Intelligent Investment
JAPAN
Lender Survey
2022 REPORT
CBRE RESEARCH JUNE 2022
2022 JAPAN Lender Survey | Report
Intelligent Investment
Executive Summary
Lenders’ Concerns Shift from the Pandemic to Rising Interest Rates Lenders’ concerns have undergone a substantial shift from
The survey was conducted between April and May 2022. Lenders providing non-
a focus on the effects of the COVID-19 pandemic to the
recourse loans in Japan were asked about their lending policies for 2022. Having begun
effects of rising interest rates and global political instability.
in 2018, this marked the fifth annual such survey. (A survey overview can be found p 16.)
There appears to be significant worry over the possible
Key Points (Click ー to move to the relevant page)
effects of worldwide financial tightening on the Japanese real estate market. At the same time, lenders’ attitudes towards providing nonrecourse loans showed signs of recovery. 2022 lending criteria (LTV and spreads) eased for all asset types, including retail and hotels, from the previous year. These
− The greatest threat facing the debt market for the next year is “domestic and global economic shock”. The number of respondents who indicated that “interest rate rises” and “global political instability” are major issues also recorded sharp increases over the previous year.
− The outlook for the next year in the debt market showed improvements in all categories, including “property prices”, “LTV” and “loans to REITs”. The diffusion index for each of these three categories returned to pre-pandemic levels.
changes in lending attitudes, which are primarily due to the
− New loan volume is expected to increase once more in 2022.
reopening of the economy following the pandemic, may well
− The most attractive asset type remains “logistics facilities” for the third
serve to encourage investment in the retail and hotel sectors.
consecutive year. The evaluation of “offices” also showed improvement among senior lenders.
− Lending criteria (for senior lenders) eased for all asset types, including the retail and hotel sectors.
− Lenders either adopting or considering the adoption of ESG criteria are on the rise.
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Contents Click on the table of contents to go to the page.
>
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01 Market Outlook and Lending Attitude
> 02
Loan Terms and Conditions
> 03
ESG
> 04
Survey Overview and Appendix
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01
Market Outlook and Lending Attitude
2022 JAPAN Lender Survey | Report
Intelligent Investment
Lenders’ Concerns Shift From Pandemic To Rising Interest Rates When asked what they saw as the single largest threat facing the debt market over the next year, 38% of respondents indicated “domestic and global economic
Figure 1: The biggest threats in the debt market (single answer) 0%
shock”, marking the fifth consecutive year that this has been the number one concern among lenders (in all surveys since they began). The second-most commonly given answer was “interest rate rises”, which showed a 29 pp surge
10%
20%
30%
40%
50%
60%
70%
Domestic and global economic shock
from last year to 33%. These were followed by “global political instability” at 17%, Interest rate rises
also up from last year by a significant 13 pp. Lenders’ concerns have undergone a significant shift from a focus on the effects of the COVID-19 pandemic to the impacts of rising interest rates and global
Global political instability (such as disputes and terrorism)
political instability. At the current time, the Bank of Japan (BoJ) continues to
COVID-19
maintain its monetary easing policies by keeping the upper limit for long-term interest rates at 0.25%. Nevertheless, there appears to be significant concern among lenders over the possible effects of worldwide financial tightening on the
Increase in real estate lending
Japanese real estate market. Changes in real estate needs* Changes in government policy that reduce the attractiveness of real estate investment *Added as an option in 2021.
2018
2019
2020
2021
2022
Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Debt Market Projections Continue To Recover
The debt market finally appears to be escaping the effects of the COVID-19 pandemic. The diffusion index (DI), a key indicator based on lenders’ answers concerning their outlook for the next year, improved across all categories. Particularly large improvements were noted in the DI for “property price”, “LTV”,
Figure 2: Debt market outlook Response rate (%, bar chart) DI (line chart)
Rise
40
Increase
Longer
Narrow
Increase
Wide
Decrease
and “loans to REITs”. Appetite among equity investors remains strong in the investment market, with J-REIT share prices having all but recovered to their pre-pandemic levels. Robust demand for real estate investment funding
20 0
underpins this healthy state of affairs. -20
At the same time, while “loan term” and “spread” did show DI improvements, their diffusion indices remain in negative territory. In addition to concerns over
-40
potential economic downturns both at home and abroad, profits are being
-60
suppressed by low interest rate policies, making investors look to maintain high spreads in order to boost income.
