The Japanese Real Estate Investment Market PDF Free Download

The Japanese Real Estate Investment Market 217 October 217 Otemachi Financial City Grand Cube, 1-9-2 Otemachi, Chiyoda-ku, Tokyo 1-4, Japan

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.

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. 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, 65-15-64-14 households 2, 1, 197 1975 198 1985 199 1995 2 25 21 215 22 225 23 235 24 245 25 255 26 265 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

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 3 25 2 15 1 5-5 -1-15 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. 3

Population movements in Greater Tokyo In Greater Tokyo, the population has peaked out; however, the number of households is expected to increase for 1 years. It is anticipated that the population in the Greater Tokyo has reached to its peak level in 215. On the other hand, the number of households is projected to increase until 225. Population of Greater Tokyo Number of households in Greater Tokyo Population (thousand) 4, Actual Forecast Households (thousand) 18, Actual Forecast 35, 16, 3, 14, 25, 12, 1, 2, 8, 15, 6, 1, 4, 5, 2, 197 1975 198 1985 199 1995 2 25 21 215 22 225 23 235 24 197 1975 198 1985 199 1995 2 25 21 215 22 225 23 235 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. 4

Population movements in Greater Tokyo The population of Greater Tokyo area is rising, but 4% or more of 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 been 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 3, 25, 2, 15, 1, 1,15 41.8% 5, 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 71,934 58.2% -5, foreigners(by"zairyu-gaikokujin-tokei") foreigners(by"jumin-kihon-daicho") Japanese 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. 5

Population movements in Greater Tokyo The population influx into the Greater Tokyo is continuing. However, about 6% of population is the influx to Greater Tokyo. After an earthquake in 216, the population influx to Greater Tokyo area fell below than previous year for the first time. The number of net inflows in 216 recovered to the level of 25 or 26. The inflow is projected to continue. Net inflows of people to Greater Tokyo Population (thousand) 25 2 15 Net increase Net decrease 1 5-5 -1-15 Tokyo Kanagawa Chiba Saitama Source: MIC Jyumin Kihon Daichou Jinkou Idou Houkoku Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 6

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) Actual Forecast 7, One-person 6, 5, 4, Couple-and-child(ren) 3, 2, Couple-only One-parent-and-child(ren) 1, Other 1995 2 25 21 215 22 225 23 235 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. 7

Population movements in central Tokyo The population in Tokyo s 23 wards is projected to increase over the longer term only in the three wards along Tokyo Bay. Population is expected to increase in the Chuo, Koto, and Minato wards. The national census in 215 confirmed the drastic increase in the population in the Chuo ward, Minato ward, Chiyoda ward and Taito ward. Population growth trends in the 23 wards of Tokyo (assuming the population of each ward is 1 in 21) Actual Forecast Ward 21 215 22 225 23 235 24 Chuo 1. 114.9 115.3 116.6 116.8 116.1 114.4 Koto 1. 18.1 14.4 16.8 18.2 18.8 18.5 Minato 1. 118.7 17. 17.9 17.8 17. 15.2 Shinjuku 1. 12.2 14.4 14.8 14.4 13.4 11.6 Nerima 1. 1.8 15.1 15.3 14.5 12.9 1.6 Sumida 1. 13.6 11.7 12.6 12.7 12. 1.6 Arakawa 1. 14. 13. 12.8 12.2 11.2 99.7 Chiyoda 1. 123.8 16.9 16.1 14.6 12.2 99.3 Setagaya 1. 12.7 12.7 12.4 11.5 1. 97.9 Shinagawa 1. 15.9 12.9 12.7 11.7 1. 97.8 Edogawa 1. 1.2 11.7 11.1 99.8 98.2 96.2 Bunkyo 1. 16.4 11.9 11.3 1.1 98.2 95.7 Toshima 1. 12.2 16.1 14.5 12.2 99.2 95.3 Ota 1. 13.5 11.6 1.8 99.4 97.5 95.1 Itabashi 1. 14.9 1.5 99.1 97.2 94.7 91.8 Meguro 1. 13.6 1.2 98.8 96.8 94.1 91.1 Taito 1. 112.8 99.5 97.7 95.4 92.6 89.4 Shibuya 1. 19.9 98.8 96.6 93.9 9.9 87.4 Nakano 1. 14.4 97.7 95.5 92.9 89.8 86.2 Kita 1. 11.6 97.6 95.1 92.2 89. 85.5 Suginami 1. 12.8 97.6 95.1 92. 88.5 84.5 Katsushika 1. 1.2 95.7 92.4 88.7 84.8 8.8 Adachi 1. 98.2 95.2 91.6 87.5 83.1 78.7 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 21. Median-fertility (median-mortality) projection is used for population forecast. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 8

