The Japanese Real Estate Investment Market 2018

Transcription

1 The Japanese Real Estate Investment Market 218 November 218 Otemachi Financial City Grand Cube, Otemachi, Chiyoda-ku, Tokyo 1-4, Japan

2 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

3 Population movements in Japan In 215, depopulation was observed for the first time in Japan, based on the national census. The decline in number of households was not confirmed by the national census in 215; hence, the rise is expected to continue. The population of people 65 years or older is expected to level off in 225 and head downwards from 24. Population and households in Japan Population Households (thousand) Actual Forecast (thousand) 14, 7, 12, 6, 1, 5, 8, 6, 4, 4, 3, 2, households 2, 1, Source: National Institution of Population and Social Security Research and MIC Population Census Note 1: Population forecast is based on the data of population census in 215. Note 2: The solid line shows the actual households based on the population census and dotted line shows the predicted households based on the population census in 21. Note 3: Median-fertility (median-mortality) projection is used in population and household forecast. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 2

4 Population movements in Japan Compared to the forecast on number of households based on the 21 National Census, the peak will shift from 219 to 223 and number of households will increase by 2.25 million in 23 (National Institute of Population and Social Security Research) Forecasted and actual number of households Households (thousand) 5,5 5,45 5,419 5,4 5,35 5,3 5,25 5,2 +43 (.8%) 5,333 5,29 5,37 5, (4.4%) Forecast based on 215 National Census (Estimated for 218) 5,15 5,123 5,1 5,5 5, 4,95 Forecast based on 21 National Census (Estimated for 213) Source: National Institution of Population and Social Security Research and MIC Population Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 3

5 Population movements in Japan Single-person households have been holding the major share since 21 and cross 2 million after 23. Couple and child households will continue to decrease, whereas couple-only households will continue to increase. Forecasted and actual number of households (by family type) Households (thousand) 2,5 2, 1,5 1, Single person (218 estimate) Couple only (218 estimate) Couple and child (218 estimate) Others (218 estimate) Single person (213 estimate) Couple only (213 estimate) Couple and child (213 estimate) Others (213 estimate) Source: National Institution of Population and Social Security Research and MIC Population Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 4

6 Population movements in Japan The population is increasing only in Greater Tokyo, Aichi prefecture, Fukuoka prefecture and Okinawa prefecture. The same tendency can be seen in the increase/decrease of foreigners population. The population of foreigners is drastically increasing in Greater Tokyo and slightly increasing in the Aichi prefectures and prefectures with regional core cities. Increase/decrease in population of each prefecture from FY 21 to 215. Population (thousand) 4 35 Increase/decrease in population of foreigners Increase/decrease in population of Japanese Hokkaido Aomori Iwate Akita Miyagi Yamagata Fukushima Ibaraki Tochigi Gunma Saitama Chiba Tokyo Niigata Kanagawa Toyama Ishikawa Fukui Yamanashi Gifu Nagano Aichi Shizuoka Mie Shiga Kyoto Osaka Hyogo Nara Wakayama Tottori Shimane Okayama Hiroshima Yamaguchi Tokushima Kagawa Ehime Kouchi Fukuoka Saga Nagasaki Kumamoto Oita Miyazaki Kagoshima Okinawa Source: National Institution of Population and Social Security Research and MIC Population Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 5

7 Population movements in Greater Tokyo The population and number of households in the Greater Tokyo will continue to rise together, and it is expected that they would reach their peak in 22 and 225 respectively. It is anticipated that the population in the Greater Tokyo will continue to rise till 22. On the other hand, the number of households is projected to increase until 225. Population of Greater Tokyo Population (thousand) 4, 35, 3, 25, 2, 15, 1, 5, Number of households in Greater Tokyo Actual Forecast Households (thousand) Actual Forecast 18, 16, 14, 12, 1, 8, 6, 4, 2, Tokyo Kanagawa Saitama Chiba Tokyo Kanagawa Saitama Chiba Source: National Institution of Population and Social Security Research and MIC Population Census Note 1: Median-fertility (median-mortality) projection is used for population forecast. Note 2: Forecast of population and the number of households are based on the Population Census in 21. However, the data of 215 is based on the population census in 215. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 6

8 Population movements in Japan Although there is no change in the forecast and actual population of the elderly in 213, young and working age population is rising. Comparison on age-wise population forecast of the Tokyo area Households (thousand) 3, 25, 2, -14 (218) (218) Above 65 (218) -14 (213) (213) Above 65 (213) 15, 1, 5, Source: National Institution of Population and Social Security Research and MIC Population Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 7

9 Population movements in Greater Tokyo The population of Greater Tokyo area is rising, but a little less than 5% of the increased population is accounted to foreigners. In the future, it seems that the population growth of Greater Tokyo will be supported by the foreigners. The foreign population dipped temporarily due to the global financial crisis and aftermath of the 211 earthquake, but has be en rising in line with economic recovery. Foreigners accounted for 38.6% of the population growth in this area. Incremental population growth of foreign and Japanese residents in Greater Tokyo Population (thousand) Sources: Statistics on Foreign national residents compiled by Ministry of Justice and Basic resident registers compiled by Ministry of Internal Affairs and Communications Note 1: The population of foreign national is based on the Statistics on Foreign national residents till 211. In 212 and later, population is based on the Basic resident registration. Note 2: The statistics of Foreign nationals used the data as of the end of December. Till 212, the Basic resident registration used the data as of March 31 of the year. Since 213, it uses the data of population as on January 1 of the following year. Copyright(C) Nomura Research Institute, Ltd. All rights reserved (16.6%) (83.4%) (29.8%) 94 (7.2%) foreigners (by Zairyu-Gaikokujin-Tokei ) Foreigners (by Jumin-Kihon-Daicho ) Japanese (35.%) 19 (65.%) (41.8%) 1 (58.2%) (47.8%) 82 (52.2%)

10 Population movements in Greater Tokyo Population inflow to Tokyo has been decreasing continuously since 216, whereas population in the Greater Tokyo area is increasing owing to population inflow to three peripheral prefectures in 217. The number of net inflows in 217 recovered to the level of 25 or 26. The inflow is projected to continue. Net increase Net decrease Population (thousand) Net inflows of people to Greater Tokyo Source: MIC Jyumin Kihon Daichou Jinkou Idou Houkoku Copyright(C) Nomura Research Institute, Ltd. All rights reserved Tokyo Kanagawa Chiba Saitama (58.3%) 2 17

11 Population movements in Greater Tokyo Amongst the number of households in Greater Tokyo, the tendency of single-person household to occupy higher ratio is expected to continue in the future. However, the number of single-person households is expected to peak out in 23. Households of couple with children will reduce from 22, while the households of only couple or children with single parent will slightly increase. Number of households by family composition in Greater Tokyo Households (thousand) 7, Actual Forecast One-person 6, Couple-only Couple-and-child(ren) 5, 4, One-parent and child(ren) Other 3, 2, 1, Source: National Institution of Population and Social Security Research and MIC Population Census Note 1: The solid line shows the actual value based on the population census. The dotted line shows the predicted value based on the data of population census in 21. Note 2: Median-fertility (median-mortality) projection is used for household forecast. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 1

12 Population movements in central Tokyo Out of the 8 wards among the 23 wards of Tokyo, the population is projected to rise by more than 1% over the next 3 years In 245, only Adachi is expected to have a decrease in population by more than 1% compared to 215. It is expected that population will continue to rise over the next 3 years in 18 wards excluding Nakano, Kita, Edogawa, Kats ushika and Adachi. Population growth trends in the 23 wards of Tokyo (assuming the population of each ward is 1 in 21) Actual Forecast Ward Chuo Minato Chiyoda Koto Taito Shinagawa Bunkyo Nerima Itabashi Shibuya Meguro Arakawa Sumida Suginami Ota Shinjuku Setagaya Toshima Nakano Kita Edogawa Katsushika Adachi Source: National Institution of Population and Social Security Research and MIC Population Census Note 1: Forecast of population is based on the data of Population Census in 215. Median-fertility (median-mortality) projection is used for population forecast. > <9 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 11

