic: Emergence of Private REITs in Japan and
Implications to the market .................................................................. 16
Past Topics ........................................................................................ 22
Important Notes.................................................................................. 23
Research & Strategy Team – Alternatives and Real Assets .............. 25
The opinions and forecasts expressed are those of Japan Real Estate Research Report and not necessarily those of
Deutsche AWM Distributors, Inc. All opinions and claims are based upon data at the time of publication of this article (April
2015) and may not come to pass. This information is subject to change at any time, based upon economic, market and
other conditions and should not be construed as a recommendation.
DEUTSCHE ASSET & WEALTH MANAGEMENT Japan Real Estate Second Quarter 2015 | April 2015
Executive Summary
Economy: Japan’s macro economy showed positive signs after it struggled to recover
amid the consumption tax (VAT) hike in 2014. A healthy growth in corporate earnings
begets an improvement in employment and wages, and this should result in sustainable
consumption growth in coming years. On the back of the devaluation of the currency, the
stock market reached its highest level in the last fifteen years, with real asset prices
benefiting from the expansionary monetary policy.
Capital and Investment market: The real estate investment market remained very active
in the first quarter of 2015. This caused a further cap rate compression in Tokyo with
capital now flowing into Osaka and other major cities to hunt higher yielding assets. Both
J-REITs and global managers remained active in the period while the hotel and healthcare
sectors emerged as hot targets among investors.
Property markets: The leasing markets showed healthy rent recoveries in all the sectors
in Japan in the last reported quarter. Office vacancy rates made continuous improvements
in Tokyo and other major cities in Japan while a series of new supply started to cause
fluctuations in vacancy rates. The high street retail and department stores saw benefit
from an increasing number of foreign tourists, and rent made significant growths in major
submarkets. The leasing markets remained strong in the residential and industrial sectors
too with further recoveries expected in the latter half of the year.
Research Topic: In this edition, our ‘Research Topic’ analyses the implications of the
emergence of private REITs in Japan and the expected impacts to the industry, by
comparing it with other fund types and equivalent products in major markets. Momentum
is anticipated to pick up given the attractiveness of the open ended products while they
are still evolving and remain in the early phase. Japan could prove to be the frontrunner
for the products in Asia. There are some reservations to note, however, and we unfold
these points.
1
Macro Economy
Japan’s macro economy struggled to recover after the consumption tax (VAT) increase in
April 2014 on year-on-year basis, but it achieved positive growth on the quarter-on-quarter
basis in the fourth quarter of 2014 and the stock price rose accordingly. A healthy growth
in corporate earnings begets an improvement in employment and wages, and this should
result in sustainable consumption growth in the second quarter of 2015 and ahead.
Exhibit 1 — Japan’s GDP Growth Outlook and Nikkei
Q1
Q2
Q3
Q4
Nikkei 225 YoY (RHS)
(YoY)
6%
60%
DB Forecast
4%
40%
2%
20%
0%
0%
-2%
-20%
-4%
-6%
2014.04
VAT Hike
2011.03
East Japan Earthquake
2000-2001
dot-com bubble burst
1997.04 VAT Hike
1997.07 Asian Financial Crisis
-40%
-60%
2008.09
Global Financial Crisis
2018F
2017F
2016F
2014
2015E
2013
2011
2012
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-100%
1997
-10%
1996
-80%
1995
-8%
Notes: E = preliminary estimate, F = forecast, there is no guarantee forecast growth will materialise. Please
refer to Important Notes (see end of report). Past growth is not a reliable indicator of future growth
Sources: Deutsche Bank “Japan Economics Weekly.” As of April 2015
The aggregate pretax profits of publicly traded Japanese companies are expected to have
climbed to a record high in fiscal 2014 that ended in March 2015, as large manufacturers
benefit from lean operations and devaluation of the yen. The Diffusion Index (DI) of the
Tankan Survey conducted by the Bank of Japan (BoJ) continued to edge up accordingly
from an index value of 14 in December 2014 to 16 in March 2015 while the retail and real
estate sectors saw particularly sharp gains during the period.
Exhibit 2 — Diffusion Index of Business Conditions
(2010=100)
Business Condition Leading Index (LHS)
Diffusion Index of Tankan Survey (RHS)
126
50
Diffusion Index of Business Conditions:
('favourable' minus 'unfavourable', % points)
Outlook
113
25
100
0
87
Consumption
Tax increase
-25
-50
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
74
Global Financial
Crisis
Dot.com
Bubble burst
Past performance is not a reliable indicator of future performance
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Asset & Wealth Management. As of April
2015
2
The Nikkei 225 index made a healthy recovery in the four months of 2015 and it recorded
JPY 20,000 in April, for the first time in the last fifteen years since March 2000. It was a
continuous recovery from the previous quarter when the Government Pension and
Investment Fund (GPIF) announced a plan to increase the stock allocation in the portfolio.
The recovery was also in line with the depreciation of the Japanese yen’s value against
the US dollar which contributed to profits at major manufacturers.
Exhibit 3 — Stock (Nikkei) and Currency
Nikkei 225 (LHS)
(JPY)
USD/JPY (RHS)
¥20,000
¥120.0
¥15,000
¥100.0
¥10,000
¥80.0
Apr-15
Oct-14
Apr-14
Oct-13
Apr-13
Oct-12
Apr-12
Oct-11
Apr-11
Apr-10
Oct-09
Apr-09
Oct-08
Apr-08
Oct-07
Apr-07
Oct-06
Apr-06
Oct-05
Apr-05
Oct-04
Apr-04
¥5,000
Oct-10
2011.10
JPY peaked at 75
2008.09
Global Financial Crisis
¥60.0
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Bank. As of April 2015
Past performance is not a reliable indicator of future performance.
Japan’s 10-year government bond yielded around 0.4% in the first three months of 2015,
and is forecast to move upward only mildly to 0.7% in two years time. Core CPI has
rapidly moderated from 1.3% in the first quarter of 2014 to 0% in March 2015 due mainly
to a decline in energy prices, while nominal inflation1 remained at around 2% including the
impacts from the VAT hike. Core CPI is expected to converge to 1% in the second half of
2016.
Exhibit 4 — Forecast of Interest Rate and CPI
Call Rate overnight
(%)
10y JGB
CPI
3
VAT impact
April 2014
2
1
0
-1
DB Forecast
-2
2018F
2017F
2016F
2015E
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-3
Notes: F = forecast, there is no guarantee rates forecasted will materialise. JGB = Japanese Government
Bond. CPI = Consumer Price Index. Please refer to Important Notes (see end of report)
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Bank. As of April 2015
1
Core inflation: Excluding the effects of VAT hike
Nominal inflation: Including the effects of VAT hike
3
Capital and Investment Market
Lending
Very favourable credit conditions remain in Japan. The BoJ’s Diffusion Index for lending
attitudes of banks to the real estate industry (orange line in Exhibit 5) was an index value
of 27 as of March 2015, a leap from 16 a year earlier. The lending volume to new real
estate projects increased by 20.1% in the fourth quarter of 2014 (year-on-year).
Exhibit 5 — Real Estate Lending by Japanese Banks
growth of lending to new projects (yoy, LHS)
lending attitude DI to all industries (RHS)
lending attitude DI to real estate industries (RHS)
20
0%
0
2015.03
2014.12
2014.09
2014.06
2014.03
2013.12
2013.09
2013.06
2013.03
2012.12
2012.09
2012.06
2012.03
2011.12
2011.09
2011.06
2011.03
2010.12
2010.09
2010.06
2010.03
2009.12
2009.09
2009.06
2009.03
2008.12
-40
2008.09
-40%
2008.06
-20
2008.03
-20%
Diffusion Index (DI)
20%
Sources: The Bank of Japan, Japan’s Cabinet Office, Deutsche Asset & Wealth Management. As of April
2015
Accordingly the volume of commercial real estate transactions in Japan remained at a
buoyant level. The transaction volume in the rolling 12 months to March 2015 was around
JPY4.5 trillion on a preliminary basis, almost the same level as a year earlier, the third
highest level in the last 15 years.