Population aging in central Tokyo In 215, one in four people is over 65 years old in just 4 wards; however, the same situation will occur in 7 wards in 225 and 21 wards in 235. Population aging by ward Actual Forecast Ward 199 1995 2 25 21 215 22 225 23 235 24 Sumida 13.1% 15.5% 18.1% 2.2% 21.4% 21.9% 21.1% 21.6% 22.7% 24.8% 28.1% Arakawa 13.7% 16.5% 18.9% 2.8% 21.9% 23.4% 23.8% 23.5% 24.1% 25.6% 28.4% Koto 9.4% 12.2% 15.2% 17.3% 19.1% 2.5% 2.% 2.5% 21.7% 24.5% 28.5% Shinjuku 12.6% 15.3% 17.1% 18.7% 19.1% 21.% 21.6% 22.% 23.4% 25.7% 29.3% Edogawa 8.1% 9.9% 12.8% 15.4% 18.1% 2.6% 21.4% 21.7% 23.3% 26.1% 29.5% Shinagawa 11.6% 14.5% 17.4% 18.% 19.4% 21.5% 22.4% 22.8% 24.1% 26.7% 3.8% Bunkyo 13.9% 16.4% 17.9% 18.3% 18.9% 2.9% 21.7% 22.6% 24.6% 27.3% 31.% Ota 11.6% 14.1% 16.3% 18.4% 2.4% 23.% 24.1% 24.6% 26.% 28.4% 31.7% Setagaya 11.1% 13.4% 16.1% 17.3% 18.3% 2.3% 21.2% 22.3% 24.6% 27.9% 31.8% Taito 15.9% 18.8% 21.1% 23.1% 23.6% 25.1% 25.4% 25.2% 26.% 28.3% 32.2% Kita 12.7% 16.% 19.3% 21.6% 24.% 26.7% 27.7% 27.6% 28.2% 29.8% 32.8% Chiyoda 16.6% 2.2% 2.9% 2.2% 19.2% 19.7% 2.5% 21.7% 24.3% 27.9% 32.8% Itabashi 1.% 12.7% 16.3% 19.3% 21.3% 24.3% 25.8% 26.4% 27.8% 29.8% 33.1% Chuo 15.4% 17.6% 18.3% 16.3% 15.9% 16.9% 17.9% 19.% 22.% 26.8% 33.4% Meguro 12.5% 14.8% 17.4% 18.6% 19.6% 22.2% 23.3% 24.4% 26.6% 29.5% 33.5% Nakano 12.1% 14.6% 16.3% 18.2% 19.9% 22.5% 23.8% 24.8% 26.8% 29.7% 33.8% Toshima 12.8% 15.7% 18.4% 21.1% 19.3% 19.8% 21.6% 23.1% 25.5% 29.% 34.3% Minato 13.7% 16.3% 17.9% 17.8% 17.2% 18.3% 19.5% 21.% 24.% 28.4% 34.3% Katsushika 1.6% 13.2% 16.6% 19.9% 22.% 24.8% 26.1% 26.8% 28.4% 31.1% 34.5% Shibuya 12.6% 15.2% 16.9% 18.5% 19.6% 21.9% 23.3% 24.6% 27.3% 31.% 35.6% Adachi 9.3% 11.9% 15.9% 19.9% 22.2% 25.4% 26.8% 27.3% 28.9% 31.8% 35.7% Nerima 9.5% 12.2% 15.4% 2.3% 19.3% 23.1% 25.5% 27.7% 3.8% 34.6% 39.% Suginami 11.8% 14.4% 16.8% 18.8% 23.1% 26.3% 28.2% 29.8% 32.4% 35.6% 39.6% 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 21. Median-fertility (median-mortality) projection is used for population forecast. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 9

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 of 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% % 213 214 215 216 217 Source: MIC Copyright(C) Nomura Research Institute, Ltd. All rights reserved. On January 1 of every year 1

Population movement in central Tokyo The increase in Tokyo s population has consistently outpaced estimates Actual and projected population movement in Tokyo Population (thousand) 1, 9, 8, 7, Actual data Forecast in 21 Forecast in 25 Forecast in 2 6, 5, 4, 3, 2, 1, 1995 2 25 21 215 Source: National Institution of Population and Social Security Research and MIC Population Census Note 1: Median-fertility (median-mortality) projection Note 2: Forecast of population and the number of households are based on the Population Census in 21, while the preliminary data in the Population Census in 215 is basis for 215. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 11

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.

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) 25, Actual Forecast US 2, China 15, 1, 5, 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 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. 13

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 1. 5.. India China Korea UK US Japan -5. -1. 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 Source: Compiled by NRI from IMF World Economic Outlook Database (217 Apr.) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 14

Macro fundamentals of Japan Recently, positive growth continued over several periods and domestic demand is driving that positive growth. Steady trend of private consumption and capital investment is the factor of uplifting. Quarterly real GDP growth and contributions to changes (seasonally adjusted series, YoY) (%) 4. 3. 2. 1.. -1. -2. Private Consumption Private Investment Public Demand Exports Imports Real GDP Growth -3. -4. 21 211 212 213 214 215 216 217 Source: Compiled by NRI from Cabinet Office SNA (National Accounts of Japan) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 15

Macro fundamentals of Japan On the other hand, 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 continues to decline. Most recently, it shifted to negative territory. Year-on-year comparison for the same month of the consumer price index 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. 16

Macro fundamentals of Japan The Bank of Japan continues a large-scale qualitative and quantitative accommodating policy Since quantitative and qualitative easing in April 213, the BOJ has been massively expanding the money supply and purchasing JGBs. YoY change of money supply (Average balance) 6% Monetary Base Money Stock BOJ s holdings of JGBs (Trillion Yen) 5 5% 4% 4 3% 2% 1% % -1% -2% -3% 3 2 1 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. 17

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).8.7 (%) (%) 2.5 Long-term interest rate (1y-JGB) (Each end of the month) 2..6.5.4.3.2.1. -.1 -.2 1.5 1..5. -.5 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. 18

Macro fundamentals of Japan In the middle of 216, 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) (USDJPY=X) Source: Compiled by NRI from IMF Exchange Rate Data data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 19

Macro fundamentals of Japan Trade balance return to its basic profitable tendency and the current account surplus tends to expand. In the first half of 217, the current account surplus was at the highest for the first time in 1 years. Current account balance Source: Compiled by NRI from MOF Balance of Payments data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 2

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 restraint 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 Primary balance to GDP ratio 4 (%) Japan United States United Kingdom 2-2 -4-6 -8-1 Actual Estimate -12 Actual Estimate Source: Compiled by NRI from IMF World Economic Outlook Database (217 Apr.) data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 21

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 Mexico City Lagos Mumbai Delhi Kolkata KarachiCairo Kinshasa Dhaka 5 1 15 2 25 3 35 4 225 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. 22