-80 Fall
-100
Decrease
Shorter
2022
2021
2020
2019
Spread
2022
2021
2020
2019
2018
2022
LTV
2021
Loan term
2020
2019
2018
2022
2021
2020
2019
2018
2022
2021
2020
2019
2018
Property price
Loan to REITs*
* Added as an option in 2019. * The DI was calculated by subtracting the percentage of responses contributing to the contraction of the real estate investment market from the percentage of responses contributing to the expansion of the real estate investment market. Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Intelligent Investment
New Loan Volume Continues To Rise
With regard to financing policies, the survey divided its questions into those pertaining to senior loans and those pertaining to mezzanine loans.
Figure 3: Share of new lending to total lending (single answer) 0%
It appears that FY2021 saw an increase in mezzanine loan volume: the lending dropped from 47% (in 2020) to 20%. This is thought to be largely due to
2019 Senior
percentage of respondents who said that none of their total lending were new
2020 2021
prices.
2019
New loan volume is expected to increase once more in FY2022. 39% of respondents indicated that they expected new loan volume to exceed that of the previous fiscal year for senior loans, and 54% for mezzanine loans. While these numbers represented declines from the previous year’s survey of 3 pp and 38 pp
Mezzanine
increased demand for mezzanine loans brought about by the rise in property
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
10% 16% 18% 27% 47%
2020
20%
2021 0%
Less than 70％
Less than 80％
Less than 90％
Less than 100％
100%
Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
respectively, they still comfortably exceeded the number of respondents who indicated that new loan volume for the fiscal year was likely to drop. Lenders’
Figure 4: New lending outlook (single answer) 0%
comments backed up this positivity, with multiple respondents indicating that loan numbers were on the rise and that targets were likely to be met. Senior
2020 2021
Mezzanine
2022 2020
10%
20%
30%
50%
60%
70%
80%
90%
100%
24% 42% 39% 42% 92%
2021 2022
40%
54% Lend more than last year
Lend as much as last year
Lend less than last year
* Question asked how lending would be in fiscal 2022 compared with actual lending in fiscal 2021. Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Intelligent Investment
Logistics Remains The Most Attractive Asset Type For The Third Straight Year The most attractive asset types as selected by senior lenders were logistics facilities, at 36%, followed by offices at 29%. Logistics facilities were the most
Figure 5: Most attractive asset types (single answer)
popular asset type for mezzanine lenders also, with a mark of 64% representing
0%
a 20 pp increase over the previous year. The logistics sector is highly valued by
Senior
2021
type surged by 22 pp from the 7% who chose it last year. The rebound in the
2022
popularity of office assets appears to be a reaction to the realisation that the
50%
60%
70%
80%
90%
100%
7% 40% 50% 36% 30%
2018 Mezzanine
office market has not deteriorated by as much as was feared. Indeed, office
investors appears to have affected lenders’ attitudes to the sector.
40%
2020
The proportion of senior lenders selecting offices as the most attractive asset
category by volume. The strong appetite for office investment among equity
30%
2019
demand. Residential apartments were also popular, with investment in these two
investment volume in 2021 rose 13% y-o-y, and represented the largest asset
20%
2018
both equity investors and lenders for its stable profitability and robust rental sectors set to continue to expand.
10%
30%
2019
60%
2020
44%
2021
64%
2022 Office
Retail
Logistics
Hotel
Residential
Others
*One answer was selected from among "offices", "retail", "logistics ", "residential", "hotels" and "other" (free entry, up to three choices) Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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02
Loan Terms and Conditions
2022 JAPAN Lender Survey | Report
Intelligent Investment
Lenders’ Anticipated Yields Fall Across All Asset Types Lenders’ projected NOI yields for Tokyo prime assets in 2022 fell y-o-y for all asset types. The most significant drop was observed for the “residential (single)” asset type, which slid by 43 bps y-o-y to 3.55%, while “offices (Marunouchi/Otemachi)” saw a 38-bps drop over the same period to 3.00%. Elsewhere, the retail and hotel categories, which have suffered significantly as a result of the pandemic, also saw
Figure 6: Anticipated NOI yields by asset type 6.0% 5.5%
lenders’ anticipated yields fall, with “retail (high-street)” recording a 30-bps y-o-y
5.0%
decline to 3.20%, and “hotels (management contract)” a 10-bps fall to 4.90%.