Exhibit 6 — Real Estate Transaction Volume and Lending Attitude DI
(JPY tn)
transaction volume (12 months, LHS)
lending attitude DI (6 months prior, RHS)
36
6
2015.09F
2014.09
2015.03E
2014.03
2013.09
2013.03
2012.09
2012.03
2011.09
2011.03
2010.09
2010.03
2009.09
2009.03
2008.09
2008.03
2007.09
2007.03
2006.09
2006.03
2005.09
-36
2005.03
0
2004.09
-24
2004.03
1
2003.09
-12
2003.03
2
2002.09
0
2002.03
3
2001.09
12
2001.03
4
2000.09
24
Diffusion Index (DI)
5
Notes: E = preliminary estimate. Please refer to Important Notes (see end of report)
Sources: Urban Research Institute, Bank of Japan, Real Capital Analytics, Deutsche Asset & Wealth
Management. As of April 2015
4
Pricing
The office appraisal cap rates in Tokyo dropped significantly by 41 basis points to reach a
preliminary 3.7% in the fourth quarter 2014, the tightest cap rate ever reflecting the strong
market. The trend is now spreading to regional cities where yield seeking investors try to
hunt assets. The average office yield spread — the difference between the cap rates and
10 year bond yields — compressed about 30 basis points accordingly in Tokyo but is still
about 100 to 150 basis points above the spreads seen in London and Manhattan
respectively.
Exhibit 7 — Cap Rate and Yield Spread
Appraisal Cap Rate
Tokyo Office
Tokyo Residential
TMAX Economic
Office Yield Spread (Transacted)
Osaka Office
Osaka Residential
6.5%
preliminary
Tokyo
Hong Kong
5.5%
3%
5.0%
2%
4.5%
1%
4.0%
0%
3.5%
-1%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
4%
08
09
10
11
12
13
London
Sydney
5%
6.0%
07
Manhattan
Singapore
07
14
08
09
10
11
12
13
14 15
Sources: ARES, TMAX, Real Capital Analytics, Bloomberg, Deutsche Asset & Wealth Management. As
of April 2015
The Daiwa Office Price Index, an indication of unit price of grade-A office in Central Tokyo,
was JPY7.3 million per tsubo2 in December 2014, an increase from JPY6.5 million a year
ago. It was an increase of 11.7% over the year but was still 36.6% below the previous
peak in 2008, reflecting a slower recovery in rents.
Exhibit 8 — Real Estate Capital Value in Japan
J-REIT Index (LHS)
Office unit price (Grade-A, RHS)
(JPY m/tsubo)
2,400
12
1,600
8
800
4
Sep 08
Global Financial
Crisis
Mar 11
Tohoku
Earthquake
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201415
Sources: Daiwa Real Estate Appraisal, Bloomberg, Deutsche Asset & Wealth Management. As of April
2015
2
Tsubo is a Japanese unit of area. It is equivalent to 3.3 square metres (35.6 square feet)
5
Transactions
Exhibit 9 shows real estate transactions completed or announced since January 2015.
The largest transaction by value was Meguro Gajoen acquired by CIC for an estimated
JPY140 billion. The highest unit prices were seen at Gran Tokyo South Tower by
Goldman Sachs at JPY3.6 million per square meter in the office sector and Wako Namikikan in Ginza by Imabari Shipbuilding at JPY3.8 million per square meter in the retail
sector. The tightest transacted cap rate was Gran Tokyo South at 2.9% (estimate)
followed by Shiodome Building purchased by Japan Real Estate REIT at 3.6%, both in
Tokyo. In Osaka, M Plaza Midosuji purchased by Mori Trust Sogo REIT was 3.8% while
Umeda Square was reported at 4.0%. On the back of the increasing number of inbound
tourists in Japan, hotel assets became a popular target for domestic and foreign investors.
Exhibit 9 — Major Transactions in the First Quarter 2015
JPY1 billion = US$8 million
Type
Asset
Meguro Gajoen
46% of Tokyo Square Garden
Shibakoen 3 chome Bldg etc (31 props)
Location
Month
Acquired by
Investor
origin
Est 140
Est 0.9
-
Tokyo
Jan-15
CIC
China
95
1.76
-
Tokyo
Feb-15
Tokyo Tatemono
Japan
J-REIT
0.84
5.2%
Tokyo etc
Jan-15
Nippon REIT
Est 1.1
-
Tokyo
Feb-15
GreenOak
Ichigo Jingu-mae Bldg (12 props)
44
1.38
4.2%
Tokyo etc
Apr-15
Ichigo REIT
11.6% of Gran Tokyo South Tower
Umeda Square bldg,
Shiodome bldg etc (4 props)
Omiya center bldg etc (4 props)
Est 39
Mar-15
Goldman Sachs
Mar-15
Japan Real Estate
J-REIT
CROSS PLACE Hamamatsucho
Shibuya Sakuragaoka Square
Wins Asakusa etc (2 props)
25% of ARK Hills S Tower etc (2 props)
29
Est 3.6
0.83
1.76
0.70
Mar-15
Nippon REIT
J-REIT
25
0.34
4.9%
Kanagawa
Mar-15
Japan Excellent REIT
J-REIT
Est 18
Est 1.5
-
Tokyo
Apr-15
Tokyu Land
Japan
17
1.96
-
Tokyo
Feb-15
Mitsubishi Corp
Japan
Est 17
0.69
-
Tokyo
Jan-15
Hulic
Japan
17
0.74
3.7%
Tokyo
Apr-15
Orix JREIT
J-REIT
37
Est 2.9%
Tokyo
4.0%
Osaka
3.6%
Tokyo etc
5.7%
Saitama etc
U.S.
J-REIT
U.S.
Office bldg in Tokyo (3 props)
16
-
-
Tokyo
Jan-15
Hulic
Japan
Concept Aoyama etc (2 props)
15
1.99
4.1%
Tokyo
Mar-15
Daiwa Office
J-REIT
Central Crib Roppongi etc (2 props)
15
0.83
4.6%
Tokyo etc
Mar-15
13
Est 0.2
-
Osaka
Dec-14
NM Plaza Midosuji
10
0.67
3.8%
Osaka
Mar-15
Orix JREIT
Mitsubishi UFJ Lease &
Fi Trust Sogo REIT
Mori
J-REIT
Osaka Kokusai Bldg
ORE Shinsaibashi Bldg
Sumitomo Fudosan Ueno Bldg No. 6
Ginza 1 chome bldg
Kita-shinagawa Moriya Bldg
Aeon Mall Kyoto etc (2 props)
Est 10
0.43
-
Osaka
Mar-15
Angelo Gordon
7
0.77
4.5%
Tokyo
Apr-15
MID REIT
6
-
-
Tokyo
Oct-14
Standard Life
Est 5
0.57
-
Tokyo
Mar-15
Phoenix Property Investors
Japan
J-REIT
U.S.
J-REIT
U.K.