13 Population aging in central Tokyo In 215, the whole 23 wards of Tokyo had become super-aged society, and in 24, all the wards will turn into a super-aged society Population aging by ward Actual Forecast wards 11.2% 13.7% 16.4% 18.6% 2.% 21.8% 22.1% 22.1% 22.9% 24.6% 27.% 28.6% Nerima 9.5% 12.2% 15.4% 2.3% 19.3% 22.1% 23.9% 25.5% 27.7% 3.3% 33.% 34.9% Suginami 11.8% 14.4% 16.8% 18.8% 23.1% 22.6% 23.6% 24.2% 25.6% 27.7% 3.6% 32.9% Setagaya 11.1% 13.4% 16.1% 17.3% 18.3% 21.5% 22.5% 23.4% 25.2% 27.6% 3.3% 32.2% Adachi 9.3% 11.9% 15.9% 19.9% 22.2% 25.1% 25.7% 25.4% 26.% 27.7% 3.2% 31.4% Katsushika 1.6% 13.2% 16.6% 19.9% 22.% 24.6% 25.1% 24.9% 25.7% 27.3% 29.5% 3.5% Shibuya 12.6% 15.2% 16.9% 18.5% 19.6% 2.6% 21.3% 21.7% 23.% 25.1% 27.8% 29.9% Itabashi 1.% 12.7% 16.3% 19.3% 21.3% 23.4% 23.9% 23.7% 24.3% 25.6% 27.9% 29.5% Nakano 12.1% 14.6% 16.3% 18.2% 19.9% 21.2% 21.9% 22.3% 23.3% 24.9% 27.1% 28.9% Taito 15.9% 18.8% 21.1% 23.1% 23.6% 23.8% 23.% 22.% 22.1% 23.7% 26.5% 28.6% Ota 11.6% 14.1% 16.3% 18.4% 2.4% 22.5% 22.7% 22.5% 23.1% 24.7% 26.9% 28.3% Edogawa 8.1% 9.9% 12.8% 15.4% 18.1% 2.7% 21.1% 2.9% 21.9% 23.9% 26.3% 27.3% Toshima 12.8% 15.7% 18.4% 21.1% 19.3% 2.% 2.4% 2.5% 21.3% 22.8% 25.1% 26.9% Kita 12.7% 16.% 19.3% 21.6% 24.% 25.8% 25.4% 24.2% 23.7% 24.1% 25.6% 26.7% Koto 9.4% 12.2% 15.2% 17.3% 19.1% 21.3% 21.1% 2.4% 2.6% 22.2% 24.9% 26.7% Arakawa 13.7% 16.5% 18.9% 2.8% 21.9% 23.4% 22.8% 21.8% 21.7% 22.6% 24.5% 26.% Minato 13.7% 16.3% 17.9% 17.8% 17.2% 17.6% 17.2% 17.3% 18.6% 2.8% 23.7% 26.% Bunkyo 13.9% 16.4% 17.9% 18.3% 18.9% 19.8% 19.5% 19.3% 2.1% 21.7% 24.% 25.8% Shinagawa 11.6% 14.5% 17.4% 18.% 19.4% 2.9% 2.5% 19.9% 2.2% 21.6% 24.% 25.8% Chiyoda 16.6% 2.2% 2.4% 2.2% 19.2% 18.1% 17.4% 17.2% 18.2% 2.2% 23.1% 25.3% Sumida 13.1% 15.5% 18.1% 2.2% 21.4% 22.9% 22.4% 21.3% 21.1% 22.% 23.9% 25.2% Meguro 12.5% 14.8% 17.4% 18.6% 19.6% 2.% 19.5% 19.1% 19.8% 21.1% 23.1% 24.7% Shinjuku 12.6% 15.3% 17.1% 18.7% 19.1% 2.1% 19.7% 19.3% 19.7% 2.9% 22.9% 24.4% Chuo 15.4% 17.6% 18.3% 16.3% 15.9% 16.1% 15.4% 15.% 16.% 18.1% 21.% 23.3% Source: National Institution of Population and Social Security Research and MIC Population Census Note 1: Forecast of population is based on the data of Population Census in 215. Median-fertility (median-mortality) projection is used for population forecast. >3% 21-3% % % 7-14% Super-aged society Aged society Aging society Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 12

14 Percentage of foreigners in central Tokyo The percentage of foreigners in Tokyo are increasing, and there is a ward where the ratio is over 1%. The percentage in Shinjuku (over 1%) is the highest in Tokyo, and the percentages of Toshima and Arakawa are over 8%. In the other hand, the 23 wards as a whole have foreigners as 4.2% of their total population, indicating that the situation o f each ward is quite different. Percentage of foreigners in the 23 wards of Tokyo (top 5) 14% 12% 1% 8% 6% 4% Shinjuku Toshima Arakawa Minato Taito 23 wards 2% % Source: MIC Copyright(C) Nomura Research Institute, Ltd. All rights reserved. On January 1 of every year 13

15 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright (C) 214 Nomura Research Institute. All rights reserved.

16 Macro fundamentals of Japan Japan remains one of the largest economies in the world and should not be ignored as an investment target Entering the 22s, Japan will remain at third place globally in nominal GDP, ahead of developing countries such as India. Nominal GDP of major countries (Billion USD) 3, Actual Forecast 25, US 2, China 15, 1, 5, Japan India UK Korea Source: Compiled by NRI from IMF World Economic Outlook Database (217 Apr.) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 15

17 Macro fundamentals of Japan Japan s economic growth is low compared to other major economies and high growth going forward looks unlikely IMF forecasts estimate Japan s GDP growth rate at around.5% for the next 5 years. Real GDP growth rate of major economies (%) 15. Actual Estimate India China Korea UK US Japan Source: Compiled by NRI from IMF World Economic Outlook Database (217 Apr.) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 16

18 Macro fundamentals of Japan There has been a positive growth for past two years, but most recently it has turned negative. Main factor is that domestic demand, including personal consumption, capital investment and housing investment is poor. Quarterly real GDP growth and contributions to changes (seasonally adjusted series, YoY) (%) Private Consumption Private Investment Public Demand Exports Imports Real GDP Growth Source: Compiled by NRI from Cabinet Office SNA (National Accounts of Japan) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 17

19 Macro fundamentals of Japan Inflation rate has become stagnant and prices are rising slowly. Although the core CPI turned positive from a year earlier, Bank of Japan core CPI excluding the fresh foods and energy contin ues to decline. Most recently, it shifted to negative territory. Year-on-year comparison for the same month of the consumer price index 4. (%) Core CPI BOJ's Core CPI Inflation target set by BOJ Sources: Compiled by NRI from Ministry of Internal Affairs and Communications Consumer Price Index (CPI) Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 18

20 Macro fundamentals of Japan The Bank of Japan continues a large-scale qualitative and quantitative accommodating policy. However, growth in money supply has slowed and JGB purchases by the BOJ is showing a downward trend. YoY change of money supply (Average balance) BOJ s holdings of JGBs 6% Monetary Base Money Stock 5% 4% 3% 2% 1% % -1% -2% -3% (Trillion Yen) Source: Compiled by NRI from Bank of Japan Monetary Base data Source: Compiled by NRI from Bank of Japan BOJ Accounts data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 19

21 Macro fundamentals of Japan Although the short-term interest rates are still negative, the long-term interest rates are shifting towards positive territory. In continuation of the negative interest rate policy of January 216, the Bank of Japan introduced a long-term interest rate policy on September 216 and announced a policy to buy long-term bond that shifts the long-term interest rate to %. Short-term interest rate (unsecured call rate) (Each end of the month) Long-term interest rate (1y-JGB) (Each end of the month) Source: Compiled by NRI from Bank of Japan Short-term Money Market Rates data Source: Compiled by NRI from MOF JGBs Interest Rate data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 2

22 Macro fundamentals of Japan In the middle of 218, the exchange rate of yen is continuously moving without any sense of direction. Recent yen strength reflects mainly fading perceptions of a US rate hike, a risk -off mode by investors, and a Japanese current account surplus Yen-dollar exchange rate (each end of the month) Source: Compiled by NRI from IMF Exchange Rate Data data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 21

23 Macro fundamentals of Japan Trade balance return to its basic profitable tendency and the current account surplus tends to expand. Current account surplus continues to be at a high level. Current account balance Source: Compiled by NRI from MOF Balance of Payments data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 22

24 Macro fundamentals of Japan Government debt has plateaued at high level, while a primary fiscal balance surplus is not in sight. The government debt to GDP ratio has becoming flat in recent years due to a reduction in the primary balance deficit and rest raint of interest payments due to monetary easing as well as the increase in nominal GDP that is the denominator of the ratio. Government debt to GDP ratio 3 (%) gross debt Japan US UK Primary balance to GDP ratio 4 (%) Japan United Kingdom United States 25 net debt Japan US UK Actual Estimate -1 Actual Estimate -12 Source: Compiled by NRI from IMF World Economic Outlook Database (217 Apr.) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 23