4.5%
The declines in expected yields for the logistics, office and residential sectors are
4.0%
an indication that intensified competition between equity investors has affected lenders’ projections. The falls in the retail and hotel sectors, meanwhile, suggest
3.5%
that lender evaluations of these sectors have improved, with a prevailing
3.0%
consensus that occupancy rates may already have bottomed out.
2.5%
Office (Marunouchi/ Otemachi)
Retail (Hight-street)
Logistics (multi-tenant)
NOI yield
Hotel (management contract）
Residential (single)
2022
2021
2020
2019
2022
2021
2020
2019
2022
2021
2020
2019
2022
2021
2020
2019
2022
2021
2020
2019
2022
2021
2020
2019
2.0%
Residential (family)
NOI yield (average)
* Respondents were asked about the NOI yield range in the asset types they had selected as being eligible for financing. The surveyed asset types were specified as being prime properties in Tokyo (cf. Appendix). Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Lending Criteria Ease For All Asset Types
Lending criteria have also softened across the board in comparison to last year. Loan-to-Value (LTV) lending criteria for Tokyo prime assets (senior, averages) either rose or returned to pre-pandemic levels for all asset types. Spread (senior, averages) also contracted for all asset types. The most significant spread
Figure 7: LTV by asset type (senior loans) %
80
changes were observed for “logistics (multi-tenant)”, “retail (high-street)” and “hotels (management contract)”, all of which saw y-o-y contractions of 10 bps.
70
Intensified competition between lenders is the primary force serving to suppress spreads for popular asset types such as logistics, office, and residential.
60
50
Office (Marunouchi/ Otemachi)
Retail (Hight-street)
Logistics (multi-tenant)
Hotel (management
2021
2022
2019
2020
2018
2021
Residential (single)
2022
2019
2020
2018
2022
2021
2020
2018
2019
2022
2021
2020
2018
2019
2021
2022
2020
2018
2019
2021
2022
2019
2020
2018
40
Residential (family)
contract） LTV
LTV (average)
*Respondents were asked about the LTV range in the asset types they had selected as being eligible for financing. The data in the chart reflects the median of the respective values. The surveyed asset types were specified as being prime properties in Tokyo (cf. Appendix) Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Lending Criteria Ease For All Asset Types (Cont.)
With respect to the easing of lending criteria in the retail and hotel sectors, meanwhile, the fact that the survey question focused on Tokyo prime assets is highly significant. Hotels, in particular, have seen their investment environment change dramatically from prior to the pandemic, with changes of operator and credit enhancement measures such as reserve fund increases put in place. Borrowers should be aware that, depending on the specific nature of their property, lending conditions could be very harsh. With the number of lenders prepared to provide financing to these two asset types on the rise, however, borrowers should find it easier to procure funding
Figure 8: Spreads by asset type (senior loans) bps
180
160 140 120 100
moving forward. Some 96% of lenders are prepared to provide loans to the retail sector in FY2022, and 81% to the hotel sector. These represent y-o-y increases of 8 and 14 %points respectively. It would appear that an increasing number of
80 60
lenders are seeking to avoid competition by searching for new financing targets
Office (Marunouchi/ Otemachi)
Retail (Hight-street)
Logistics (multi-tenant) Spread
Hotel (management contract）
Residential (single)
2021
2022
2019
2020
2018
2022
2021
2020
2018
2019
2022
2021
2020
2018
2019
2021
2022
2020
2018
2019
2021
2022
2019
2020
2018
2022
2021
2019
2020
40 2018
offering higher spreads.
Residential (family)
Spread (average)
*Respondents were asked about the spreads range in the asset types they had selected as being eligible for financing. The data in the chart reflects the median of the respective values. The surveyed asset types were specified as being prime properties in Tokyo (cf. Appendix) Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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03
ESG
2022 JAPAN Lender Survey | Report
Intelligent Investment
More Senior Lenders Implementing Esg Standards Awareness of Environment, Social & Governance (ESG) criteria is on the rise among lenders, with 33% of senior lenders indicating that ESG criteria are an
Figure 9: ESG adoption status
important factor in financing decisions, 12 pp up from last year. 45% of 0%
mezzanine lenders also indicated that ESG criteria are at least taken into
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
consideration, marking another rise of 15 pp y-o-y.
the increase. According to the results of a survey conducted in December 2021,
Senior
2021
As well as among lenders, ESG-related initiatives among borrowers are also on the ratio of investors incorporating ESG criteria in their investment policies rose
2022
by 9 pp from the previous survey, to reach 29%.