Hong Kong
35
0.16
5.1%
Kyoto etc
Jan-15
Aeon REIT
J-REIT
Ikebukuro Tokyu Hands etc (2 props)
Est 30
-
-
Tokyo
Mar-15
Hulic
Japan
Wako Namiki-kan
Est 25
Est 3.8
-
Tokyo
Feb-15
Imabari Shipbuilding
Japan
The Block etc (3 props)
17
0.35
-
Chiba
Mar-15
Goldman Sachs
Blumer Hat Kobe
11
0.22
5.3%
Hyogo
Mar-15
Kenedix Retail REIT
Nakaza Kuidaore
70% of RUELLE Aoyama
Unimo Chiharadai
D Project Kuki V etc (6 props)
Industrial
(JPYm
Cap rate
(JPY bn)
/GFA sqm)
77
Nisseki Yokohama Bldg
Retail
Unit price
Est 46
Aoyama bldg
Office
Price
Logiport Sagamihara
Logistic assets in Greater Tokyo (5 props)
U.S.
J-REIT
10
1.21
-
Osaka
Feb-15
Dynasty Holding
Est 6
-
-
Tokyo
Mar-15
Goldman Sachs
U.S.
-
-
-
Chiba
Feb-15
LaSalle Investment
U.S.
J-REIT
48
0.18
5.4%
Saitama etc
Mar-15
Daiwa House REIT
Est 43
0.20
-
Kanagawa
Sep-14
Mitsubishi Estate
14
-
-
Saitama etc
Feb-15
EPF
Hong Kong
Japan
Malaysia
Nippon Express North Tokyo Dist Ctr
11
0.26
5.4%
Saitama
Mar-15
Nomura Master Fund
J-REIT
11 apartment properties
24
0.80
4.9%
Tokyo etc
Jan-15
Kenedix Residential REIT
J-REIT
J-REIT
18
0.22
6.9%
Tokyo etc
Apr-15
Daiwa House Residential
Apartment 9 apartment properties
14
0.63
5.2%
Tokyo
Jan-15
Advance Residence REIT
J-REIT
11
-
-
Tokyo
Nov-14
CLEVO
Taiwan
Nov-14
Goldman Sachs
Jan-15
Invincible
J-REIT
Japan
Diore Crest Higashi Shinsaibashi
3 hotel properties
Sotetsu Fresa Inn Ginza 7 chome
Healthcare
Rihga Royal Kyoto
/Hotel
10 healthcare properties
Habitation Josui etc (7 healthcare props)
Dev site in Toyosu
Dev. Site
Aoyama Bell Commons
-
-
-
13
-
5.3%
Est 10
-
-
Osaka
Kanagawa
t
Tokyo
U.S.
Jan-15
Hulic
Est 10
0.24
-
Kyoto
Feb-15
Fortress
11
-
-
Tokyo etc
Feb-15
Fortress
16
0.56
5.8%
Fukuoka etc
Dec-14
Parkway Life REIT
30
2.74
-
Tokyo
Jan-15
Daiwa House Industry
Japan
Est 24
1.92
-
Tokyo
Jan-15
Mitsubishi Estate
Japan
U.S.
U.S.
Singapore
Dev site in Yokohama station west gate
19
0.71
-
Kanagawa
Mar-15
JR East
Japan
Dev site in Yokohama bashamichi
17
0.59
-
Kanagawa
Jan-15
APA Group
Japan
Notes: Acquisitions by foreign managers are highlighted in gray and by J-REITs in yellow. This table is
prepared solely for information purposes and not intended to recommend or endorse any specific
company's shares or other products. Although information in this document has been obtained from
sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness, and it should
not be relied upon as such.
Sources: Nikkei Real Estate Market Report, Company press release, Real Capital Analytics, Deutsche
Asset & Wealth Management. As of April 2015
6
Tokyo’s volume of commercial real estate transactions for the rolling 12-month period
ended March 2015 was US$37.8 billion, a 9% drop from the previous period ended
December 2014. Tokyo kept its third position among global cities (and first in the Asia
Pacific region) in commercial transaction volume. According to our own estimates 35% of
these transactions in Tokyo were purchases by J-REITs and around 23% by foreign
capital respectively. Due to growing popularity of the market among investors the volume
is expected to grow in Osaka in the next couple of quarters.
Exhibit 10 — Real Estate Transaction Volume by City (12 months rolling)
Office
Retail
Apartment
Industrial
Hotel
NYC Metro
London Metro
Tokyo
SF Metro
LA Metro
Paris
Chicago
DC Metro
J-REITs
Domestics
Foreign
～
～
Sydney
Hong Kong
Melbourne
Shanghai
Singapore
Beijing
Seoul
Osaka
Taipei
Guangzhou
($bn)
0
10
20
30
40
50
60
70
80
Notes: Commercial real estate transactions exclude non-income producing assets, such as development
site transactions
Sources: Real Capital Analytics, Deutsche Asset & Wealth Management. As of April 2015
Performance
MSCI Real Estate - IPD reported that the average annual total return for unlevered direct
real estate investment in Japan went up to a preliminary 7.4% in November 2014 (the
latest period available) on a preliminary basis, from 6.0% a year earlier. Among property
sectors, the residential sector made the highest annual return of 8.9% during the period,
followed by the industrial (8.6%), retail (7.4%) and office sectors (6.0%) respectively.
Exhibit 11 — Real Estate Total Returns in Japan (unlevered)
preliminary
15%
preliminary
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
2004
2006
2008.06
2008.12
2009.06
2009.12
2010.06
2010.12
2011.06
2011.12
2012.06
2012.12
2013.06
2013.12
2014.06
2014.11
Total Return by Sector
Office
Retail
Residential
Industrial
2004
2006
2008.06
2008.12
2009.06
2009.12
2010.06
2010.12
2011.06
2011.12
2012.06
2012.12
2013.06
2013.12
2014.06
2014.11
15%
Total Return by Component
Total Return
Income Return
Capital Growth
Notes: There is a time lag because of raw data being collected through semi-annual reports. Past
performance is not indicative of future results
Sources: MSCI Real Estate - IPD, Deutsche Asset & Wealth Management. As of April 2015
7
J-REITs
Over the last three months the J-REIT market struggled to recover. The J-REIT Index
went down to the index value 1,865 in March 2015, a 1.8% drop from the previous quarter.
The soft market was almost in line with the struggling REIT indices in other peers
including the United States and Australian REITs.
Exhibit 12 — J-REIT Index and Long-Term Global Comparison
J-REIT Index and Nikkei 225 (5-year)
Global REIT Comparison (10-year)
J-REIT
A-REIT (Australia)
(JPY)
2,000
20,000
US-REIT
S-REIT (Singapore)
400
1,800
18,000
350
1,600
16,000
300
J-REIT Index (LHS)
250
1,400
14,000
1,200
12,000
200
150
Nikkei 225 (RHS)
1,000
10,000
100
(Mar-09 = 100)
2015.03
2014.03
2013.03
2012.03
2011.03
2010.03
2009.03
2008.03
2005.03
2007.03
50
2015.04
2014.10
2014.04
2013.10
2013.04
2012.10
2012.04
2011.10
2011.04
2010.10
2010.04
8,000
2006.03
800
Notes: Past performance is not indicative of future results. Tokyo Stock Exchange REIT Index (J-REIT),
FTSE NAREIT All Equity REITS Index (US-REIT), S&P/ASX 200 A-REIT Index (A-REIT), FTSE ST REIT
Index (S-REIT)
Sources: Bloomberg, Deutsche Asset & Wealth Management. As of April 2015
On average, the J-REIT dividend yield was 3.04% overall and 2.80% for office REITs in
February 2015. The J-REIT dividend yield still provides a healthy spread of 269 basis
points over the 10-year government bond yield in Japan, compared to 100-140 basis
points spreads for the UK and US REITs respectively, or 200 basis points spread for
Australian REITs.