25 Macro fundamentals of Japan Tokyo continues to be the world s largest city in terms of population and GDP. Population/GDP forecast for 225 (Top 15 cities in terms of population or GDP) 225 nominal GDP by city (in billion USD) 25 2 New York Tokyo 15 1 Osaka Beijing Shanghai 5 São Paulo Chongqing Mexico City Delhi Karachi Mumbai Lagos Dhaka Kinshasa Cairo population by city ( in thousands) *No data for GDP of Dhaka and Kinshasa Source:Compiled by NRI based on UN World Urbanization Prospects and Euromonitor data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 24

26 Macro fundamentals of Japan Tokyo has the second largest concentration of world-class enterprises. Number of HQ of Fortune Global 5 companies by city (218) Fortune Global 5 companies in Tokyo (within top 2) Others, 313 Beijing (CHN), 53 Tokyo (JPN), 36 Paris (FRA), 16 New York (USA), 16 London (GBR), 13 Seoul (KOR), 13 Hong Kong, 8 Shenzhen (CHN), 7 Shanghai (CHN), 7 Osaka (JPN), 7 Houston (USA), 6 Nagoya (JPN), 5 Source: Compiled by NRI from Fortune Fortune Global 5 (218) data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 25 Rank Company Revenue (Mil. USD) 3 Honda Motor 138, Japan Post Holdings 116, Nippon Telegraph & Telephone (NTT) 16,5 79 Hitachi 84, Softbank Group 82, Sony 77, JXTG Holdings 76, Mitsubishi 68,31 13 Marubeni 68, Dai-ishi Life Holdings 63, Mitsubishi UFJ Financial Group 54, Seven & I Holdings 54, Tokyo Electric Power 52, Sumitomo Mitsui Financial Group 52, Nippon Steel & Sumitomo Metal 51,164

27 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

28 Overview of real estate investment market in Japan Acquisitions of securitized real estate decreased in three consecutive years. Although it was on a recovery trend after the bankruptcy of Lehman brothers, the complexity level of acquisition was going up along with the rise in prices of real estate, and it seems that it turned to a declining trend. 1, billion yen Acquisitions of securitized real estate Others J-REIT 8, 6, 6,242 7,25 4, 2, 5,159 3,433 3,32 2,51 2,156 4,439 2,934 3,37 1,791 2,21 2,236 1,549 1,772 2,31 1,359 2,237 2,8 2,66 1,679 2, ,555 1, FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 FY216 FY217 Source: Compiled by NRI from MLIT Real Estate Securitization data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 27

29 Overview of real estate investment market in Japan Structure in which office, residential, commercial and logistics occupy the 8% of transaction value will continue. Because of the sudden increase in the inbound marketing, the hotel investment is also becoming popular as one of the main objectives. billion yen 8, 6, Acquisitions of securitized real estate by asset class Office Residential Retail Logistics Hotel Health care composite facilities Others Allocation of securitized real estate by asset class in the past 5 years Health care, 1.% Hotel, 9.9% composite facilities, 2.3% Others, 3.9% 4, 2, 1, ,293 1,589 1, ,611 1,516 1,728 2,194 2,124 2, ,328 1,51 1,83 1,598 1,785 1,92 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 FY216 FY217 Logistics, 15.2% Retail, 15.5% Residential, 13.4% Office, 38.8% Source: Compiled by NRI from MLIT Survey of the Current State of Real Estate Securitization data Note: Because the usage of securitizations that require actual TMK is unclear, they have not been included after 21. Because of this, the yearly totals and amounts will not match up with the documents cited for this entry. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 28

30 Overview of real estate investment market in Japan The ratio of Greater Tokyo area was on a declining trend after FY21. However, it has increased its number after FY216. About the two-third of securitized properties focused on Greater Tokyo in FY 21. However, it declined to about the one third of it in FY 215. Composition ratio of Tokyo reversed in FY 216 and has gone up by 4%, and the ratio of Tokyo increased in FY 217 also. Number of properties securitized by region Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others FY217 FY216 FY215 FY214 FY213 FY212 FY211 FY21 FY29 FY28 FY % 38.% 33.8% 45.9% 51.9% 47.9% 58.8% 66.% 53.% 51.9% 41.9% 2.9% 8.7% 5.4% 2.1% 18.1% 12.9% 6.9% 2.8% 17.3% 13.8% 5.1% 26.% 17.5% 1.2% 5.8% 17.% 15.8% 1.% 3.7% 15.2% 15.3% 9.5% 5.1% 19.9% 12.% 8.% 4.% 14.9% 11.8% 6.9% 12.% 1.5% 12.7% 12.1% 1.5% 8.4% 6.9% 8.8% 5.5% 6.4% 17.2% 17.4% 23.1% % 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Source: Compiled by NRI from MLIT Survey of the Current State of Real Estate Securitization data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: Securitization of TMK properties is not included because their use is unknown. 29

31 Overview of real estate investment market in Japan Cap rate is continuously declining Cap rates in Japan for major investment areas 8.% 7.% 6.% 5.% 4.% 3.% Office Osaka Logistics Tokyo Multi Residential Tokyo Retail Tokyo Office Tokyo Oct-3 Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Office Tokyo CBD Office Osaka CBD Retail Tokyo Residential Tokyo Logistics Tokyo Multi Source: Compiled by NRI from Japan Real Estate Institute Japanese Real Estate Investor Survey data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 3

32 Overview of real estate investment market in Japan Fierce competition among commercial banks continues to help boost prices. Banks lending attitude toward the real estate industry is the most lenient since 2 and the standard of the time of the global financial crisis in 27 is exceeded. Many people in Japan believe there are too many banks, and spreads continue to fall with covenants loosening. Along with mega-banks and other major banks, regional mid-tier banks are entering the market, so conditions look unlikely to change over the near term. Financial institutions lending attitude DI toward the real estate industry 3 Loose Tight /3 2/9 21/3 21/9 22/3 22/9 23/3 23/9 24/3 24/9 25/3 25/9 26/3 26/9 27/3 27/9 28/3 28/9 29/3 29/9 21/3 21/9 211/3 211/9 212/3 212/9 213/3 213/9 214/3 214/9 215/3 215/9 216/3 216/9 217/3 217/9 218/3 Source: Compiled by NRI from BOJ TANKAN (Figures by Industry) data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 31

33 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright (C) 214 Nomura Research Institute. All rights reserved.

34 Office market Tokyo area holds 61% of Japan s office rental market. Japan has a stock of around 16 million m2 of available office rental space. The Tokyo area holds an overwhelming share of the market at 64 million m2, comprising 61% of the total. Office floor space shares by major region 1% 9% 8% 7% 6% 5% 4% 3% 2% 61.2% (68.55million m2 ) 4.6%.9% 1.8% (1.99million m2 ) (1.6million m2 ) (5.12million m2 ) Tokyo Metropolitan Area 68.5% 14.3% (16.1million m2 ) 1.7% 1.% (1.9million m2 ) (1.85million m2 ) Osaka Area 16.9% 2.3% 2.% 1.5% 3.2% (2.25million m2 ) (1.69million m2 ) 5.5% (2.55million m2 ) (3.58million m2 ) (6.18million m2 ) 12 major cities million m2 1% % Tokyo Yokohama Saitama Chiba Osaka Kobe Kyoto Nagoya Fukuoka Sapporo Sendai Hiroshima Source: JREI The Annual Japanese Office Buildings Survey Note: Data is as of January 216. Note: The survey focuses on the central area of each city. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: Properties less than 3, square meters are excluded. 33

35 Office market Tokyo s Central Business District (CBD) is concentrated in five wards Tokyo s CBD has an accumulation of office buildings and is concentrated in an area of 5km square, concentrated in Chiyoda, Chuo, Minato, Shibuya, and Shinjuku wards. Itabashi Kita Adachi Saitama 7.27 million people Tokyo million people Kanagawa 9.13 million people Chiba 6.22 million people Nerima Suginami Nakano Arakawa Toshima Bunkyo Taito Sumida Shinjuku Shibuya Chiyoda Chuo Koto Katsushika Edogawa 3 km Setagaya Minato Meguro Shinagawa Ohta 3 km Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 34

36 Office market Vacancy rates in the Tokyo office market have been improving for more than five consecutive years. Yearly ( ) Vacancy rate movement in Tokyo CBD Monthly (Jan 213 May 218) 14.% 14.% 12.% 12.% 1.% 8.% 6.% 4.% Chiyoda Chuo Minato Shinjyuku Shibuya 1.% 8.% 6.% 4.% Chiyoda Chuo Minato Shinjyuku Shibuya 2.% 2.%.% % Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Source: Miki Shoji Co., Ltd. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 35