implemented are qualitative, with no specific data-based criteria in place. Such initiatives include the establishment of specialist teams, confirmation of certifications, and adoptions of checklists and other policies. At the present
Mezzanine
The results of this latest survey show that most ESG-related initiatives currently
2021
2022
time, only a limited number of lenders are reflecting ESG-based evaluations in their spread values and other lending criteria. ESG criteria are an important factor in financing decisions. ESG criteria are not officially used as a factor, but are taken into consideration. ESG criteria do not currently affect financing decisions, but plans are in place to reconsider this. ESG criteria do not currently affect financing decisions, and no plans are in place to reconsider this. Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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04
Survey Overview and Appendix
2022 JAPAN Lender Survey | Report
Intelligent Investment
Survey Overview
– Purpose: To analyse lenders’ approach to real estate financing – Respondent profile: Parties engaged in non-recourse loans for real estate
Figure 10: Respondent companies (26 respondents)
– Survey period: April 2022 to May 2022 – Respondent companies (in random order): AXA Real Estate Investment Managers Japan K.K. Keystone Partners Co., Ltd
Japan
Domicicle
Overseas
77%
MetLife Insurance K.K.
23%
MUFG Bank, Ltd. Mizuho Leasing Company, Limited Shinsei Bank, Limited BOT Lease Co., Ltd.
Industry
Insurrance company
Bank
42%
12%
Fuyo General Lease Co.,Ltd.
Leasing company
Others
19%
27%
Mizuho Bank, Ltd. Suruga Bank Ltd. Societe Generale, Tokyo Branch Diamond Realty Management Inc.
Main lending type
Senior
58%
Mezzanine
42%
NEC Capital Solutions Limited ORIX Bank Corporation (And 12 other companies) Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Appendix: Property Attributes
OFFICE
RETAIL
LOGISTICS
HOTEL
Type
Multi-tenant
n/a
Multi-tenant
BTS
Location
Otemachi/ Marunouchi, Chiyoda-ku, Tokyo
Ginza Chuo-dori in Chuo-ku, Tokyo; high street area where leading brands have stand-alone stores
Greater Tokyo area
Greater Tokyo area
Age
Less than five years
n/a
n/a
n/a
Size
Typical effective floor area 500 tsubo or above, around 20 to 25 floors above ground
n/a
Total floor area: 10,000 tsubo or more
Total floor area: 10,000 tsubo or more
Property price
JPY 50 billion or higher
JPY 20 billion or higher
n/a
Other
Free access floor, ceiling height of at least 2,800mm, air conditioning adjustable by zone
n/a
Five to 10-year fixed term lease
Management contract, specialised accommodation type, business hotel
RESIDENTIAL
Lease, specialised accommodation type, business hotel
Single
Within 5 minutes' walk of Within 5 minutes' walk of Within 10 minutes' walk of a main rail terminal within a main rail terminal within a rail terminal within the the Tokyo central five the Tokyo central five Tokyo central five wards wards wards
About five years
Family
Tokyo Jonan/ Josai district
About five years
About five years
About five years
About 100 units
About 100 units
Average exclusive occupancy area 25m2, total number of units around 50
Average exclusive occupancy area 50–80 sq. m. (3LDK), total number of units around 50
n/a
n/a
n/a
n/a
n/a
Five to 10-year fixed term lease
Occupancy rate: 80% or higher
Occupancy rate: 80% or higher
n/a
n/a
Source : CBRE Japan Lender Survey 2022, CBRE Research, June 2022.
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Contacts Japan Research Hiroshi Okubo
Asuka Honda
Managing Director Head of Research hiroshi.okubo@cbre.co.jp
Director Investment Team Leader asuka.honda@cbre.co.jp
© Copyright 2022. All rights reserved. This report has been prepared in good faith, based on CBRE’s current anecdotal and evidence based views of the commercial real estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances. Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change. Nothing in this report should be construed as an indicator of the future performance of CBRE’s securities or of the performance of any other company’s securities. You should not purchase or sell securities—of CBRE or any other company—based on the views herein. CBRE disclaims all liability for securities purchased or sold based on information herein, and by viewing this report, you waive all claims against CBRE as well as against CBRE’s affiliates, officers, directors, employees, agents, advisers and representatives arising out of the accuracy, completeness, adequacy or your use of the information herein.