Exhibit 13 — J-REIT Expected Dividend Yield
J-REIT
Office REIT
10Y JGB
8%
6%
4%
2%
Spread
2015.02
2014.08
2014.02
2013.08
2013.02
2012.08
2012.02
2011.08
2011.02
2010.08
2010.02
2009.08
2009.02
2008.08
2008.02
2007.08
2007.02
2006.08
2006.02
2005.08
2005.02
2004.08
2004.02
2003.08
2003.02
2002.08
2002.02
0%
Notes: Past performance is no guarantee of future results. JGB = Japanese Government Bond.
Commercial real estate transactions exclude non-income producing assets, such as development site
transactions
Sources: Bloomberg, Deutsche Asset & Wealth Management. As of April 2015
8
Capital raising activity by J-REIT’s is still at a buoyant level. It was JPY481 billion in the
trailing six months ended March 2015, a 20% increase from the previous period. The net
acquisition amount by J-REITs was also a positive 56% growth. Healthcare & Medical
REIT, the second healthcare dedicated listed REIT in Japan, made its debut, together with
Kenedix Commercial REIT in the first quarter of this year.
Exhibit 14 — Capital Raising and Transactions by REITs in Japan
JPY tn
1.0
Bond
3rd Party Allotment
Public Offering
IPO
Net Acquisition
by J-REITs
Name of REIT
Public Offerings
Japan Real Estate
Daiwa House REIT
Nippon REIT
other POs
Month
JPY bn
Mar-15
Mar-15
33
31
Jan-15
51
Oct-Mar
211
Total
326
Initial Public Offerings
0.5
2001.09
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
2008.09
2009.03
2009.09
2010.03
2010.09
2011.03
2011.09
2012.03
2012.09
2013.03
2013.09
2014.03
2014.09
2015.03
0.0
Healthcare & Medical
Mar-15
13
Kenedix Commercial
Feb-15
58
Sekisui House REIT
Dec-14
64
Tosei REIT
Nov-14
10
Nippon Healthcare
Nov-14
6
Total
149
Planned: Samty (Residential), List (diversified)
Shinsei Bank-Kenedix etc (Healthcare)
Notes: Commercial real estate transactions exclude non-income producing assets, such as development
site transactions
Sources: ARES, Nikkei, Deutsche Asset & Wealth Management. As of April 2015
The preliminary volume of commercial real estate transactions in Japan in the six months
to March 2015 was JPY2.4 trillion, an 11% increase from the previous period. Acquisitions
by J-REITs accounted for about 46% of transactions in the six months, an increase from
30% in the previous period.
Exhibit 15 — Real Estate Transactions in Japan and J-REIT Share
(JPY tn)
4
Acquisition by others
Acquisition by J-REITs
Disposition by J-REITs
80%
J-REIT share (%) of
all transactions (RHS)
3
60%
2
40%
1
20%
0
0%
-1
2000.09
2001.03
2001.09
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
2008.09
2009.03
2009.09
2010.03
2010.09
2011.03
2011.09
2012.03
2012.09
2013.03
2013.09
2014.03
2014.09
2015.03E
-20%
Notes: E = preliminary estimate. Commercial real estate transactions exclude non-income producing
assets, such as development site transactions
Sources: ARES, Urban Research Institute, Real Capital Analytics, Deutsche Asset & Wealth
Management. As of April 2015
9
Market Fundamentals
Office
Office space demand in Tokyo remains healthy on the back of a resilient corporate sector.
The average office vacancy rate in Tokyo’s central five wards tightened to 5.3% in
February 2015, a continuous recovery from 7.1% a year ago. Among the central five
wards the vacancy rate in Shibuya was lowest at 3.5%. The average vacancy rate at 27
newly developed buildings within 12 months since completion spiked to 29.3% in the
period, however, on the back of new developments in Minato and Chuo sub markets. The
healthy demand supply balance is expected to persist through to the latter half of the year
while the continuous new supply will slow down the recovery speed.
Exhibit 16 — Office Vacancy Rate and Supply in Central Tokyo (5 wards)
new buildings (log scale, RHS)
Major Office Supply in Tokyo
Yomiuri Shimbun HQ
Osaki Wiz Tower
Muromachi Furukawa
Muromachi Chiba Bk Mitsui
Kyobashi Trust Tower
Yokohama i-Mark Place
Otemachi Tower
Nishi Shinbashi Square
Toranomon Hills
Iidabashi Grand Bloom
Nissay Marunouchi Garden
Toyosu Foresia
Shinagawa Season
Tokyo Nihonbashi Tower
Nov-13
Jan-14
Feb-14
Feb-14
Feb-14
Mar-14
Apr-14
Apr-14
May-14
Jun-14
Aug-14
Aug-14
Feb-15
Apr-15
33
24
22
17
21
14
38
22
52
30
22
16
32
35
May-15
Jun-15
Oct-15
Nov-15
31
20
30
26
22
2015.02
2014
Supply Pipeline in Tokyo
89,650
58,411
62,470
29,120
52,471
97,400
198,000
55,373
244,360
124,000
55,800
101,376
128,000
133,900
Supply Pipeline in Tokyo
Osaki Bright Tower
Osaki Bright Core
Futako Tamagawa Rise
Tekko Bldg
Otemachi 1-1 Bldg A
2013
1%
2012
1%
2011
2%
2010
3%
2009
4%
2008
5%
2007
8%
2006
7%
2005
16 %
2004
9%
2003
32 %
2002
11 %
Vacancy for new buildings (log sclae)
Vacancy rate for all buildings
all buildings (LHS)
92,200
44,800
86,900
117,000
108,000
Otemachi 1 no.3 Bldg A
Tokyo Garden Terrace
Shinjuku Sky Forest
Shinjuku Sta. New S Gate
Roppongi re-dev. Project
Ginza 6 chome
Kyobashi 2 chome West
Otemachi 1-1 Bldg B
Akasaka 1 chome
Hamamatsucho 2 chome ATower B
〃　TGMM Shibaura Tower A
Tower B
〃　Toranomon 4 chome
Otemachi 2 chome Tower A
Tower B
〃　Shibuya Sta. South
Shibuya Sta. Dogenzaka
Shibuya Sta. East
Shibuya Sta. Sakuragaoka A
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
2017
2019
2018
2018
2018
2019
2020
2020
31
36
37
33
40
13
32
29
37
42
26
31
36
40
35
33
33
18
46
36
205,000
110,000
54,000
111,000
201,800
147,900
119,500
147,000
175,000
ttl 270,000
99,000
135,000
145,000
185,000
199,000
150,000
117,500
58,900
107,000
174,800
ttl
Notes: GFA = gross floor area. sqm = square metres. There is no guarantee the supply pipeline will
materialize
Sources: Miki Shoji, Deutsche Asset & Wealth Management. As of April 2015
In accordance with this recovery in the vacancy rate, the average rent free period offered
to tenants also declined to 3.1 months in the fourth quarter of 2014 from 3.8 months a
year earlier according to Xymax Corporation.
10
Exhibit 17 — Office Vacancy Rate in Tokyo by Floor Size and Rent Free
15%
Floor Plate : 330 sqm - 660 sqm
Tokyo CBD Average
free rent period (RHS)
(month)
8
10%
6
5%
4
0%
2
-5%
0
1996.02
1996.08
1997.02
1997.08
1998.02
1998.08
1999.02
1999.08
2000.02
2000.08
2001.02
2001.08
2002.02
2002.08
2003.02
2003.08
2004.02
2004.08
2005.02
2005.08
2006.02
2006.08
2007.02
2007.08
2008.02
2008.08
2009.02
2009.08
2010.02
2010.08
2011.02
2011.08
2012.02
2012.08
2013.02
2013.08
2014.02
2014.08
2015.02
Floor Plate : 165 sqm - 330sqm
Floor Plate > 660 sqm
Notes: sqm = square metres
Sources: Sanko Estate, Xymax Real Estate Institute, Deutsche Asset & Wealth Management. As of April
2015
Historically, office rental growth rates correlate inversely to the vacancy rate. The vacancy
rate for buildings with floor plates of 200 tsubos (660 square metres) or more was 4.3% in
Tokyo in February 2015, below the pivotal 5% threshold associated with rental growth.