37 Office market Rents entered an upward phase from around 213 in all 5 Tokyo wards. Yearly ( ) Rent trends in Tokyo CBD (yen/tsubo per month) Monthly (Jan 213 May 218) (yen/tsubo) 26, (yen/tsubo) 26, 24, 22, 2, 18, 16, 14, 12, 1, 24, 22, Chiyoda Chiyoda 2, Chuo Chuo Minato 18, Minato Shinjuku 16, Shinjuku Shibuya Shibuya 14, 12, 1, Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Source: Miki Shoji Co., Ltd. Note: One tsubo is 3.3 square meters. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 36

38 Office market From 21 to 215, the office workers decreased in 23 wards, whereas they slightly increased in 5 or 3 wards Trend and forecast of office worker numbers in Tokyo (1, people) 区 23 wards 区 区 Central 5 wards (Chiyoda, Chuo, Minato, Shibuya, Shinjuku) Central 3 wards 1 (Chiyoda, Chuo, Minato) Source: MIC Population Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 37

39 Office Market Since 2, Chiyoda and Minato have been increasing their share of office workers. Trend of office worker share in Tokyo s CBD (%) (23 wards =1%) 千代田区 Chiyoda 港区 Minato 中央区 Chuo 新宿区 Shinjuku 1 渋谷区 Shibuya Source: MIC Population Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 38

40 Office market Despite the dwindling number of office workers, new office supply will likely continue to grow. Office space supply in Tokyo s 23 wards Supplied floor area (1, m2 ) 25 Office supply area Number of building supplied # of buildings forecast Source: Mori Building Company Market Trend Survey of Large-Scale Office Buildings in Tokyo's 23 Wards Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 39

41 Office market The cap rates have continuously been declining since 212, and it is currently at its lowest level. Tokyo office market cap rate trend 6.5% 6.% 5.5% 5.% 4.5% 4.% 3.5% 3.% Oct-3 Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon) Shinagawa Shinjuku Shibuya Shinjuku Shinagawa Shibuya Minato(Toranomon) Chuo(Nihonbashi) Chiyoda(Marunouchi) Source: Japan Real Estate Institute Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 4

42 Office market The vacancy rates have also been recovering in the local office market and the rent has started rising. Office vacancy trend in ex-tokyo market Office rent trend in ex-tokyo market 2.% 18.% 16.% 14.% 12.% 1.% Sapporo Sendai Fukuoka Nagoya Osaka Yokohama (yen/tsubo) 24, 22, 2, 18, 16, Tokyo 8.% 6.% 4.% 2.%.% Tokyo 14, 12, 1, 8, Osaka Yokohama Nagoya Fukuoka Sendai Sapporo Source: Miki Shoji Co., Ltd. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 41

43 Office market Liquidity is growing in ex-tokyo as well as the real estate investment market rises and becomes overheated. As property acquisition becomes more difficult in Tokyo, investment money must look to regional markets. Ex-Tokyo office market cap rate trend 9.% 8.% 7.% 6.% 5.% 4.% Sendai Sapporo Fukuoka Nagoya Yokohama Osaka 3.% Oct-3 Apr-4 Oct-4 Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Source: Japan Real Estate Institute Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 42

44 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

45 Residential market About 2% of all households in Japan are living in non-public rental apartments, and the percentage is trending upwards. Households living in non-public rental apartments (excluding wooden apartments; hereafter the same in this section), which numbered 3.34 million in 1988, increased by about 2.6 times to 9.96 million (about 2% of all households) in 213. Breakdown of all households by housing type (213) Number of households by housing type Private Rental Housing, Others 9% Private Rental House, Apartment House (nonwood) 2% Public Rental House 6% Company Housing 2% Own House 63% Number of Households (unit:1,) 6, 5, 4, 3, 2, 1, 3,76 9% 1, ,97 12% 4,421 4,716 4,989 5,238 2% 1,578 1,682 1,724 1,783 1, % 16% 18% % 2% 15% 1% % '88 '93 '98 '3 '8 '13 Households Living in Housing Households Living in Rental Houses Households Living in Private Rental & Apartment Houses (non-wood) Ratio of Households Living in Private Rental & Apartment Houses (non-wood) 5% Ratio of Households Living in Private Rental & Apartment House (non-wood) Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 44

46 Residential market The total number of moving households has decreased, but the ratio of households moving to nonpublic rental apartments is trending upwards. The number of moving households peaked out in and decreased to about 77% of the peak-time level in The number of households moving to non-public rental apartments is also on a decreasing trend, although its ratio to the total number of moving households is trending upwards. Housing choices of moving households Number of Moving Households (Unit:1,) 1,6 1,4 1,2 1, % 1, % 46% 1,186 1, ,135 44% 45% Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved , % Number of Moving Households in Past 5 Years Number of Households Moved into Rental Houses Number of Households Moved into Private Rental (Apartment) Houses Ratio of Households Moved into Private Rental (Apartment) Houses 5% 45% 4% 35% 3% 25% 2% 15% 1% 5% % Ratio of Households Living in Private Rental & Apartment Houses

47 Residential market The majority of households moving to non-public rental apartments moved within the same city. Looking at the former locations of households moving into non-public rental apartments in seven major cities, those that moved within the same city were greater in number than those that moved in from outside the city. Tokyo s 23 wards and Osaka saw a decline in households moving into non-public rental apartments from outside the city, while major regional cities saw no change. Location choices of moving households Breakdown of In-Flow Households Moved in Private Rental Houses (non-wood) (Unit:1,) Household moving in a city Household moving out a city Sapporo Sendai Tokyo 23 Wards Nagoya Osaka Hiroshima Fukuoka Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 46

48 Residential market The supply of non-public rental apartment units has increased more sharply than total housing stock. The growth of rental apartments (public and non-public combined) outpaced the growth of overall housing as well as the more modest rise of rental housing in general. As a result, the ratio of rental apartments to total rental houses increased from 6 to 7%. Housing stock by type Housing growth rates by type Housing Stock (Unit:1 million) Growth Rate (1988 = 1) '88 '93 '98 '3 '8 '13 Number of Houses Number of RentalHouses Number of Rental & Apartment Houses (non-wood) 9 8 Number of Houses Number of RentalHouses Number of Rental & Apartment Houses (non-wood) '98 '3 '8 '13 Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 47

49 Residential market The number of new constructions for rental houses remained high until 217. In 217, the number of new constructions decreased by 3, houses since 216 and reached to a level of 96 thousand houses. The number of new constructions for rental houses is 42 thousand, which remained at the same level as in 216. New housing supply trend: Breakdown of new rental housing construction by region Number of Construction Starts(Unit:1,) 2, 1,8 1,6 1,4 1,2 1, % 45% 4% 35% 3% 25% 2% 15% 1% 5% % Ratio of Rental Houses New Rental Housing Construction by Region(Unit:1,) Provincial Region Kinki Region Chuubu Region Metropolitan Region Own House Rental House Company House House Built for Sale Ratio of Rental House Source: MLIT Survey of Construction Work Started Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 48

50 Residential market Since 215, the vacancy rates in Kanagawa prefecture have gone up suddenly. From the end of 216, the vacancy rates are rising in Tokyo as well. The construction of rental apartment increased for avoiding tax with the basic deduction's of an inheritance tax being reduced from January, 215. Because of number increasing in apartment supply due to the factors besides the actual demand, vacancy rates increased suddenly centering on the suburb part with the high apartment ratio occupied in a rental apartment. Vacancy Rates of Rental Housing (non-wood) in Major Cities Vacancy Rate of Rental Housing (non-wood) (Unit:%) 25% 2% 15% 1% 5% % Sapporo Sendai Tokyo23 Wards '98 '3 '8 '13 Nagoya Osaka Hiroshima Fukuoka Vacancy Rates of Rental Housing in Tokyo Metropolitan Area Source: MIC Housing and Land Survey Source: TAS Corp. and At Home Co., Ltd. Report on Rental Housing Market Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 49 Rental Housing Vacancy Rate (Unit: %) All Tokyo areas 23 Tokyo districts Tokyo cities Kanagawa Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan

51 Residential market Rent standard is still on a declining trend. The rent level of non-public rental housing rose steadily from 199, after which it gradually declined since 2. This trend has continued not even changed recently. Rents in the private sector (annual average) nationwide and central Tokyo 11. Private (Annual Average) Rent Index (Base Year 21) Japan Tokyo 23 Wards Source: MIC Consumer Price Index Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 5