Macro fundamentals of Japan Tokyo has the second largest concentration of world-class enterprises. Number of HQ of Fortune Global 5 companies by city (217) Fortune Global 5 companies in Tokyo (within top 2) Others, 324 Beijing, 56 Tokyo, 36 Paris, 17 New York, 15 London, 14 Seoul, 12 Shanghai, 8 Osaka, 7 HongKong, 6 Houston, 5 Source: Compiled by NRI from Fortune Fortune Global 5 (217) data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 23 Rank Company Revenue (Mil. USD) 29 Honda Motor 129,198 33 Japan Post Holdings 122,99 5 Nippon Telegraph & Telephone 15,128 71 Hitachi 84,558 72 SoftBank Group 82,892 15 Sony 7,17 116 Marubeni 65,792 127 JXTG Holdings 63,629 142 Dai-ichi Life Holdings 59,59 145 Mitsubishi 59,33 164 Mitsubishi UFJ Financial Group 55,185 167 Seven & I Holdings 53,858 185 Tokyo Electric Power 49,446 188 MS&AD Insurance Group Holdings 49,239 193 Tokio Marine Holdings 48,292

Overview of real estate investment market in Japan Acquisitions of securitized real estate decreased in two 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. billion yen 1, Acquisitions of securitized real estate Others J-REIT 8, 6, 4, 2, 4,439 5,159 6,242 7,25 3,433 3,32 2,51 2,156 3,37 1,791 2,21 2,236 1,549 1,772 2,31 1,359 611 35 676 895 1,679 628 439 64 792 1,555 2,237 2,8 2,66 2,319 539 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 FY216 Source: Compiled by NRI from MLIT Real Estate Securitization data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 25

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, 8.6% composite facilities, 2.4% Others, 4.1% 4, 2, 1,17 981 79 835 1,293 1,589 1,321 44 88 161 267 686 27 552 1,611 1,516 1,728 2,194 2,124 2,53 479 252 348 289 441 39 235 46 71 891 556 768 512 419 55 662 746 758 77 784 773 615 788 73 614 452 63 564 55 1,51 1,92 2,328 1,83 1,598 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21 FY211 FY212 FY213 FY214 FY215 FY216 Logistics, 15.4% Retail, 16.% Residential, 14.3% Office, 38.2% 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. 26

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 since 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%. Number of properties securitized by region Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others FY216 38.% 18.1% 12.9% 6.9% 2.8% FY215 33.8% 17.3% 13.8% 5.1% 26.% FY214 45.9% 17.5% 1.2% 5.8% 17.% FY213 51.9% 15.8% 1.% 3.7% 15.2% FY212 47.9% 15.3% 9.5% 5.1% 19.9% FY211 58.8% 12.% 8.% 4.% 14.9% FY21 66.% 11.8% 6.9% 12.% FY29 53.% 1.5% 8.4% 6.9% 17.2% FY28 51.9% 12.7% 8.8% 5.5% 17.4% FY27 41.9% 12.1% 1.5% 6.4% 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. 27

Overview of real estate investment market in Japan The total return peaked at 8.8% at the end of 215 and then, it started declining. After the recovery from the bankruptcy of Lehman Brothers and the total return gone up through the Abenomics, the real estate investment market is moving to the next cycle. 2. Performance trend in Japan Transition of total return in Japan 15. 13.8 1. 8.8 5.. 4.1 Total Return 7.2-5. -1. -7.5 22/12 23/6 23/12 24/6 24/12 25/6 25/12 26/6 26/12 27/6 27/12 28/6 28/12 29/6 29/12 21/6 21/12 211/6 211/12 212/6 212/12 213/6 213/12 214/6 214/12 215/6 215/12 216/6 216/12 Source: MCI Real Estate - IPD Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 28

Overview of real estate investment market in Japan On the other hand, the cap rate is declining. Cap rates in Japan for major investment areas 8.% 7.% 6.% 5.% 4.% Office Osaka Logistics Tokyo Multi Residential Tokyo Retail Tokyo Office Tokyo 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 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. 29

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 2 1-1 Tight -2-3 -4 2/3 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 Source: Compiled by NRI from BOJ TANKAN (Figures by Industry) data. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 3

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) 217 Nomura Research Institute, Ltd. All rights reserved.

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% 1.% 4.6% 1.8% (1.95million m2 ) (1.3million m2 ) (5.million m2 ) 14.5% (15.91million m2 ) 1.7% 1.% (1.12million m2 ) (1.85million m2 ) Osaka Area 17.7% 2.3% 2.% 1.5% 3.2% 5.5% (3.57million m2 (2.54million (2.23million ) m2 ) m2 ) (1.72million m2 ) (5.87million m2 ) 4% 3% 61.% Tokyo Metropolitan Area 67.4% 12 major cities 16.73million m2 2% 1% (63.94million m2 ) % 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. 32

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. Saitama 7.15 million people Tokyo 13.22 million people Kanagawa 9.7 million people Chiba 6.15 milion people Setagaya Itabashi Kita Minato Adachi Nerima Arakawa Nakano Toshima Bunkyo Taito Sumida Suginami Shinjuku Chiyoda Shibuya Chuo Koto Meguro Shinagawa Katsushika Edogawa 3 km Ohta 3 km Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 33

Office market Vacancy rates in the Tokyo office market have been improving for over four consecutive years. Yearly (1998-216) Vacancy rate movement in Tokyo CBD Monthly (Jan 213 Jan 217) 14.% 14.% 12.% 12.% 1.% 8.% 6.% 4.% Chiyoda Chuo Minato Shinjyuku Shibuya 1.% 8.% 6.% 4.% Chiyoda Chuo Minato Shinjyuku Shibuya 2.% 2.%.% 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216.% 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 Source: Miki Shoji Co., Ltd. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 34

Office market Rents entered an upward phase from around 213 in all 5 Tokyo wards. Yearly (1999 217) Rent trends in Tokyo CBD (yen/tsubo per month) Monthly (Jan 213 Jan 217) (yen/tsubo) 26, (yen/tsubo) 26, 24, 24, 22, 2, 18, 16, 14, 12, 1, 1999 21 23 25 27 29 211 213 215 217 Chiyoda Chuo Minato Shinjuku Shibuya 22, 2, 18, 16, 14, 12, 1, Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Chiyoda Chuo Minato Shinjuku Shibuya Source: Miki Shoji Co., Ltd. Note: One tsubo is 3.3 square meters. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 35