Accordingly, average office rental growth in this category also seems in the recovery trend
and further moderate growth is expected.
Exhibit 18 — Vacancy Rate and Rent Growth in Tokyo (floor plate > 660 sqm)
Actual Rent Growth (QoQ, 3Q rolling avg.)
Vacancy Rate (RHS)
2015.02
2014.02
2013.02
2012.02
2011.02
2010.02
2009.02
2008.02
2007.02
11%
2006.02
-12%
2005.02
9%
2004.02
-8%
2003.02
7%
2002.02
-4%
2001.02
5%
2000.02
0%
1999.02
3%
1998.02
4%
1997.02
1%
1996.02
8%
Sources: Miki Shoji, Sanko Estate, Deutsche Asset & Wealth Management. As of April 2015
The all-class average asking rent increased 5.2%, a stronger growth rate than the
previous period of 4.6%, confirming healthy market sentiment in the leasing market. Office
rents are expected to post continuous growth in the second half of this year backed by the
healthy space demand from the corporate sector. The average rents at newly developed
offices, however, dropped 6.2% in the period due to the elevated vacancy rate and it is
expected to remain fragile throughout the year.
11
Exhibit 19 — Office Asking Rent in Central Tokyo by Building Floor Plate
(JPY/tsubo*/mon)
(USD/sqf/year)
Prime
Buildings in CBD
floor plate > 660 sqm
50,000
182
DB Forecast
40,000
145
Class A
Buildings in CBD
30,000
109
Newly built
20,000
73
All classes
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.06
2012.09
2012.12
2013.03
2013.06
2013.09
2013.12
2014.03
2014.06
2014.09
2014.12
2015.02
2015.12F
10,000
Notes: F = forecast, there is no guarantee forecast rents will materialise. Please refer to Important Notes
(see end of report)
*Tsubo is a Japanese unit of area. It is equivalent to 3.3 square metres (35.6 square feet).
Vacancy rates have also continued to go down in most other major cities in Japan
including Nagoya, Fukuoka and Sapporo where vacancy rates stood around 7.5% in
February 2015, or below the long term historical average. In Osaka the trend remained
healthy but the vacancy rate temporarily edged up from 7.9% in December 2014 to 8.2%
in February 2015 due to new office supply in the Yodoyabashi sub market. There are new
building completions planned this year in Osaka and Nagoya respectively and the
vacancy rates might react sensitively to the supply in these cities.
Exhibit 20 — Office Vacancy Rates in Major Cities in Japan (all grades)
(%)
Sapporo
Fukuoka
Nagoya
Osaka
Tokyo
16
12
8
4
Major Office Completions in Regional Cities
Building
Date
Floors
Daibiru Honkan (Osaka)
Grand Front Osaka A
Grand Front Osaka B/C
Fuji Film Nagoya Bldg
NTT Sendai Aoba dori Bldg
Nagoya Tokio Marine Bldg
Abeno Harukas (Osaka)
Sapporo Mitsui JP Bldg
Feb-13
Apr-13
Apr-13
Apr-13
May-13
Jun-13
Mar-14
Aug-14
22
38
38/33
14
14
15
60
20
GFA
(sqm)
48,153
187,800
295,100
21,637
33,742
10,854
306,000
68,000
2015.02
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
After 2015
Building
New Daibiru (Osaka)
Dai Nagoya Bldg
JP Tower Nagoya
JR Gate Tower (Nagoya)
Nakanoshima Festiv al Twr W (Osaka)
Global Gate West (Nagoya)
Global Gate East (Nagoya)
Umeda 3 chome (Osaka)
Date
Floors
Mar-15
Oct-15
Nov-15
2017
2017
31
34
40
46
41
36
17
40
2017
2019
GFA
(sqm)
76,000
146,000
179,000
260,000
150,000
ttl157,000
217,000
Notes: Please refer to Important Notes (see end of report). GFA = gross floor area. sqm = square metres
12
Retail
On the back of the devaluation of the Japanese yen, the number of inbound tourists to
Japan keeps posting new records every month since the second half of 2014. Hoteliers
and major high street retailers are the two main beneficiaries of this and the latest high
street rents reflected the trend. The latest prime retail ground floor rents spiked by 29% in
Ginza, while rents recovered in other major retail districts including Omotesando, Shibuya
(both Tokyo) and Shinsaibashi in Osaka. Given the increasing popularity of low cost
carrier airlines and government’s policy of loosening tourist visa requirements, the positive
trend is expected to persist in the latter half of the year.
Exhibit 21 — High Street Prime Rents (ground floor) in Tokyo and Osaka
Ginza
Shibuya
(JPY/tsubo/mon)
70,000
Omotesando
Ikebukuro
Shinjuku
Shinsaibashi
50,000
30,000
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
Q3 2009
Q2 2009
10,000
Sources: Attractors Lab, Miki Shoji, Deutsche Asset & Wealth Management. As of April 2015
Similar to high street retails, sales at department stores in major cities experienced strong
momentum. Sales at department stores in Tokyo and Osaka combined went up 2.5% in
the first two months of 2015 compared to the same period a year earlier, while more
moderate growth was seen in shopping malls in Japan’s major thirteen cities. Sales at
chain stores (nationwide basis) struggled to recover in the same period.
Exhibit 22 — Retail Sales Growth by Store Category (year on year)
Shopping Mall (13 cities)
Chain Store
10%
Dept Store (Tokyo/Osaka)
(for existing stores for all categories)
5%
0%
-5%
VAT hike 2015.02
2014.12
2014.09
2014.06
2014.03
2013.12
2013.09
2013.06
2013.03
2012
2011
2010
2009
2008
2006
2005
2004
2003
2002
2001
2000
-10%
2007
-11%
Sources: JCSC, JDSA, JCSA, Deutsche Asset & Wealth Management. As of April 2015
13
Residential
The average sales price per unit for newly-built condos in Greater Tokyo was JPY51.9
million in the first quarter of 2015, about 15% above the historical average of JPY45
million. The number of units put up for sale has normalized from a sharp drop caused by
the consumption tax hike in 2014. The current elevated price is attributed to an increase in
land bank costs, material costs, construction labour costs, low mortgage rates together
with strong interest from foreign buyers who try to take advantage of the favourable
currency exchange rate. This trend is expected to persist throughout the year, while this
instead constrains demand in suburban areas, traditionally popular districts for first time
buyers.
Exhibit 23 — New Condo Price and Units Sold in Greater Tokyo
Avg. unit price (LHS)
(JPY mn/unit)
Units Sold YoY (RHS) (%)
40%
45
0%
40
-40%
35
-80%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
50
96 98 00 02 04 06
08
09
10
11
12
13
14 15
Sources: REEI, Deutsche Asset & Wealth Management. As of April 2015
Due to a series of new completions in the last six months, the vacancy rate for residential
rental units increased to 11.0% in January 2015 from 10.5% a year earlier in the 23-ward
area of Tokyo (orange line in Exhibit 24). On the back of healthy demand however, rents
have strongly recovered in the central five-ward area (dark blue column) with a 3.4%
increase as compared to a year earlier, while the growth rate in the broader 23-ward area
(gray column) remained more mild at 1.2%.