52 Residential market The operating ratio of REIT case housing and the private placement fund has been at the highest level, and the rent standard in downtown 3 ward and Tokyo 23-ku s has continue to rise slowly. The operating ratio of Nagoya city and Fukuoka city hits the ceiling. The rent standard remains stable or decrease. Occupancy rates of REIT-owned and private fund-owned properties Occupancy Rate (Unit:%) 1% 98% 96% 94% 92% 9% Tokyo 3 central districts Tokyo 23 districts Nagoya city Osaka city Fukuoka city Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Monthly rents of REIT-owned and private fund-owned properties Monthly Rent Level (Unit:Yen/m 2 ) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Jan Jun Nov Apr Tokyo 3 central districts Tokyo 23 districts Nagoya city Osaka city Fukuoka city Sep Feb Jul Dec May Oct Mar Aug Jan Jun Source: Association for Real Estate Securitization of Japan ARES Japan Property Index Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 51

53 Residential market The rate of housing ownership, which has a negative impact on rental housing demand, has shown a downward trend with the 4-49 age group. Housing ownership rate in Japan by age group 9% 8% 7% 6% 5% 4% 3% 2% % % Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 52

54 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

55 Retail property market The number of locations for large stores has been on a downtrend in recent years. New retail space supply vs. number of development projects Floor Area(1m2) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 45 2,455 Floor Area Number of projects ,545 4,178 3,335 3,729 3,983 4,369 2,86 2,824 2,67 1,919 2,81 2,351 2,193 2, ,833 1, Number of projects(cases) (year) Source: METI Large-scale Retail Chain Site Expansion Report Note: The reported numbers for the fiscal years 22 and 28 include stores without floor space indication. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 54

56 Retail property market For shopping centers, the total floor area for all stores and the floor area per store are both on the rise. Overall floor area and per-store floor area for shopping centers Overall floor area (in 1 million m 2 ) Overall floor area 7 Old SC Standard Floor area per SC New SC Standard (in 1m 2 /store) Floor area per shopping center (year) Source: Council of Shopping Centers SC White Book Note: In the old SC standard, only shopping malls with more than 1 retail tenants were considered. In the new SC standard, the shopping center must have more than 1 tenants including food stalls, service centers and retail outlets. On the same note, the shopping center must have more than 1,5 m 2 retail space. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 55

57 Retail property market In 217, the annual sales of existing shopping centers increased by.6% compared to the previous year. YoY comparison of existing shopping centers annual sales (%) Source: Council of Shopping Centers Overall Sales Statistics Report Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 56

58 Retail property market Abenomics has not changed consumer outlook dramatically. Consumer outlook index chart 6 5 Dec. 212 Liberal Democratic Party becomes the ruling party again Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Note: Consumer outlook index calculation methodology: Consumers are asked to rate their outlook for the next 6 months for the following 4 categories: Lifestyle, Income, Job environment and Determining when to purchase consumer durables using a 5-scale index. Each of the 5 scales is assigned a value: +1 for Will get better, +.75 for Will get somewhat better, +.5 for Won t change, +.25 for Will get somewhat worse, and + for Will get worse. This numerical index is used to provide a component ratio for each of the answers, from which the results are calculated. To illustrate, a value of 5 will be produced if all participants answer Won t change for all available items. Source: Cabinet Office Consumer Trends Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 57

59 Retail property market Compared to other areas, rent levels in Ginza and Omotesando are still high. 1 st floor rent ranking in 13 principal business areas (yen/month/tsubo) (yen / month / tsubo) 7, 6, 5, 4, 3, 2, 1, Late 211 Early 212 *2 *1 *3 Late 212 Early 213 Late 213 Early 214 Late 214 Early 215 Late 215 Early 216 Late 216 Early 217 Ginza Omotesando Shinjuku Late 217 Ginza Omotesando Ikebukuro Shinjuku Shibuya Yokohama Shinsaibashi Oodori (Sapporo) Sannomiya (Kobe) Sendai Tenjin (Fukuoka) Shijokawaramachi (Kyoto) Sakae (Nagoya) Tokyo Metropolitan Area Provincial Areas Source: Japan Real Estate Institute, BAC Urban Projects, and Attractors Lab Retail Chain Rental Trends Note1: Rent in Yokohama is shown to have spiked in the early half of 212, but this can be attributed to the extremely small sample size Note 2: Rent in Shinjuku is shown to have spiked in the late half of 212, but this can be attributed to a sample bias toward small, high-rent properties Note 3: Rent in Ikebukuro is shown to have dived in the early half of 213, but this can be attributed to a sample bias toward low-rent properties in unfavorable locations Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 58

60 Retail property market Cap rates have been falling from around 211, and hit a record low in all regions. Commercial establishment cap rates (expected yield) 8.% 7.% 6.% 5.% 4.% 3.% Suburban, Nagoya Suburban, Osaka Suburnban, Tokyo Metropolitan, Nagoya Metropolitan, Osaka Metropolitan, Omotesando Metropolitan, Ginza 2.% 1.%.% Apr-5 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Definition: Metropolitan high-class specialty stores: Length of time after construction -or- large-scale repair/improvement: less than 5 years Tenants: Mainly retailers of high-class brands. Rent system: Mainly fixed-term, variable rental schemes based on the revenue. Areas: Along Chuodoori in Ginza s Chuo district. Along Omotesando in Shibuya s Omotesando district. Suburban shopping centers: Sales floor area: around 2,m 2 Key tenants: Prominent general merchandise stores (GMS) Rent system: Mainly fixed-term, fixed-charge rental schemes Areas: Along main thoroughfares within about an hour from metropolitan Tokyo. Stores for areas outside Tokyo follow similar locational conditions as above. Source: Japan Real Estate Institute Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 59

61 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

62 Logistics property market The truck-based transport volume (in tons), which forms the bedrock of Japan s cargo industry, has continued to decline in recent years. Truck -based (automobile) transport is the primary transport method that constitutes a large share of Japan s freight traffic. In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for private use. Cargo quantity by transport method (FY215) (Unit: 1 million tons) Railways 43 Coastwise vessels 365 Domestic aviation 1 Automobile cargo quantity movement (1 million tons) 7, Business 6, 5, Personal 4, Motor vehicles 4,289 3, 2, 1, '6 '65 '7 '75 '8 '85 '9 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 Source: MIC Transport quantity by transport method and MLIT Automobile Transport Statistics Survey Note: The chronological continuity of data from prior to 29 could not be guaranteed due to the changes made to the tallying methodology in the middle of 21. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 61

63 Logistics property market As the movement to smaller logistics lots progresses, the quantity distributed in such lots appears to be in upward trend based on the number of instances. The movement to smaller logistics lots progresses across the whole industry. The number of home delivery service handled has increased by an average of approximately 3% per year, and reaching 4.2 billion in FY217. Industry-wide distribution quantity by lot size Number of home deliveries (million) Below.1t.1~.5t.5~1t 1~5t Above 5t % 5% 1% % 3, % 3,526 4, % 2, % % (FY) Source: MLIT Logistics Census Source: MLIT Release of Reports on the Number of home deliveries Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 62

64 Logistics property market Small-lot consignments increase, due partly to the expansion of e-commerce, which is expected to continue growing hereafter. Market size of Business-to-Consumer e-commerce is expected to surpass 2 trillion yen in 219. Market size of B-to-C e-commerce (trillion JPY) Source: NRI Note: Business -to-consumer e-commerce: sale of products and services to consumers in general via the Internet Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 63

65 Logistics property market While new supply has stopped dwindling, facilities are growing larger due to businesses consolidating their logistics capabilities. The number of supplied warehouse buildings fell to roughly 23% of the peak level in 1991 (12, buildings/year) which has stabilized in recent years. The number of supplied warehouse buildings for the transport industry is dwindling at a more relaxed pace compared to the rest of the industry (see figure below left), but the floor space per building is on an upward trend (below right). This explains the increased need for SCM support for generic enterprises and new/large-scale logistics facilities for logistics consolidation. Nationwide number of supplied warehouses including warehouses for transport and transport industry share Transport industry Other than transport Transport industry share (Buildings) 6, 25% Floor space per warehouse building Entire industry Other than transport Transport industry ( m2 ) 2,5 5, 4, 3, 2, 1, 2% 15% 1% 5% 2, 1,5 1, 5 '88 '89 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 % Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: MLIT Construction Statistics 64 '88 '89 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17