Office market The number of Tokyo s office workers is declining at a fast rate than published forecasts. Trend and forecast of office worker numbers in Tokyo ( 千人 ) (1, people) 4,5 4, 3,818 3,835 3,5 3,66 3,461 3,648 3,643 Forecast compiled in December 21 (same for 5 and 3 wards) 3,565 3,498 23 wards 区 3, 2,5 3,243 Data announced in October 213 (same for 5 and 3 wards) 2, 1,5 1, 2,2 1,988 1,467 1,474 2,83 2,78 2,35 1,998 Central 5 wards 1,884 (Chiyoda, 5 区 Chuo, Minato, Shibuya, Shinjuku) 1,533 1,539 1,51 1,473 Central 3 区 3 wards 1,415 (Chiyoda, Chuo, Minato) 5 199 1995 2 25 21 215 22 225 Source: MIC Population Census and Tokyo Metropolitan Government Shugyosha no Yosoku Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 36

Office Market Chiyoda and Minato have been increasing their share of office workers, while Chuo and Shibuya have been flat and Shinjuku has been losing share Trend of office worker share in Tokyo s CBD (23 wards =1%) 18% 16% 14% 12% 1% 8% 6% 4% 千代田区 Chiyoda 16.4% 15.8% 15.4% 15.5% 15.5% 15.6% 14.8% 15.% 15.2% 15.4% 15.3% 15.3% 13.5% Minato 港区 11.6% 11.8% 11.8% 11.5% 11.4% 11.3% 11.3% 8.6% 8.6% 8.6% 8.6% 8.9% 8.7% 8.4% 6.3% 6.4% 6.4% 6.4% 6.2% 6.2% 6.1% Chuo 中央区 Shinjuku 新宿区 Shibuya 渋谷区 2% % 2 25 21 215 22 225 Source: MIC Population Census and Tokyo Metropolitan Government Shugyosha no Yosoku Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 37

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 2 15 1 5 56 55 Number of building supplied 83 1 18 114 118 14 183 92 119 74 99 36 72 216 154 125 121 119 91 77 65 86 85 175 117 58 19 97 87 # of buildings 163 14 97 73 4 forecast 7 6 5 4 3 2 1 1986 1987 1988 1989 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 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. 38

Office market The cap rates have continuously been declining since 212, and it has reached to the lower level of in 27. Tokyo office market cap rate trend 6.5% 6.% 5.5% 5.% 4.5% 4.% 3.5% Shinjuk Shinagawa Shibuya Minato(Toranomon) Chuo(Nihonbashi) Chiyoda(Marunouchi) 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 Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon) Shinagawa Shinjuku Shibuya Source: Japan Real Estate Institute Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 39

Office market The vacancy rates have also been recovering in the local office market. However, the number of rent has not increased so much. Office vacancy trend in ex-tokyo market Office rent trend in ex-tokyo market 2.% (yen/tsubo) 24, 18.% 16.% 14.% 12.% 1.% Sapporo Fukuoka Nagoya Yokohama Osaka Sendai 22, 2, 18, 16, Tokyo 8.% 6.% 4.% 2.%.% Tokyo 14, 12, 1, 8, Fukuoka Osaka Nagoya Yokohama Sendai Sapporo 24 25 26 27 28 29 21 211 212 213 214 215 216 24 25 26 27 28 29 21 211 212 213 214 215 216 Source: Miki Shoji Co., Ltd. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 4

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.% Sendai Sapporo Fukuoka Nagoya Yokohama Osaka 4.% 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 Source: Japan Real Estate Institute Real Estate Investor s Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 41

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 1988-213 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% 1,411 334 4,97 12% 4,421 4,716 4,989 5,238 2% 1,578 1,682 1,724 1,783 1,857 49 15% 16% 18% 65 75 879 996 25% 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. 43

Residential market The total number of moving households has decreased, but the ratio of households moving to non-public rental apartments is trending upwards. The number of moving households peaked out in 1994-98 and decreased to about 77% of the peak-time level in 29-13. 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 1984-213 Number of Moving Households (Unit:1,) 1,6 1,4 1,2 1, 8 6 4 2 39% 1,13 782 427 45% 46% 1,186 1,221 884 868 532 557 1,135 44% 45% Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 44 778 1,39 698 939 48% 639 52 466 447 84-88 89-93 94-98 99-3 4-8 9-13 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

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,) 5 45 4 35 3 25 2 15 1 5 266 27 197 2 15 86 165 157 148 58 54 137 51 58 77 73 5 46 48 55 25 24 24 27 45 47 49 54 28 3 28 31 32 28 27 33 56 57 55 55 73 36 37 61 53 32 5 3 27 27 23 22 47 46 41 48 94-98 99-3 4-8 9-13 94-98 99-3 4-8 9-13 94-98 99-3 4-8 9-13 94-98 99-3 4-8 9-13 94-98 99-3 4-8 9-13 Household moving in a city Household moving out a city 94-98 99-3 4-8 9-13 94-98 99-3 4-8 9-13 Sapporo Sendai Tokyo 23 Wards Nagoya Osaka Hiroshima Fukuoka Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 45

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 1988-213 Housing growth rates by type Housing Stock (Unit:1 million) 7 6 5 4 3 2 1 39 16 44 18 5 54 58 61 2 21 22 23 12 14 15 16 Growth Rate (1988 = 1) 14 13 12 11 1 1 112 17 13 124 114 18 13 119 112 '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. 46

Residential market The number of new constructions for rental houses keeps increasing. In 216, the number of new construction housing increased by 58, houses since 215 and reached to about 97 houses. The number of new construction for rental houses increased by about 4, houses from 215 to 216. New housing supply trend: 1991-216 Breakdown of new rental housing construction by region Source: MLIT Survey of Construction Work Started Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 47