Exhibit 24 — Residential Rent and Vacancy in Tokyo
(Index) (JPY/tsubo)
112
23 ward Rent Index
5 ward Asking Rent
(%)
11
15,500
23 ward Vacancy (RHS)
2015.01
2014.10
2014.07
2014.04
2014.01
2013.10
2013.07
2013.04
2013.01
2012.10
2012.07
2012.04
2012.01
2011.10
2011.07
2011.04
2011.01
7
2010.10
13,500
2010.07
100
2010.04
8
2010.01
14,000
2009.09
103
2008.12
9
2008.03
14,500
2007.06
106
2006.09
10
2005.12
15,000
2005.03
109
Notes: Tsubo is a Japanese unit of area. It is equivalent to 3.3 square metres (35.6 square feet)
Sources: TAS Corporation with data from At Home Co. (23-ward vacancy), Leasing Management
Consulting (5-ward asking rent), IPD-RECRUIT Residential Index (23-ward rent index). As of April 2015
14
Rents for prime high-end apartments in Tokyo commenced a healthy recovery in the final
quarter of 2014 with a 10.8% increase in the twelve months to December 2014. The
vacancy rate of prime apartments also recovered to 7.5% in the fourth quarter of 2014
from 8.1% in the previous quarter.
Exhibit 25 — High-end Residential Rent and Vacancy Rate in Tokyo
office rent
(Yen/tsubo/month)
high end residential rent
high end residential vacancy
25,000
Annually
(%)
13
Quarterly
19,000
9
16,000
7
13,000
5
10,000
3
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.06
2012.09
2012.12
2013.03
2013.06
2013.09
2013.12
2014.03
2014.06
2014.09
2014.12
2015.03
11
2000
2001
2002
2003
2004
2005
2006
2007
22,000
Sources: Ken Real Estate Investment Advisors Ltd., Miki Shoji, Deutsche Asset & Wealth Management
As of April 2015
Industrial
Due to continuous strong space demand for modern industrial assets, the leasing market
for multi-tenant logistics remained tight in December 2014 at 3.4% vacancy in Greater
Tokyo and 2.5% in Greater Osaka. Strong fundamentals pushed average logistics rents
up by 2.8% in Greater Tokyo and as much as 8.7% in Greater Osaka from a year earlier.
An increase in vacancy rates is expected in both markets in the final quarter of 2015 and
2016 as a number of large scale assets are planned to complete while rents are forecast
to remain firm on the back of demand from tenants to move to quality space.
Exhibit 26 — Logistics Leasing Market in Greater Tokyo and Greater Osaka
Vacancy Rate of Multi-tenant Logistics
Greater Tokyo
Greater Osaka
Logistics Rent
(JPY/tsubo/month)
4,800
20%
Greater Tokyo
Greater Osaka
forecast
4,200
10%
3,600
5%
3,000
0%
2,400
2008.03
2008.09
2009.06
2009.12
2010.06
2010.12
2011.06
2011.12
2012.06
2012.12
2013.06
2013.12
2014.06
2014.12
2015.06F
2016.06F
15%
2008.03
2008.09
2009.06
2009.12
2010.06
2010.12
2011.06
2011.12
2012.06
2012.12
2013.06
2013.12
2014.06
2014.12
2015.06F
2016.06F
forecast
Notes: F = forecast, there is no guarantee forecast returns will materialise. Past performance is not
indicative of future results.
Sources: Ichigo Real Estate Service, Deutsche Asset & Wealth Management. As of April 2015
15
Research Topic: Emergence of Private REITs in
Japan and Implications to the market
Private REIT in Japan
It was in 2010 when the first private REIT, or open ended commingled fund 3 , was
launched in Japan. Currently, thirteen private REITs have been raised in the country to
date. The key characteristics are similar to US open-ended funds or to a lesser degree the
German open-ended funds although it is still not as established in terms of size and
liquidity. The main benefits and characteristics of the product are as follow:

Does not have a limited fund life. Managers don’t have the pressure to sell the
assets at fund maturity.

Allows redemptions subject to conditions, so investors can partially mitigate the
exit risk4 compared to conventional closed end commingled funds.

Is priced based on periodic appraisal values and therefore investors are not
exposed to stock market volatility.

Dividend yields are lower than closed ended funds but loan-to-value is low at
around 30-40% therefore fitting well with a core investment strategy.
In this chapter we analyze the implications of this new product to the industry, by
comparing it with other fund types and equivalent products in major markets. The table
below reveals that apart from size and redemption limitations most characteristics are
similar to the US open ended funds including the latest yields.
Exhibit 27 — Characteristics of Fund Types
Japan
US
Germany
Commingled
(Closed ended)
J-REIT
(Listed)
Private REIT
(Open ended)
Open ended
fund
Open ended
fund
Main Investors
Institutional
Institutional/
Individual
Institutional
Institutional
Individual
Liquidity (Redeemable?)
No
Yes
Strict conditions*
Yes
Yes
Volatility
Low
High
Low
Low
Low
Maturity
5-7yrs
no
no
no
no
Return
Mid-High
Mid
Mid
Mid
Low-Mid
Yield (historical)
n.a.
4%
4% - 5%
5%
2% - 4%
Leverage (average)
50-70%
50%
30-40%
20-30%
up to 30%
Disclosure
Low-Mid
High
High
High
High
Main Target Country
Various
Japan
Japan
US
Europe/Global
Market Size (AuM)
$118bn
$105bn
$8bn
$130bn
$97bn
AJFI (ARES)
ODCE (NCREIF)
OFIX (IPD)
Index
-
TSE REIT
Note: * Strict conditions apply for redemption for Japanese private REITs. See footnote 4
Sources: Deutsche Asset & Wealth Management. As of April 2015
3
4
Private REIT and open ended fund are used as mutually interchangeable words in Japan.
Due to the limited size of the funds, there are strict conditions for redemptions and therefore, exit risks
can be mitigated only partially. e.g. Initial lockup periods tend to be multiple years. Some funds set the
limitation on redemption at 2.5% of the total interests for every six month. Higher redemption charges
apply for short term holdings.
16
Since the initial launch of the product in 2010, the Japanese private REITs have become
popular among domestic investors, especially among local financial institutions, such as
regional banks5, and also some pension funds which need to enhance yields but want to
avoid exit risks or volatility of listed vehicles. This is particularly so against the backdrop of
the low yielding Japanese government bond, currently hovering at around 0.4%.
Private REITs in Japan have grown to over JPY1 trillion of assets under management as
of April 2015. There are currently thirteen private REITs in Japan with another five private
REITs planned to launch by 2017, according to Sumitomo Mitsui Trust Research Institute
(SMTRI). Many of the sponsors of these private REITs6 are large local developers, such
as Mitsubishi Estate or Mitsui Fudosan, who also sponsor the listed REITs. Meanwhile,
Goldman Sachs was the first non-Japanese company to enter the private REIT space in
August 2012. SMTRI estimated that private REITs would top JPY2.5 trillion by the end of
2018 underpinned by a number of announced private REITs as well as capital increases
among existing private REITs (exhibit 28).
Exhibit 28 — Aggregate AUM of Private REIT in Japan
（JPY tn）
plan
Forecast by
SMTRI
Daiwa House
2.0
NTT-UD
Tokyo Tatemono
Senko
Keihan Railway
1.5
SGAM P-REIT (Sagawa)
Nittochi P-REIT
SC Realty P-REIT (Sumitomo Corp)
1.0
Tokio Marine P-REIT
Marubeni P-REIT
Kenedix P-REIT
Brodia P-REIT (Tokyu Land)
0.5
Daiwa Residential P-REIT
DREAM P-REIT (Mitsubishi Corp)
Japan P-REIT (Goldman Sachs)
Mitsui Fudosan P-REIT
2018.04
2017.10
2017.04
2016.10
2016.04
2015.10
2015.04
2014.10
2014.04
2013.10
2013.07
2013.04
2012.10
2012.09
2012.03
2011.03
2010.11
0.0
Nippon Open Ended (Mitsubishi Estate)
Nomura RE P-REIT
Note: This table is prepared solely for information purposes and not intended to recommend or endorse any
specific company's shares or other products.