66 Logistics property market In response to the growing demand of logistics used by e-commerce, the volume of order to build warehouses/logistics facilities has been increasing. Order volume for construction of warehouses/logistics facilities by ordering industry (1 billion yen) Real estate industry Transport industry Others Source: MLIT Construction Order Trends, Statistics and Survey Note: Only contracts worth 5 million yen and above are included Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 65

67 Logistics property market Major foreign-based logistics property players and Japanese real estate developers are gearing up for roadside development ahead of new expressway construction. No. Project PROLOGIS Park hurukawa3 PROLOGIS Park Tsukuba1 ESR KUKI Distribution Center MFLP Prologis Park Kawakoshi Tohoku EXPWY ESR ICHIKAWA Distribution Center 1 MFLP KawaguchiⅠ Kan-etsu Joban EXPWY EXPWY 13 GLP Niiza MFLP Haneda MFLP KawasakiⅠ MFLP HunabashiⅡ Tokyo Rail Gate EAST Gaikan EXPWY Ken-O GLP Sagamihara Project Chuo 42 EXPWY EXPWY 24 DPL Satte Chibashi Wakamatutyou Logistics Center Logicross Yokohama Kouhoku 12 8 Haneda Airport Logiport Kawasaki Bay Tomei EXPWY Logicross AtsugiⅡ Landport Shinonome Landport OumeⅠ Landport OumeⅡ Ⅲ Landport Atsugiaikawamachi Landport Kawaguchi Landport Koshigaya Landport Higashinarashino Narita Airport Landport Narashino DPL Shinnarashino MCUD IchikawaⅠ MCUD IchikawaⅡ SOSiLA Kawakoshi SOSiLA Ebina SOSiLA Kasukabe I Missions Park Ichikawashiohama Expressway Expressway (planned) New devts I Missions Park Inzai2 I Missions Park haku2 Atsugi ⅡLogistics Center Hasuda Ⅱ Logistics Center Matsubushi Logistics Center PROLOGIS Park Chiba1 PROLOGIS Park Chiba2 GLP NagareyamaⅢ GLP KenouGoka GLP YachiyoⅡ GLP Twin City PRJ(AtsugiⅢ) Source: Compiled by NRI from companies respective websites Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 66

68 # Name of Project Name of Developer Map No. Completion Scale (Total floor area) 1 PROLOGIS Park Hurukawa3 PROLOGIS ,256 m2 2 PROLOGIS Park Tsukuba1 PROLOGIS About 7, m2 3 I Missions Park Haku2 ITOCHU Corporation Unknown 4 Atsugi ⅡLogistics Center ORIX ,99 m2 5 ESR KUKI Distribution Center ESR ,853m2 6 MFLP Prologis Park Kawakoshi Mitsui Fudosan/PROLOGIS About 13,8 m2 7 GLP KenouGoka GLP ,31 m2 8 Landport OumeⅠ NOMURA REAL ESTATE DEVELOPMENT ,121m2 9 DPL Shinnarashino Daiwa House Industry ,84m2 1 ESR ICHIKAWA Distribution Center ESR ,715m2 11 Hasuda Ⅱ Logistics Center ORIX ,73 m2 12 SOSiLA Kawakoshi SUMITOMO CORPORATION ,823m2 13 GLP YachiyoⅡ GLP About 54, m2 14 GLP NagareyamaⅢ GLP ,44 m2 15 I Missions Park Inzai2 ITOCHU Corporation Unknown 16 SOSiLA Kasukabe SUMITOMO CORPORATION ,9m2 17 Matsubushi Logistics Center ORIX ,326m2 18 GLP Niiza GLP Spring About 31, m2 19 MFLP KawaguchiⅠ Mitsui Fudosan About 54,1 m2 2 Logiport Kawasaki Bay MITSUBISHI ESTATE ,799 m2 21 MFLP Haneda Mitsui Fudosan About 84,4 m2 22 Logicross Yokohama Kouhoku MITSUBISHI ESTATE About 16,4 m2 23 Landport Kawaguchi NOMURA REAL ESTATE DEVELOPMENT ,742m2 24 Landport Higashinarashino NOMURA REAL ESTATE DEVELOPMENT ,725m2 25 I Missions Park Ichikawashiohama ITOCHU Corporation Unknown 26 Logicross AtsugiⅡ MITSUBISHI ESTATE Summer About 34,7 m2 27 MFLP KawasakiⅠ Mitsui Fudosan About 41,5 m2 28 PROLOGIS Park Chiba1 PROLOGIS ,85m2 29 MFLP HunabashiⅡ Mitsui Fudosan About 225, m2 3 GLP Twin City PRJ (AtsugiⅢ) GLP About 42, m2 31 Landport Shinonome NOMURA REAL ESTATE DEVELOPMENT Unknown 32 PROLOGIS Park Chiba2 PROLOGIS About 66, m2 33 Landport Narashino NOMURA REAL ESTATE DEVELOPMENT ,742m2 34 SOSiLA Ebina SUMITOMO CORPORATION ,568m2 35 Landport Atsugiaikawamachi NOMURA REAL ESTATE DEVELOPMENT ,428m2 36 Landport OumeⅡ Ⅲ NOMURA REAL ESTATE DEVELOPMENT Unknown 37 Landport Koshigaya NOMURA REAL ESTATE DEVELOPMENT ,981m2 38 Tokyo Rail Gate EAST Mitsui Fudosan About 161, m2 39 GLP Sagamihara Project GLP 12 From m2 4 DPL Satte Daiwa House Industry 13 Unknown 115,6m2 ** 41 Chibashi Wakamatutyou Logistics Center ITOCHU Corporation 14 Unknown About 1,478 m2 42 MCUD IchikawaⅠ Mitsubishi Corporation Urban Development, Inc. 27 Unknown About 17,3 m2 ** 43 MCUD IchikawaⅡ Mitsubishi Corporation Urban Development, Inc. 28 Unknown About 3,3 m2 ** Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Compiled by NRI from companies respective websites Note) * Total leasable area, ** Site area 67

69 Logistics property market While the supply of logistics properties is increasing, vacancy rates are rising since 216. On the other hand monthly rent offers are also rising in Greater Tokyo. Monthly rent offers and vacancy rates of logistics properties (yen / month / tsubo) 4,5 Apr-18 Tokyo area Osaka area Apr-17 4, Apr-12 Apr-15 Apr-16 Apr-14 Rent offer Apr-13 Apr-11 3,5 Apr-15 Apr-16 Apr-17 Apr-12 Apr-14 Apr-18 Apr-11 Apr-13 3,.% 2.% 4.% 6.% 8.% 1.% 12.% 14.% Vacancy rates Source: Ichigo Real Estate Information Service Survey on the Logistics Facilities Rental Market Note: Logistics facilities which have a total lot area or total floor area of 1,m 2 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 68

70 Logistics property market Cap rates have been falling since 212, with Tokyo hitting all-time low. Single tenant 7.5% 7.% 6.5% 6.% Multi-tenant 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% Chiba (inland) Tokyo (inland) Tokyo (bay) 5.5% 5.% 4.5% Chiba (inland) Tokyo (inland) Tokyo (bay) 4.% 4.% Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-5 Apr-6 Oct-6 Apr-7 Oct-7 Apr-8 Oct-8 Apr-9 Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Source: Japan Real Estate Institute Real Estate Investor s Survey Note: Single tenant: 2-3 floors; total floor area of around 1,m 2 Multi-tenant: 3-4 floors; total floor area of around 5,m 2 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 69

71 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in Japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

72 Hotel market Domestic travel expenditure in 217 was the largest in the last 7 years, driven by an increased number of foreigner travelers to Japan. Foreign travelers in 217 accounted for 17% of total domestic travel expenditure Trends in domestic travel expenditure (trillion yen) -:Great East Japan earthquake +:depreciation of yen progress Consumption tax increase :the number of +: Silver Week national holidays Start is the most +:foreign travelers Increase significantly '1 '11 '12 '13 '14 '15 '16 '17 Japanese Stay Travel Japanese Day Trip Foreigners Travel Sources: Compiled by NRI from Japan Tourism Agency Ryokou Kankou Sho-hi Doukou Chosa and Consumption Trend Survey for Foreigners Visiting Japan data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 71

73 Hotel market The number of travelers among Japanese residents has edged sideways. Cumulative domestic traveler numbers (Overnight Travel/Day Trip) Cumulative domestic traveler numbers (by trip objective) (Million) (Million) '1 '11 '12 '13 '14 '15 '16 '17 Stay Travel Day Trip '1 '11 '12 '13 '14 '15 '16 '17 Sightseeing/Recreations Homecoming/Friend Visit Business Trip Source: Compiled by NRI from Japan Tourism Agency Ryokou Kankou Sho-hi Doukou Chosa data Note: Cumulative domestic traveler numbers do not include foreign travelers to Japan. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 72