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. 48

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 Source: MIC Consumer Price Index Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 49

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% Jan May Sep Jan May Sep Jan May Sep Tokyo 3 central districts Tokyo 23 districts Nagoya city Jan May Sep Jan May 212 213 214 215 16 年 Monthly rents of REIT-owned and private fund-owned properties Monthly Rent Level (Unit:Yen/m 2 ) Source: Association for Real Estate Securitization of Japan ARES J-REIT Property Database Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 5 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 Jan May Sep Jan May Sep Jan May Sep Tokyo 3 central districts Tokyo 23 districts Nagoya city Jan May Sep Jan May 212 213 214 215 216

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% 7+ 6-69 5-59 4-49 3-39 -29 1% % 1998 23 28 213 Source: MIC Housing and Land Survey Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 51

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 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. 53

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 ) 7 6 5 4 3 2 1 11.8 11.6 3.6 3.4 31.5 12.1 12.4 12.8 Overall floor area 33.1 34.6 Old SC Standard 13.2 13.6 36.5 38. Floor area per SC New SC Standard 14.1 14.2 14.5 14.8 15. 15.3 42.1 42.7 44.2 45.7 46.4 47.9 (in 1m 2 /store) 18 15.7 15.9 16.1 16 49.8 5.8 51.7 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 (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. 54 14 12 1 8 6 4 2 Floor area per shopping center

Retail property market In 216, the annual sales of existing shopping centers declined -1.1% 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. 55

Retail property market Abenomics has not changed consumer outlook dramatically. Consumer outlook index chart Dec. 212 Liberal Democratic Party becomes the ruling party again 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. 56

Retail property market Compared to other areas, rent levels in Ginza, Omotesando, and Shinjuku are still high. 1 st floor rent ranking in 13 principal business areas (yen/month/tsubo) Tokyo Metropolitan Area 2 1 3 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. 57

Retail property market Cap rates have been falling from around 211, and hit a record low in metropolitan Tokyo. Commercial establishment cap rates (expected yield) 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. 58

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 (FY214) (Unit: 1 million tons) Automobile cargo quantity movement 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. 6

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. As the movement to smaller logistics lots progresses across the whole industry, the quantity distributed has increased to a yearly rate of 4.% based on the number of reported instances. The increased quantity of distribution in warehouses is remarkably high. This increase is propelled by the increase in distribution quantity using small lots that are less than.1 tons. Industry-wide (except warehousing) distribution quantity by lot size (unit: number of instances) Warehousing distribution quantity per lot size (number of instances) CAGR 4.5% CAGR 7.3% CAGR 3.7 % CAGR 12.6% CAGR -5.3 % CAGR -1.4% Source: MLIT Logistics Census Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 61

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) 3 25 2 15 1 5 213 214 215 216 217 218 219 22 221 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. 62

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 Floor space per warehouse building Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: MLIT Construction Statistics 63

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 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. 64

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 1 2 MFLP Prologis Park Kawagoe MFLP Prologis Park Kawagoe 22 DLP Kawaguchi-Ryouke MFLP Kawaguchi 1 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 Logi-Square Kawagoe Prologis Park Higashi-Matsuyama Hasuda Logistics Center Logi-Square Kasukabe Kuki Distribution Center DPL Satte Prologis Park Furukawa 3 GLP Goka MUCD Kawasaki 1 extension SOSiLA Yokohama-Kohoku Prologis Park Ebina 2 MUCD Zama Logiport Sagamihara 2 GLP Sagamihara Project MFLP Atsugi 2 MFLP Atsugi 3 Hiratsuka Higashi-Yawata L. Center Tokyo Railgate East Distribution B Bldg. DynaBASE Chuo EXPWY Kan-etsu EXPWY Ken-O EXPWY Tomei EXPWY 4 2 15 14 13 16 17 3 1 12 11 5 7 Tohoku EXPWY 9 8 1 6 22 18 19 2 21 23 Gaikan EXPWY 28 29 3 24 27 31 Haneda Airport 25 26 Joban EXPWY Narita Airport 23 24 25 26 27 28 29 3 31 DLP Nagareyama 1 GLP Nagareyama 1 GLP Nagareyama 2 GLP Nagareyama 3 Prologis Park Tsukuba 1 MFLP Tsukuba Expressway Expressway (planned) New devts DLP Tsukuba-Ami Goodman Business Park Stage 1 Goodman Business Park Stage 2 Prologis Park Ichikawa 3 Ichikawa Distribution Center MFLP Funabashi 2 Logi-Cross Narashino Chiba Wakamatsu-Cho L. Center 2 MFLP Haneda 21 MFLP Kawasaki 1 Source: Compiled by NRI from companies respective websites Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 65