Sources: Sumitomo Mitsui Trust Research Institute, Deutsche Asset & Wealth Management. As of April 2015
Forecasts are based on assumptions, estimates, opinions and hypothetical models or analysis which may
prove to be incorrect
In contrast to the emergence of private REITs, closed-ended commingled funds have
become less popular amongst the local investors. Total AUM of closed-ended
commingled funds declined from JPY17.7 trillion in June 2009 to JPY15.5 trillion in June
2014 according to SMTRI. A series of defaults were observed following the Global
Financial Crisis and investors tended to require some liquidity in products.
5
Dividends from private REITs could be considered as profits in the income statements of these regional
banks and it is one of the reasons for popularity.
6
REIT sponsorship is a unique model in Japan. Both listed REITs and unlisted private REITs tend to be
managed by subsidiaries of local developers or sponsors. These REITs tend to have pipeline contracts for
asset purchases with the sponsoring developers.
17
Invested stock in global comparison
The value of stock in Japanese commercial real estate markets amounted to US$1.1
trillion in 2014 according to DTZ, and the holdings of REITs and funds combined
accounted for 20%, or less than a quarter of the invested stock. Within this, the holdings
of private REITs amount to only 1% even after the recent rapid growth. The remaining
stock in Japan is held by dominant local developers and other firms, such as railway
companies and private firms. Given the size of the real estate market, it is perhaps part of
the reason that the Japanese real estate market is sometimes perceived as not as
institutionalized as compared to other mature markets like the United States and Germany
where the combined REIT and fund holdings, including open ended fund holdings,
account for 42% and 27% respectively.
The aggregate holdings of Japanese private REITs is only one sixteenth of the stock held
by US ODCE funds7, or one twelfth of the size of German open ended funds, including the
assets owned outside of Germany. On the back of the attractive characteristics of the
product and the ongoing institutionalization process taking place in the market in Japan,
private REITs have a lot of potential for further growth.
Exhibit 29 — REIT and Fund Holdings in Japan, US and Germany
REIT+Fund
Japan
20%
REIT
105
Invested
Stock
1,134
Private REIT 8
Private
Fund
118
Listed
Developer 169
(US$bn)
Others & unlisted developers
734
US
REIT+Fund
42%
Aggregate holding of REITs and funds
combined accounts for 20% of the stock in
Japan, compared to 42% in the US and
27% in Germany. Industry
instituionalization is still ongoing in Japan.
REIT+Fund
Germany
REIT
1,092
Others
2,018
Invested
Stock
3,617
(US$bn)
27%
REIT 4
OEF* 97
Others
359
OEF* 130
Invested
Stock
619
Spezial
Fond 58
Private Fund 6
(US$bn)
Listed RE
company 96
Private Fund
279
Listed REcompany 98
*OEF: Open ended fund
*OEF: Open ended fund
Sources: Sumitomo Mitsui Trust Research Institute, DTZ, IPD, NCREIF, Bloomberg, Deutsche Asset &
Wealth Management. As of April 2015
7
Open-ended Diversified Core funds tracked by NCREIF, National Council of Real Estate Investment
Foundation in the US.
18
Global Real Estate Ownership
Exhibit 30 shows the ownership of real estate invested stock by listed REITs, open ended
funds (private REITs) and listed developers / real estate companies globally. Apart from
the United Kingdom, real estate ownership remains fragmented and each market is
unique depending on its history, regulatory frameworks and business practises. For
instance, listed developers tend to dominate the market in Asian countries including Hong
Kong, Singapore and to a lesser degree Japan, while REITs play a major role in some
English speaking countries such as Canada, the United States and Australia. Japan
seems to be experiencing the process of institutionalization and transformation from the
Asian model into a more western model where growth of private REIT will be the catalyst
of this transition.
Exhibit 30 — REIT and Open End Fund holding over invested stock by Country
158%
REIT
96%
OEF/Private REIT
Developer/RE companies
60%
40%
20%
France
Japan
Australia
Germany*
US
UK
Canada
Singapore*
Hong
Kong*
0%
Note: Assets held by Hong Kong developers and Singapore REITs include substantial holdings in overseas
markets, such as mainland China and South East Asian countries while about a half of the assets held by
German open ended funds are either European or international exposure outside Germany.
Sources: Sumitomo Mitsui Trust Research Institute, DTZ, IPD, NCREIF, Bloomberg, Deutsche Asset &
Wealth Management. As of April 2015
Yield of private real estate in each country
The regulatory framework and standard format of open ended funds (or private REITs)
vary among the market and each country has its own uniqueness, such as lock up period,
limitation of redemption, requirement for cash holdings, LTV limits, investor universe etc8.
The historical yield tends to be more attractive in the United States and Japan at around
5% on average or above, while it tends to be lower in Germany where funds are required
to hold higher cash position to meet redemption requests, and in the United Kingdom real
estate yields remain generally low as a result of the dominant London market where cap
rates are tight.
8
This means none of the comparisons are apple-to-apple, while we try to use them as a market proxy.
19
Exhibit 31 — Yield of Private Real Estate in Major Countries
Japan
8%
UK
US
Germany
6%
4%
Dec-14
Jun-14
Dec-13
Jun-13
Dec-12
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Dec-08
Jun-08
Dec-07
2%
Sources: NCREIF, IPD, ARES, Deutsche Asset & Wealth Management. As of April 2015
Historical volatility
The risk return profile of private real estate in Japan is right between those of the United
States and Germany. Exhibit 32 shows excess returns 9 and performance volatility
between 2000 and2013 for unlevered private real estate for each country, it seems the
Japanese market provides good risk adjusted returns in the global context.
Exhibit 32 — Private Real Estate Risk vs Return by Country (2000-2013)
Historical Excess Return
(LCU)
7%
France
6%
South Korea
Australia
5%
4%
USA
Japan
UK
3%
2%
Spain
Italy
1%
0%
0%
2%
Germany
4%
6%
Volatility
8%
10%
12%
*Total Excess Returns: = [total return] – [10y government bond yield]. LCU = Local Currency Unit.
Notes: Past performance is not indicative of future results.
Source: Stocks: Deutsche Asset & Wealth Management, IPD, April 2015As of April 2015
Private real estate funds provide good risk adjusted returns compared to other asset
classes, such as stocks. Exhibit 33 shows the risk return profile on a levered basis for
selected asset classes. Apart from bonds, Asian real estate funds have provided
attractive returns from 2006 to 2013 while exhibiting lower volatility compared to other
asset classes.
9
Total returns over the risk free rate (10 year government bond yields for each country).
20
Exhibit 33 — Risk vs Returns in Asia by Asset Class (2006-2013)
12%
Average Annual Return
Global Real
Estate
Asia Real Estate
Funds
10%
8%
Global Stocks
Asia Non-REITs
Asia Bonds
6%
Asia REITs
4%
2%
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Volatility
Notes: Past performance is not indicative of future results.
Source: Asia Real Estate Funds: ANREV, Asia Bonds: JP Morgan Asia Credit Index, Global Stocks: MSCI
World, Asia REITs: FTSE EPRA/NAREIT, Global Real Estate: UBS Global Real Estate Index, Asia NonREITs: FTSE EPRA/NAREIT Asia Non-REITs, Asia Real Estate: Deutsche AWM Neutral Weight Asia
Property Index. As of April 2015
Considerations
Following the launch of the first two J-REITs 13 years ago, the REIT market had grown
significantly and the aggregate asset size held by listed J-REITs amounted to US$100
billion as of the end of 2014. Private REITs in Japan are expected to follow in a similar
trajectory. Coinciding with a low cost of debt suggests that there is plenty of room for
further growth in the private REIT market.
