1
CBRE RESEARCH
© 2022 CBRE, INC.
In and Out Japan H1 2022
INBOUND
Inbound real estate investment H1 2022 (Direct investment) Inbound investment falls 50% y-o-y due to limited availability • Inbound investment into Japan was US$2.38 billion in H1 2022, down 50% y-o-y. While investor demand remained strong, the limited number of properties available for purchase constrained investment volume. • The U.S. was the largest source of capital, accounting for 49% of total investment. • While investment from EMEA declined 8% y-o-y, investment from the UK and France rose sharply. Capital from these two countries accounted for 20% (+9pps y-o-y) of total investment volume. Figure 1: Sources of inbound capital to Japan Americas Amount (US$ billion) % of total y-o-y
• A few large deals are due to be closed in H2 2022, and investment volume for the period is likely to exceed that in H1 2022.
• The largest transaction in H1 2022 was M&G Real Estate’s purchase of a residential portfolio for US$424 million. Several other residential portfolios were also transacted as stable income streams continued to lure investors to this asset class.
• However, activity may be impacted by the more selective attitude adopted by some overseas investors in response to rising interest rates in the U.S. and Europe and fears of a global recession.
• Overseas investors also acquired several large office buildings at cap rates estimated to have been at or slightly below pre-pandemic levels. Figure 2: Inbound investment volume by sector
14
1.17 49% -43%
0.03
0.03
6
18% -47%
8% n/a
1% -15%
1% -78%
4
% of total y-o-y
Australia
Hong Kong SAR
2% 1% 0%
2
France
0.42
0.05
18% 59%
2% 32%
Source: Real Capital Analytics, CBRE, August 2022 CBRE RESEARCH
South Korea
3%
8
0.20
Amount (US$ billion)
4%
10
0.43
U.K.
5%
12
Amount (US$ billion)
EMEA
• Given the Bank of Japan’s intention to maintain the loose monetary policy, interest rates are likely to remain low for longer in Japan. Yield spreads should therefore remain high relative to overseas markets, which is likely to continue to attract foreign capital. Figure 3: Yields for prime office buildings in major cities and spreads over long-term interest rates
US$ billion
U.S.
Asia Pacific
y-o-y
Pipeline remains strong despite some investors turning more cautious
• All major commercial real estate sectors saw investment volume decline y-o-y.
Singapore
% of total
2
Several major residential and office assets change hands
-1%
0 2017 2018 2019 2020 2021 Office
Industrial
Residential
Hotel
Source: Real Capital Analytics, CBRE, August 2022
H1 H1 2021 2022 Retail
Others
Spread
Prime office cap rate
10-y Govt bond yield
Source: Datastream, CBRE, August 2022 © 2022 CBRE, INC.
In and Out Japan H1 2022
OUTBOUND
Outbound real estate investment H1 2022 (Direct investment) Outbound investment rises 26% y-o-y amid increase in acquisitions in the UK • Japanese outbound investment totalled US$1.65 billion in H1 2022, up 26% y-o-y. The main driver was an increase in investment volume in the UK, which recorded the largest rise since the Brexit referendum was held in 2016. • Investment in existing properties in the U.S. halved y-o-y. However, investment in development projects continued to rise, reflecting investors’ continued appetite towards the market.
Figure 4: Destinations of Japanese outbound capital
Amount (US$ billion)
0.39 24% -55%
0.01 2% n/a
Singapore
India
EMEA
U.K.
0.01 1%
Amount (US$ billion)
% of total
0.51 31%
y-o-y
n/a
n/a
0.72 44% 193%
y-o-y
Asia Pacific Amount (US$ billion)
• Global outbound commercial real estate investment in H1 2022 totalled US$123 billion, up 9% y-o-y.
• Office investment volume reached US$1.1 billion, up 267% y-o-y, a level above the six-month period immediately prior to the onset of the COVID-19 pandemic.
• Japanese outbound investment is on a recovering trend from the effects of the pandemic. That said, rising costs due to inflation have led some investors to rethink investment strategies such as development.
• All outbound office transactions completed in H1 2022 were over US$70 million, with most deals located in the UK and Singapore.
• CBRE expects Japanese investors to become more selective in the coming months, which may weigh on investment volume in H2 2022.
Figure 5: Outbound investment volume by sector
Figure 6: Global outbound investment US$ billion
4
U.S.
Canada
3
% of total y-o-y
Source: Real Capital Analytics, CBRE, August 2022
2
1
0 2017 2018 2019 2020 2021 Office
Industrial
Residential
Hotel
Source: Real Capital Analytics, CBRE, August 2022 3
CBRE RESEARCH
Elevated uncertainty could prompt investors to turn more selective
• Outbound investment volume rose y-o-y for office, residential and hotel sectors in H1 2022.
US$ billion
Americas
% of total
Significant increase recorded in office investment
H1 H1 2021 2022 Retail
Others
350
35%
300
30%
250
25%
200
20%
150
15%
100
10%
50
5% 0%
0 2019 H1
2020 H2
2021
2022
% of outbound investment (RHS)
Source: Real Capital Analytics, CBRE, August 2022 © 2022 CBRE, INC.
Contacts Japan Research
Japan Capital Advisors
Hiroshi Okubo
Noboru Hirabayashi
Managing Director hiroshi.okubo@cbre.co.jp
Senior Director Noboru.hirabayashi@cbre.com
Asuka Honda
Nancy Yo
Director asuka.honda@cbre.co.jp
Director nancy.yo@cbre.com
Nobuhide Yamamoto Director nobuhide.yamamoto@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.