# Name of Project Name of Developer Map No. Completion Scale (Total floor area) 1 DPL Tsukuba-Ami Daiwa House Industry 26 217.7 62,567 m2 ** 2 Distribution B bldg. Tokyo Ryutsu Center 19 217.7 about 171,3 m2 3 SOSiLA Yokohama-Kohoku Sumitomo Corp. 12 217.9 about 87, m2 4 Hiratsuka Higashi-Yawata Logistics Center LaSalle Investment Management 17 217.1 9,69 m2 5 Prologis Park Ichikawa 3 ProLogis 28 217.12 64,46 m2 6 Logiport Sagamihara 2 LaSalle Investment Management 15 217 Winter 45,5 m2 7 Prologis Park Ebina 2 ProLogis 13 217 38,57 m2 8 MCUD Zama Mitsubishi Corp. Urban Development 14 218.1 18,2 m2 9 Goodman Business Park Stage 1 East Goodman Japan 27 218.1 116, m2 * 1 Goodman Business Park Stage 2 Goodman Japan 27 218.1 125, m2 * 11 DPL Kawaguchi-Ryouke Daiwa House Industry 22 218.2 71,448 m2 12 Prologis Park Higashi-Matsuyama ProLogis 4 218.2 about 71,348 m2 13 Logi-Square Kawagoe CRE 3 218.2 7,453 m2 14 GLP Nagareyama 1 GLP 23 218.2 131,236 m2 15 DPL Nagareyama 1 Daiwa House Industry 23 218.2 144,5 m2 16 MFLP Atsugi 2 Mitsui Fudosan 16 218.3 14,7 m2 17 MFLP Tsukuba Mitsui Fudosan 25 218.3 about 25,5 m2 18 Logi-Cross Narashino Mitsubishi Estate 3 218.3 about 39,1 m2 19 GLP Nagareyama 2 GLP 23 218 95,841 m2 2 GLP Nagareyama 3 GLP 23 218.5 93,223 m2 21 Hasuda Logistics Center ORIX 5 218 Spring 23,51 m2 ** 22 MFLP Atsugi 3 Mitsui Fudosan 17 218.6 about 43,4 m2 23 MCUD Kawasaki 1 Extension Mitsubishi Corp. Urban Development 11 218.6 48,921 m2 24 Logi-Square Kasukabe CRE 6 218.6 22,187 m2 25 DynaBASE Japan Motor Terminal 19 218.7 97, m2 26 Prologis Park Furukawa 3 ProLogis 9 218.8 31,256 m2 27 Prologis Park Tsukuba 1 ProLogis 24 218.8 about 7, m2 28 Kuki Distribution Center ESR (ex-redwood Group) 7 218.9 155,853 m2 29 MFLP Prologis Park Kawagoe Mitsui Fudosan/ProLogis 2 218.1 about 13,8 m2 3 GLP Goka GLP 1 218.1 14, m2 31 Ichikawa Distribution Center ESR (ex-redwood Group) 28 219.1 229,715 m2 32 MFLP Kawaguchi 1 Mitsui Fudosan 22 219.4 about 54,1 m2 33 GLP Niiza GLP 1 219 Spring about 31, m2 34 MFLP Haneda Mitsui Fudosan 2 219.6 about 84,4 m2 35 MFLP Kawasaki 1 Mitsui Fudosan 21 219.9 about 41,5 m2 36 MFLP Funabashi 2 Mitsui Fudosan 29 219.1 about 225, m2 37 Tokyo Railgate EAST Mitsui Fudosan 18 221.1 about 161, m2 38 GLP Sagamihara Project GLP 15 After 222 655 m2 39 DPL Satte Daiwa House Industry 8 unknown 115,6 m2 ** 4 Chiba Wakamatsu-cho Logistics Center ITOCHU Corp. 31 unknown about 1,478 m2 Source: Compiled by NRI from companies respective websites Note) * Total leasable area, ** Site area Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 66

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 Rent offer 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. 67

Logistics property market Cap rates have been falling since 212, with Tokyo hitting all-time low. Single tenant Multi-tenant 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. 68

Hotel market Domestic travel expenditure in 216 was the largest in the last 7 years, driven by an increased number of foreigner travelers to Japan. Foreign travelers in 216 accounted for c15% of total domestic travel expenditure Trends in domestic travel expenditure 3. 25. 2. 15. (trillion yen) -:Great East Japan earthquake +:depreciation of yen progress 21.6 2.6 2.5 21.6 1.1.8 1.1 1.4 5.1 5. 4.4 4.8 -Consumption tax increase 2.4 2. 4.5 +: Silver Week +:the number of national Start holidays is the most 23.9 24.6 3.5 3.7 4.6 4.9 1. 5. 15.4 14.8 15. 15.4 13.9 15.8 15.9. '1 '11 '12 '13 '14 '15 '16 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. 7

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) 7 6 5 4 632 613 613 631 314 299 297 311 595 65 298 292 638 315 7 6 5 4 632 613 613 631 117 18 17 17 143 145 138 141 595 65 112 19 134 13 638 18 143 3 3 2 1 318 314 316 32 297 313 323 2 1 372 36 368 383 349 365 386 '1 '11 '12 '13 '14 '15 '16 Stay Travel Day Trip '1 '11 '12 '13 '14 '15 '16 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. 71

Hotel market Conversely, the number of travelers to Japan increased rapidly and reached about 24 million, thanks to the weak yen and relaxed visa criteria. NRI projects the number of travelers to Japan rising about 5 million in 23 Measured by departure country, Chinese visitors will account for about 53% of the total in 23. No. of foreigner travelers to Japan (by departure country) No. of foreigner travelers to Japan by departure country (215) (Million) 6. Assumes the base scenario below (Ten thousand visitors) 5. Actual Forecast 4. 3. 2. 1.. '5'6'7'8'9'1'11'12'13'14'15'16'17'18'19'2 '25 '3 China 53.% U.S., 124, 5% Thailand, 9, 4% Hong Kong, 184, 8% Four neighboring countries in Asia account for about 72%. Others, 442, 18% Taiwan, 417, 17% 2,44 Ten thousand China, 637, 27% Korea, 59, 21% China Others Sources: Compiled by NRI from (Actual numbers) JNTO (Forecast numbers) UNWTO and UN data Note: Chinese economy doesn't fall into a panic and remains stable. As premise, Asian tourists choosing Japan as a travel destination rises slightly from the current level owing to relaxed visa standards and LCC expansion. Source: Compiled by NRI from JNTO data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 72

Hotel market Foreigner visitors accounted for 14.3% of all stays in 216. This ratio continues to rise in tandem with the increase in overseas visitors Viewed by facility type, the rise in foreign travelers is impacting growth in business hotels. Domestic accommodation (Domestic/Foreign) Domestic stays (by accommodation type) 6 5 4 (Million) 54 494 466 474 439 417 33 45 66 71 18 26 3 2 417 413 432 429 438 423 1 '11 '12 '13 '14 '15 '16 Domestic Customer Foreign Customer 6 54 466 474 494 5 439 417 26 24 1 9 8 4 62 67 73 75 78 8 9 3 16 17 184 194 211 27 2 1 61 65 69 68 72 74 16 16 16 13 16 13 '11 '12 '13 '14 '15 '16 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. 73 (Million)