74 Hotel market Conversely, the number of travelers to Japan increased rapidly and reached about 28.7 million, thanks to the weak yen and relaxed visa criteria. It accounts for approximately 75% of the four neighbouring Asian countries/regions. Measured by departure country, Chinese visitors will account for about 53% of the total in 23. No. of foreigner travelers to Japan (Million) Actual * Assumes the base scenario below Forecast '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 No. of foreigner travelers to Japan by departure country (216) (Ten thousand visitors) Thailand, 99, 3% Hong Kong, 223, 8% Four neighboring countries in Asia account for about 75%. U.S., 137, 5% Others, 54, 17% Taiwan, 456, 16% 2,87 Ten thousand China, 736, 26% Korea, 714, 25% Sources: Compiled by NRI from (Actual numbers) JNTO Source: Compiled by NRI from JNTO data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 73

75 Hotel market The ratio of foreign nationals to the number of accommodation is rising and was 15.7% in 217. Viewed by facility type, the rise in foreign travelers is impacting growth in business hotels. Domestic accommodation (Domestic/Foreign) Domestic stays (by accommodation type) (Million) '11 '12 '13 '14 '15 '16 '17 Domestic Customer Foreign Customer '11 '12 '13 '14 '15 '16 '17 Japanese-Style Hotel Resort Hotel Business Hotel City Hotel Lodging House Company/Group Loidging *Business Hotel:Budget Hotel Source: Compiled by NRI from Japan Tourism Agency Syukuhaku Ryokou Toukei data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 74 (Million)

76 Hotel market The total number of the accommodation facilities remains stable. By type, however, the proportion of hotels continues to rise Trend in number of guest rooms 1,8 1,6 1,4 1,2 1, (Thousand rooms) 1,579 1,588 1,59 1,568 1,576 1,556 1,562 1,545 1,548 1, '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 (Fiscal year) Japanese-style Hotel Hotel Source: Compiled by NRI from MHLW Report of Health Administration and Services data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 75

77 Hotel market The number of accommodation facilities and area of floor space continues to expand owing to a stable economic environment and growing demand for accommodations. Floor space per building is 1.25 times higher than 211, as large buildings are being built Accommodation facilities* No of buildings and floor space Accommodation facilities * Floor space per building 1,4 1,2 1, (Buildings) ,822 1,25 2,678 '11 '12 '13 '14 '15 '16 '17 Number of Ridge(Left Axis) Floor Space(Right Axis) (thousand m2 ) 3,5 3, 2,5 2, 1,5 1, 5 1,22 1,298 1,467 1,639 1,55 2,224 2,222 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 76 2,4 2,1 1,8 1,5 1, ( m2 ) '11 '12 '13 '14 '15 '16 '17 *Accommodations assume a hotel. Surveyed buildings are those built with steel framed reinforced concrete, ferroconcrete and steel frame Source: Compiled by NRI from MLIT Statistics on Construction Undertaken data

78 Hotel market c13, rooms are expected to open in Tokyo over the next 3 years Main new hotel development projects in Tokyo* 1/2 Operator Area Opening year Number of rooms APA Group Shintomicho Shinjuku Akasaka Nihonbashi-Bakurocho Ayase Ueno Otuska Komagome Shinjuku Shinjuku Nagatacho Nihonbashi-Bakurocho Roppongi Higashi-Shinjuku Nihonbashi-Bakurocho Ryogoku Roppongi undecided 67 Kyoritsu Maintenance Ginza 219 undecided Keikyu EX Inn Hamamatsucho Nihonbashi-Kayabacho JR Kyushu Railway Company Shinbashi Operator JR East Japan Railway Company JR West Japan Railway Company Area Opening year Number of rooms Shinkiba 189 Akihabara Gotanda Takeshiba Iidabashi Nihonbashi Daiwa Royal Shinbashi 218 undecided Ariake 218 undecided Kyobashi 219 about 2 Daiwa House Industry Toyosu Tokyu Hotels Shibuya Toyoko Inn Shinjuku-Gyoen 218 undecided Inagi Akabane Hankyu Hanshin Hotels Kyobashi Ginza Four Seasons Hotels and Otemachi Resorts Fujita Kanko Asakusa Hamamatsucho Asakusa 22 undecided Source: Compiled by NRI from Ohta Publications Co., Ltd. Weekly HOTERES data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: A hotel development project is chosen as the area where weekly HOTERES investigated. 77

79 Hotel market c13, rooms are expected to open in Tokyo over the next 3 years Main new hotel development projects in Tokyo * 2/2 Operator Area Opening year Number of rooms Prince Hotels Ebisu Shiomi Hotel Keihan Tsukiji Ginza 219 undecided Hotel Livemax Ueno Takadanobaba Asakusabashi Okachimachi Akabane Shintomicho Ayase Marriott International Yaesu Mitsui Fudosan Hotel Management Kanda Gotanda Nihonbashi-muromachi Ginza Mitsui Fudosan Kasumigaokamachi 219 undecided Roppongi Toyosu 22 2 Otemachi Yaesu Resorttrust Nihonbashi-hamacho Source: Compiled by NRI from Ohta Publications Co., Ltd. Weekly HOTERES data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: A hotel development project is chosen as the area where weekly HOTERES investigated. 78

80 Hotel market Over 6, rooms are expected to open in Osaka as well over the next 3 years Main new hotel development projects planned in Osaka prefecture * Operator Area Opening year Number of rooms Operator Area Opening year Number of rooms APA Group Osaka Osaka Osaka Suita AB Hotel Osaka Candeo Hospitality Management Global Headquarter Sakai Suita Kuretakeso Osaka JR West Japan Railway Company Sakai Osaka Osaka Osaka Sotetsu Inn Osaka Toyoko Inn Osaka 218 undecided Osaka Hankyu Hanshin Hotels Osaka Hotel Keihan Osaka undecided undecided Hotel Monterey Group Osaka Unizo Holdings Osaka Osaka Hotel Livemax Osaka 219 undecided Osaka 219 undecided Marriott International Osaka Osaka Route Inn Japan Kishiwada Osaka Daiwa Royal Hotel City Osaka 219 undecided Daiwa House Industry Osaka 219 undecided Tokyu Hotels Osaka Source: Compiled by NRI from Ohta Publications Co., Ltd. Weekly HOTERES data Note: A hotel development project is chosen as the area where weekly HOTERES investigated. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 79

81 Hotel market Guest room occupancy rates vary widely by prefecture Occupancy rates at hotels in Osaka and Tokyo have risen to c8% are approaching full capacity. Average occupancy rate by prefecture (%) Osaka Tokyo Fukuoka Aichi Chiba Kyoto Kanagawa Okinawa Hiroshima Saitama Hokkaido Ishikawa Saga Kumamoto Miyagi Kagawa Okayama Hyogo Shimane Nagasaki Aomori Oita Yamaguchi Shiga Ehime Shizuoka Kagoshima Tochigi Ibaraki Miyazaki Iwate Toyama Tottori Gumma Mie Gifu Yamagata Nara Tokushima Akita Kochi Fukushima Wakayama Niigata Yamanashi Fukui Nagano Source: Compiled by NRI from Japan Tourism Agency Syukuhaku Ryokou Toukei data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 8

82 Hotel market Looking at the type of accommodation in the top 5 prefectures, the occupancy rates in hotels often exceeds 7%. On the other hand, the occupancy rates of Japanese-style inns is less than 5% excluding the Tokyo area. Average occupancy rate in top 5 prefectures (by type of accommodation) (%) Japanese-Style Hotel Resort Hotel Business Hotel City Hotel Japanese-Style Hotel Resort Hotel Business Hotel City Hotel Japanese-Style Hotel Resort Hotel Business Hotel City Hotel Japanese-Style Hotel Resort Hotel Business Hotel City Hotel Japanese-Style Hotel Resort Hotel Business Hotel City Hotel Osaka Tokyo Fukuoka Aichi Chiba Source: Compiled by NRI from Japan Tourism Agency Syukuhaku Ryokou Toukei data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 81