Across the Asia Pacific region, open-ended products are still evolving and remain in the
early phase of a growth cycle. Momentum is anticipated to pick up given the significant
demand for real estate in the region as the attractiveness of open ended products begins
to gather wider recognition especially among western investors. However, given the
limited offerings in the region, Japan could prove to be the frontrunner for open ended
products in Asia.
The risk adjusted returns seem to fit well for the core investor and the product should
contribute to institutionalization of the Japanese real estate market. There are some
reservations, however, as follow:
10

There tends to be strict rules for redemption (see footnote 5). Exit risk still
remains - especially at the time of a down turn cycle.

There is a potential conflict of interest with the sponsor for asset transfer prices
where valuation/appraisal is key10.

There is a potential conflict of interest when sponsors manage multiple funds,
such as listed REITs and/or other funds and vehicles. The requirement for
tighter governance has increased.

There is no index dedicated to private REITs or open ended funds in Japan.
Direct real estate indices and private fund indices exist, but are still less
established and not widely used.

Fund sizes are relatively small and can’t accommodate investment interests
from large investors, such as public pensions.

Region-wide products are not yet common in Asia Pacific. Japan private REITs
currently only cover Japan and only Japanese investors, and they don’t provide
solutions for international investors.
This is the same concern listed J-REITs have with the sponsors. This practice is common in the local
market, and also in some Asian markets in the region, such as Singapore.
21
Past Topics
Vol
Year
1
Publication
Research Topic
Q2
Jun-08
Making sense of the rental market in Japan
Q3
Sep-08
Impact of the credit crunch
3
Q4
Dec-08
Revitalisation of ailing J-REITs
4
Q1
Mar-09
Tokyo office market in its global context
Q2
Jul-09
Japan residential market
6
Q3
Oct-09
History repeats itself? A comparison of the ‘Year 2003
Problem’ with 2009
7
Q4
Jan-10
Introducing unit pricing analysis in Japan
8
Q1
Apr-10
Portfolio optimisation analysis in Japan
Q2
Jul-10
Japan’s capital market in a global context
10
Q3
Oct-10
Quarterly Report
11
Q4
Jan-11
Cross-border investment into and out of Japan
12
Q1
Apr-11
The Great Tohoku Earthquake and its impact on the Japanese
real estate market
Q2
Jul-11
Adapting Japan’s land price index for real estate analysis
14
Q3
Oct-11
Quarterly Report
15
Q1
Jan-12
The J-REITs next 10 years
Q2
Apr-12
Quarterly Report
17
Q3
Jul-12
Quarterly Report
18
Q4
Oct-12
The inward-looking focus of the real estate investors in Japan
19
Q1
Jan-13
Can the housing tax credit boost demand?
Q2
Apr-13
Quarterly Report
21
Q3
Jul-13
Logistics : Rapid Modernisation
Underway in the Asia Pacific Region
22
Q4
Oct-13
Quarterly Report
23
Q1
Jan-14
Japan, Asia and Global Investing
Q2
Apr-14
Quarterly Report
25
Q3
Jul-14
Quarterly Report
26
Q4
Oct-14
Quarterly Report
Q1
Jan-15
Quarterly Report
Q2
Apr-15
Emergence of Private REITs in Japan and Implications to the
market
2
2008
5
2009
9
2010
13
2011
16
2012
20
2013
24
2014
27
2015
28
22
Important Notes
Deutsche Asset & Wealth Management represents the asset management and wealth management
activities conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche
Asset & Wealth Management products or services by one or more legal entities that will be identified to
clients pursuant to the contracts, agreements, offering materials or other documentation relevant to such
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activities of RREEF America L.L.C.; in Germany: RREEF Investment GmbH, RREEF Management GmbH,
and RREEF Spezial Invest GmbH; in Australia: Deutsche Australia Limited (ABN 37 006 385 593) an
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(not investment advisory) and distribution services only); in Hong Kong: Deutsche Bank Aktiengesellschaft,
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Limited (for real estate securities business); in Singapore: Deutsche Asset Management (Asia) Limited
(Company Reg. No. 198701485N); in the United Kingdom and in Denmark, Finland, Norway and Sweden:
Deutsche Bank AG London Branch; in Italy: RREEF Fondimmobiliari SGR S.p.A.; and in Denmark, Finland,
Norway and Sweden: Deutsche Alternative Asset Management (UK) Limited and Deutsche Alternative
Asset Management (Global) Limited; in addition to other regional entities in the Deutsche Bank Group.
This views expressed in this document have been approved by the responsible portfolio management team
and Real Estate investment committee and may not necessarily be the views of any other division within
Deutsche Asset and Wealth Management.
Key Deutsche Asset & Wealth Management research personnel are voting members of various investment
committees. Members of the investment committees vote with respect to underlying investments and/or
transactions and certain other matters subjected to a vote of such investment committee.
This material was prepared without regard to the specific objectives, financial situation or needs of any
particular person who may receive it. It is intended for informational purposes only. It does not constitute
investment advice, a recommendation, an offer, solicitation, the basis for any contract to purchase or sell
any security or other instrument, or for Deutsche Bank AG or its affiliates to enter into or arrange any type
of transaction as a consequence of any information contained herein. Neither Deutsche Bank AG nor any
of its affiliates gives any warranty as to the accuracy, reliability or completeness of information which is
contained in this document. Except insofar as liability under any statute cannot be excluded, no member of
the Deutsche Bank Group, the Issuer or any officer, employee or associate of them accepts any liability
(whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or
for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the
recipient of this document or any other person.
The views expressed in this document constitute Deutsche Bank AG or its affiliates’ judgment at the time of
issue and are subject to change. This document is only for professional investors. This document was
prepared without regard to the specific objectives, financial situation or needs of any particular person who
may receive it. No further distribution is allowed without prior written consent of the Issuer.
An investment in real estate involves a high degree of risk, including possible loss of principal amount
invested, and is suitable only for sophisticated investors who can bear such losses. The value of shares/
units and their derived income may fall or rise. Any forecasts provided herein are based upon Deutsche
Asset & Wealth Management’s opinion of the market at this date and are subject to change dependent on
the market. Past performance or any prediction, projection or forecast on the economy or markets is not
indicative of future performance.
The forecasts provided are based upon our opinion of the market as at this date and are subject to change,
dependent on future changes in the market. Any prediction, projection or forecast on the economy, stock
market, bond market or the economic trends of the markets is not necessarily indicative of the future or
likely performance.
© 2015 Deutsche Bank AG. All rights reserved. (I-038197-1.2)
23
Notice to Investors in Switzerland:
This presentation document has been prepared upon your request exclusively on a best effort basis and
intends to respond to your investment objective/strategy as a sophisticated and qualified investor within the
meaning of the Swiss Collective Investment Schemes Act of June 23, 2006 (“CISA”). This document has
not been approved by the Swiss Financial Market Supervisory Authority (“FINMA”) under the Swiss
Collective Investment Schemes Act of June 23, 2006 ("CISA"). The products contained in this presentation
may not be registered with the Swiss Financial Market Supervisory Authority (“FINMA”), and therefore, not
supervised by the FINMA. As a result, you cannot claim any protection for unregistered products under the
CISA.
Notice to Investors in the United Kingdom and in Denmark, Finland, Norway and Sweden:
This document is issued and approved in the United Kingdom by Deutsche Bank AG London Branch.
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©2015. All rights reserved. MARKETING MATERIAL
24
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25

- Deutsche Asset & Wealth Management

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