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, 8 6 4 2 (Thousand rooms) 1,579 1,588 1,59 1,568 1,576 1,556 1,562 1,545 1,548 823 88 792 764 761 741 735 71 72 756 781 798 83 814 815 827 835 846 '7 '8 '9 '1 '11 '12 '13 '14 '15 (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. 74

Hotel market The number of accommodation facilities and area of floor space both suddenly rose in 216 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, 8 6 4 2 (Buildings) 327 345 393 448 419 412 615 675 547 848 1,822 819 '11 '12 '13 '14 '15 '16 Number of Ridge(Left Axis) Floor Space(Right Axis) (thousand m2 ) 2, 1,8 1,6 1,4 1,2 1, 8 6 4 2 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 75 2,4 2,1 1,8 1,5 1,2 9 6 3 ( m2 ) 1,22 1,298 1,467 1,639 1,55 2,224 '11 '12 '13 '14 '15 '16 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

Hotel market c16, 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 Akasaka 218 5 Asakusa 218 36 Ueno 218 124 Kanda 218 142 Komagome 218 143 Shinjuku 218 176 Nishi-Shinjuku 218 71 Shintomicho 218 14 Nagatacho 218 5 Nihonbashi-Bakurocho 218 153 Nihonbashi-Bakurocho 218 193 Nihonbashi-Bakurocho 218 127 Otuska 219 613 Shinjuku 219 166 Ryogoku 219 165 Roppongi 219 875 Higashi-Shinjuku 22 819 Roppongi undecided 67 Mitsui Fudosan Hotel Management Kanda 218 19 Ginza 219 33 Otemachi 22 19 Toyosu 22 2 Yaesu 221 undecided Mitsui Fudosan Gotanda 218 372 Nihonbashi-Muromachi 218 26 Daiwa Royal Ariake 218 undecided Shinbashi 218 undecided Kyobashi 219 about 2 Operator 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. 76 Area Opening year Number of rooms Daiwa House Industry Kanda 218 113 Toyosu 219 33 Mori Trust Ginza 22 1 Toranomon 22 about 2 Akasaka 222 undecided Toyoko Inn Inagi 218 259 Shinjuku-Gyoen 218 undecided Daiichi Realter Asakusabashi 218 undecided Kanda 218 13 Shinonome 218 undecided nest Hotel Japan Shinjuku 218 16 Hanzomon 218 1 Sankei Building Kyobashi 218 25 Ginza undecided undecided Hulic Ginza 218 about 16 Tsukiji 218 undecided ES-CON JAPAN Hayabusacho 218 12 Ginza 219 19 JR East Japan Railway Akihabara 219 196 Company Takeshiba undecided 2-3 JR Kyushu Railway Company Shinbashi 219 267 JR West Japan Railway Company Via Inn Iidabashi 218 295 Apple Real Estate Service Akabane 218 74 Toyosu 218 65

Hotel market c16, 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 NREG Toshiba Building Ueno 218 undecided Aihara Building Nihonbashi undecided 119 Asahi Shimbun Company Ginza 218 164 Inutsuka Manufacturing Shinagawa undecided undecided MG Leasing Omori 218 3 Kyoritsu Maintenance Ginza 219 undecided Great Eagle Holdings Roppongi undecided 27 (Hong-Kong) Keihan Electric Railway Ginza 219 undecided Cosmos Initia Ueno 218 undecided Samty Nihonbashi-Nakasu 218 undecided JST Iriya 218 undecided JUJapan Asakusabashi 218 undecided Mitsui Fudosan Kasumigaokacho 219 undecided Sumitomo Realty & Haneda 22 154 Development SENKO Group Holdings Shiomi 219 23 Sotetsu Inn Kanda 218 115 Daiwa Land Okachimachi 218 63 Tsukada Global Holdings Nishi-Shinjuku 219 18 Tokyu Corp Daikanyama 218 undecided Tokyu Land Takeshiba undecided undecided Tokyo Tatemono Ginza 218 2 TOSEI Ueno 219 undecided TOWA-SOGO System Shinjuku 219 undecided Nakano Ward Nakano 225 Undecided Nomura Real Estate Development Nishi-azabu 222-24 undecided Operator 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. 77 Area Opening year Number of rooms Hankyu Hanshin Hotels Kyobashi 219 27 Higashinihon Toshikaihatsu Narihira undecided 43 VISTA Hotel Management Akasaka 218 14 Felice Akasaka 218 167 Hotel Keihan Tsukiji 218 298 Manyo Club Toyosu 219 undecided Crowded House Area Arrangeing Realization Confarence Kamata undecided undecided Mitsubishi Estate Nishi-Asakusa 218 166 Mori Building Daiba undecided undecided Koen Shoji Ikebukuro undecided 16 Yasuda Real Estate Nihonbashi-Hamacho 218 18 Yamaguchi Fudosan Otuska 218 undecided Yomiuri Shimbun Company Ginza 219 undecided Ryumeikan Shinbashi 218 6 Route Inn Japan Asakusabashi 218 2 Royal Park Hotels & Resorts Ginza 219 125 Lotte Kasai undecided undecided Meitetsu Inn Ginza 218 223 Super Hotel Ginza 219 undecided Tachihi Holdings, Nippon Tachikawa undecided undecided View Hotel Texas Ginza 218 15 Tokyu Hotels Shibuya 218 18 Keikyu EX Inn Hamamatsucho 219 135