83 Hotel market Besides Tokyo, Osaka and Kyoto, we are capturing foreign demand in Hokkaido and Okinawa, which are tourist spots. In Oita, Gifu and Chiba, it is expected that there would be demand seeping in from large cities. Room occupancy rate by prefectures and share of foreigners in total number of guests (217) 9% 8% Tokyo Osaka Aichi Fukuoka Occupancy rate 7% Chiba Saitama Hiroshima Kanagawa Miyagi Ishikawa Kumamoto Shimane Okayama Saga Ibaraki 6% Ehime Hyogo Nagasaki Kagawa Aomori Shizuoka Shiga Yamaguchi Iwate Kagoshima Gumma Miyazaki Tochigi Tottori 5% Toyama Gifu Yamagata Mie Tokushima Nara Fukushima Wakayama Akita 4% Fukui Kochi Nagano Niigata Okinawa Hokkaido Oita Yamanashi Kyoto 3% % 5% 1% 15% 2% 25% 3% 35% 4% Share of foreigners Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 出所 : 観光庁 宿泊旅行統計 (217 年速報値 ) より野村総合研究所作成 82

84 Hotel market Hotel REIT earnings are expanding due to high occupancy rates Rents at hotel REITs Monthly rent standard Unit: yen/tsubo 18, 16, 14, 12, 1, 8, 6, 4, 2, 1 月 5 月 9 月 1 月 5 月 9 月 1 月 5 月 9 月 1 月 5 月 9 月 1 月 5 月 9 月 1 月 5 月 9 月 1 月 5 月 9 月 1 月 5 月 9 月 1 年 11 年 12 年 13 年 14 年 15 年 16 年 17 年 23 wards of Tokyo Nationwide Source: Compiled by NRI from ARES J-REIT Property Database data. Note: 1tsubo=About 3.3 m2 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 83

85 Population movements in Japan Macro fundamentals of Japan Overview of real estate investment market in japan Office market Residential market Retail property market Logistics property market Hotel market Real estate investment products Copyright(C) Nomura Research Institute, Ltd. All rights reserved.

86 Real estate investment instruments An overall perspective of the Japanese real estate market Unlisted open-ended private REITs were offered in November 21, and the size of the private REITs market is growing rapidly. Overview of real estate investment instruments in Japan and AUM ( tn) Listed REIT Private Fund Private REIT RMBS CMBS Equity type Debt type Listed Close-ended Unlisted Open-ended Residential mortgage Commercial mortgage Sources: Compiled by NRI from Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association data Note: Listed REIT figure is updated as of end of Dec 217, private fund figure is updated as on end of Dec 217, private REIT figure is updated as of end of Mar 218, RMBS/CMBS figure is updated as of end of Mar 218 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 85

87 Real estate investment products Launched in September 21, J-REIT market capitalization has reached approximately 13 trillion yen. J-REITs began trading on the stock market in September 21 with two companies and a market capitalization of 25 billion yen. As of end of August 218, there were 59 J-REITs traded worth approximately 12.6 trillion yen. J-REIT market cap and number of J-REITs ( bn) 14, (No. of J-REITs) 7 12, 6 1, 5 8, 4 6, 3 4, 2 2, 1 21/9 23/1 24/5 25/9 27/1 28/5 29/9 211/1 212/5 213/9 215/1 216/5 217/9 Market Capitalization No. of J-REITs Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Compiled by NRI from ARES ARES J-REIT Databook data. 86

88 Real estate investment products c73% of J-REIT assets are located in the Tokyo metropolitan area and 43% are portfolios of office properties. c73% of real estate owned by J-REITs is in the Tokyo metropolitan area. In recent years, J-REITs have become more diversified in type of property owned, and a healthcare REIT was launched in November 214. Asset mix of J-REITs by area and asset class Chubu Area 4.6% Kinki Area 14.1% Other Areas 9.2% Approx trillion yen 5 Central Wards of Tokyo 33.4% Hotel 7.1% Logistics 14.7% Others 1.7% Approx trillion yen Office 42.8% Kanto Area 22.% 23 Wards of Tokyo 16.7% Greater Tokyo Area 73.% Residential 15.3% Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: As of the end of June Retail 18.4% Source: Compiled by NRI from ARES data

89 Real estate investment products The TSE REIT index surged in late 212 and remain firm. The TSE REIT index dropped sharply from its peak in May 27, but has recovered rapidly from late 212. TSE REIT Index, TOPIX, and the TOPIX Real Estate Sector Index 3, 2,5 2, 1,5 1, 5 23/3 24/6 25/9 26/12 28/3 29/6 21/9 211/12 213/3 214/6 215/9 216/12 218/3 TSE REIT Index TOPIX TOPIX Real Estate Sector Index Source: Compiled by NRI from Thomson Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Reuters data 88

90 Real estate investment products J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 4%. Yield spreads are currently around 4% J-REIT dividend yield and JGB 1-year yield 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% 22/1 23/1 24/1 25/1 26/1 27/1 28/1 29/1 21/1 211/1 212/1 213/1 214/1 215/1 216/1 217/1 218/1-1.% Spread J-REITs Dividend Yield JGB 1-Year-Yield Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Sources: Compiled by NRI from Thomson Reuters and MoF data 89

91 Real estate investment products Capital return is firm. According to the index based on actual performance of core funds invested in domestic real estate, the performance of real estate investments in Japan recovered to positive territory in terms of capital return and has been firm since. ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI) 25% 2% 15% AJPI: Income Return AJFI: Income Return AJPI: Capital Return AJFI: Capital Return 25% 2% 15% AJPI: Total Return AJFI: Total Return 1% 1% 5% 5% % % -5% -5% -1% -1% -15% -15% -2% -2% -25% 22/12 25/8 28/4 21/12 213/8 216/4-25% 22/12 25/8 28/4 21/12 213/8 216/4 Sources: Compiled by NRI from ARES ARES Japan Property Index and ARES Japan Fund Index data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 9

92 Real estate investment products CMBS issuance has decreased drastically since 28, and at present only RMBS are issued on a ongoing basis. Most recently, about 64% of residential mortgage-backed securities were originated by the Japan Housing Finance Agency. Asset backed securities breakdown by type of backing and RMBS breakdown by originator ( 1m) 6, 5, 4, 3, 4,234 7,418 7,352 % 2% 4% 6% 8% 1% 24FY 1H 24FY 2H 25FY 1H 25FY 2H 26FY 1H 26FY 2H 27FY 1H 27FY 2H 28FY 1H 28FY 2H 29FY 1H 29FY 2H 21FY 1H 21FY 2H 211FY 1H 211FY 2H 212FY 1H 212FY 2H 213FY 1H 213FY 2H 214FY 1H 214FY 2H 215FY 1H 215FY 2H 216FY 1H 216FY 2H 217FY 1H 217FY 2H Housing Finance Agency Banks/Trust Banks Regional Banks Non-bank Others 2, 1, 3,47 9,743 1,994 6,937 14,815 16,935 32,447 3,26 21,282 8,755 9, , ,276 16,811 1, ,834 15,64 15,423 12,217 11,113 11,287 12,3 13,562 13,614 14,782 14,67 11,148 7,935 8,787 8,341 9,894 1,76 9,465 8,235 1, st Half 24 2nd Half 25 1st Half 25 2nd Half 26 1st Half 26 2nd Half 27 1st Half 27 2nd Half 28 1st Half 28 2nd Half 29 1st Half 29 2nd Half 21 1st Half 21 2nd Half RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/commercial Bills Others 211 1st Half 211 2nd Half Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Compiled by NRI from Japan Securities Dealers Association data st Half 212 2nd Half 213 1st Half 213 2nd Half 214 1st Half 214 2nd Half 215 1st Half 215 2nd Half 216 1st Half 216 2nd Half 217 1st Half 217 2nd Half

93 Authors 荒木康行 Yasuyuki ARAKI Senior Consultant Section in Charge Macro fundamentals of Japan Expertise Real estate development, investment and TECH/DX business strategy planning and research. In addition, international market entry support. 大道亮 Akira DAIDO Consultant Section in Charge Overview of real estate investment market in Japan, Residential market, Logistics Property market Expertise Residential, real estate and energy business strategy and research. 溝口卓也 Takuya MIZOGUCHI Consultant Section in Charge Hotel market Expertise Tourism, MICE and hotel business strategy and research. In addition, supporting area development. 亀井敬太 Keita KAMEI Consultant Section in Charge Office market, Retail property market, Expertise Real estate, residential loan and infrastructure business strategy and research. 沼田悠佑 Yusuke NUMATA Consultant Section in Charge Population movements in Japan Expertise Real estate and energy business strategy and research. In addition, industrial policy planning and monitoring. 大西直彌 Naoya ONISHI Consultant Section in Charge Real estate investment products Expertise Real estate, energy and logistics business strategy and research. Contact: Nomura Research Institute, Ltd. Consulting Division Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 92

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