Hotel market Over 1, 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 Jowa Holdings Osaka 218 22 Osaka 218 225 Osaka 218 13 Osaka 219 291 Osaka 221 487 APA Group Osaka 218 24 Osaka 219 917 Daiwa House Industry Osaka 218 undicided Osaka 219 undicided Daiwa Resort Osaka 218 15 Osaka 218 223 Sotetsu Inn Osaka 218 244 Osaka 218 176 Osaka 219 276 AB Hotel Osaka 219 168 JR West Japan Railway Company Via Inn Osaka 218 88 JR West Japan Railway Hotel Development Osaka 218 4 WBF Izumisano 22 813 Osaka Prefecture Osaka 219 undicided ORIX Group Osaka undicided undicided Kyoritsu Maintenance Osaka 218 undicided Keihan Electric Railway Osaka undicided undicided Kuretakeso Osaka 218 11 Sanco Inn Osaka 218 115 Ship Healthcare Holdings Suita undicided undicided Sumitomo Warehouse Osaka undicided about 3 Operator 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. 78 Area Opening year Number of rooms Tokyo Tatemono Osaka 218 3 Toyoko Inn Osaka 218 undicided Nippon View Hotel Osaka 218 17 Japan Unist Osaka 218 undicided nest Hotel Japan Osaka 219 25 Pacifica Capital Osaka 218 185 Hankyu Hanshin Hotels Osaka 219 25 Felice Osaka 218 216 Bellco Namba 219 15 Hoshino Resort Group Osaka 222 68 Hotel Monterey Osaka 218 undicided Mitsubishi Estate Osaka 218 216 Yodobashi Camera Osaka 219 1 Route Inn Japan Kishiwada 218 21 Royal Park Hotels & Resorts Osaka 22 352 Waqoo Project Osaka undicided undicided FJHotels Osaka 219 2 Tokyu Hotels Osaka 219 35

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 1 9 8 7 6 5 4 3 2 1 (%) 84 79 71 71 7 68 68 67 66 66 64 62 61 59 58 58 58 57 57 57 56 55 54 54 53 53 52 52 52 51 51 51 51 51 5 5 49 49 48 47 46 46 45 44 41 41 36 Osaka Tokyo Chiba Kyoto Aichi Fukuoka Kanagawa Saitama Okinawa Ishikawa Hiroshima Hokkai-do Miyagi Hyogo Yamaguchi Nagasaki Shiga Shimane Okayama Kumamoto Toyama Saga Shizuoka Kagawa Ehime Oita Iwate Fukushima Miyazaki Kagoshima Ibaraki Gifu Tottori Tokushima Gunma Mie Aomori Tochigi Wakayama Yamanashi Kochi Yamagata Akita Nara Fukui Nigata Nagano Source: Compiled by NRI from Japan Tourism Agency Syukuhaku Ryokou Toukei data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 79

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) 1 9 8 7 6 5 4 3 2 1 (%) 48 89 85 88 62 76 84 81 47 54 85 88 29 64 76 82 32 55 77 8 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 Chiba Kyoto Aichi Source: Compiled by NRI from Japan Tourism Agency Syukuhaku Ryokou Toukei data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 8

Hotel market Hotel REIT earnings are expanding due to high occupancy rates Rents at hotel REITs Monthly rent standard Unit: yen/tsubo 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 1 年 11 年 12 年 13 年 14 年 15 年 16 年 9 月 1 月 5 月 23 wards of Tokyo Nationwide 9 月 1 月 5 月 9 月 1 月 5 月 9 月 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. 81

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. 82

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) 2 16 16.2 15.6 15.7 12 8 4 2.2 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 Jun 217, private fund figure is updated as on end of Dec 216, private REIT figure is updated as of end of Jun 217, RMBS/CMBS figure is updated as of end of Mar 217. Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 83

Real estate investment products Launched in September 21, J-REIT market capitalization has reached approximately 12 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 July 217, there were 58 J-REITs traded worth approximately 11.6 trillion yen. J-REIT market cap and number of J-REITs Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Compiled by NRI from ARES ARES J-REIT Databook data. 84

Real estate investment products c75% of J-REIT assets are located in the Tokyo metropolitan area and 45% are portfolios of office properties. c75% 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 Approx. 16.2 trillion yen Approx. 16.2 trillion yen Greater Tokyo Area 73.% Source: Compiled by NRI from ARES data Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Note: As of the end of June 217 85

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 Source: Compiled by NRI from Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Thomson Reuters data 86

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 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Sources: Compiled by NRI from Thomson Reuters and MoF data 87

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) 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. 88

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 75% 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, 2, 1, 3,47 9,743 24 1st Half 1,994 6,937 14,815 16,935 24 2nd Half 25 1st Half 4,234 7,418 32,447 3,26 25 2nd Half 26 1st Half 7,352 21,282 26 2nd Half 8,755 9,879 563 4 1,964 1 98 258 14 5 16,276 16,811 1,33 45 138 17,834 15,64 15,423 12,217 11,113 11,287 12,3 13,562 13,614 11,148 7,935 8,787 8,341 9,894 1,76 9,465 8,235 1,425 27 1st Half 27 2nd Half 28 1st Half 28 2nd Half 29 1st Half 29 2nd Half 21 1st Half 21 2nd Half 211 1st Half 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 211 2nd Half 212 1st Half % 2% 4% 6% 8% 1% Housing Finance Agency Banks/Trust Banks Regional Banks Non-bank Others RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/commercial Bills Others 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 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Compiled by NRI from Japan Securities Dealers Association data 89

Authors 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. 荒木康行 Yasuyuki ARAKI Consultant Section in Charge Macro fundamentals of Japan Expertise Real estate, urban infrastructure business strategy and research. Especially, International market research, business planning and entry support. 亀井敬太 Keita KAMEI Consultant Section in Charge Office market, Retail property market, Real estate investment products Expertise Real estate, residential loan and infrastructure business strategy and research. 村上慧悟 Keigo MURAKAMI Consultant Section in Charge Hotel market Expertise Residential, real estate and inbound 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. Contact: Nomura Research Institute, Ltd. Consulting Division real-estate-report@nri.co.jp Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 9

The Japanese Real Estate Investment Market 2017