CBRE Japan Market Outlook 2018

CBRE RESEARCH

2 0 1 8 A S I A PA C I F I C

R E A L E S TAT E MARKET O U T LO O K

Japan

TABL E O F CO NTENT

04

08

EXECUTIVE SUMMARY

OFFICE SECTOR

21

16

RETAIL SECTOR

LOGISTICS SECTOR

28 CAPITAL MARKETS

© 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 2

CBRE RESEARCH

2018 ASIA PACIF IC REAL ESTATE M ARKET O U TL O OK

INFOGRPAHIC SUMMARY

CBRE RESEARCH This report was prepared by the CBRE [REGION] Research Team, which forms part of CBRE Research – a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate. Š 2017 CBRE , Inc. Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

EXECUTIVE SUMMARY

EXECU TIVE SU M M ARY

ECONOMIC GROWTH LOW BUT STEADY, POWER SHIFTING IN REAL ESTATE With the overall economy likely to maintain its course of stable, albeit low, growth, demand for commercial property will remain solid in 2018. That said, assets and/or regions scheduled to see the addition of record new supply are likely to gradually shift from landlords’ markets to occupiers’ markets.

expect the current loose monetary policy to be maintained, regardless of whether Haruhiko Kuroda, whose term as Governor of the Bank of Japan comes to an end in April 2018, is reappointed. Interest rates are therefore expected to remain at their current ultra-low level for some time.

ECONOMIC OUTLOOK The Japanese economy is in good health, having recorded seven consecutive quarters of GDP growth between Q1 2016 and Q3 2017. This period marks the longest continuous run of quarterly economic expansion for more than sixteen years and has been driven mainly by exports and companies' capital expenditure on the back of the global economic recovery and a relatively stable currency.

While Japan is likely to maintain its current loose monetary policy, the U.S. Federal Reserve is set to continue with its policy of “normalisation”, which entails further increases in the federal funds rate. This may, at least initially, support the weaker Yen, via a widening interest rate gap between the U.S. and Japan. However, CBRE Research believes that further rate hikes in the U.S. will slow down its economy from 2019 and most likely lead to growth of below 1% in 2020. This would encourage the U.S. Federal Reserve to once again loosen monetary policy, although the impact from rate cuts may not be seen until 2021. Such a scenario is likely to lead Japan into negative growth in 2020, particularly if the government decides to proceed with the planned consumption tax rate hike in October 2019.

While the lack of growth in real wages has continued to stagnate consumer spending, the bullish stock market and stable exchange rates have helped department stores record a significant recovery in luxury and duty-free sales.

The tight labour market is expected to accelerate wage inflation in 2018, and lead an overall recovery in private consumption. Unemployment stood at a 24-year low of 2.7% as of November 2017, while consumer confidence is also improving, supported by the strengthening job market.

CBRE Global Research expects Japan to record real GDP growth of 1.7% in 2017 and a similar level in 2018.

However, given that inflation is likely to remain low, we

Figure 1: Economic growth and rates likely to remain low but steady

GDP (Real, y-o-y)

2.0%

% chg y-o-y

10 year Japanese government bond yield

Forecast

2.0%

1.7%

1.5% 1.1%

1.0% 0.5%

Figure 2: GDP Growth Comparison: Japan vs. US

Japan

Forecast

5%

1.5%

US

0%

1.0%

-5%

0.2%

0.0%

-10% 2013

2014

2015

2016

2017

2000.3 2001.3 2002.3 2003.3 2004.3 2005.3 2006.3 2007.3 2008.3 2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3 2019.3 2020.3 2021.3 2022.3

-0.5% 2018

Souce: CBRE Global Research、November 2017.

© 2018 CBRE, Inc.

Souce: CBRE Global Research、November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 5

CBRE RESEARCH

EXECU TIVE SU M M ARY

rents are forecast to drop by around 8% by the end of 2019.

In 2020, we expect a further rise in the vacancy rate, and an acceleration in the rental decline. This will be due to expected negative economic growth in 2020, coupled with the large volume of new supply that would exceed 2018 levels. By the end of 2020, Grade A rents are projected to decline by around 20%; however, if the government again decides to postpone the consumption tax hike, the fall is expected to be limited to 10% (Figure 3).

OFFICE Tokyo is likely to see a gradual shift from a landlords’ market to an occupiers’ market, with average new supply in 2018 and 2019 estimated at 233,000 tsubo, a figure 30% higher than the average over the past 10 years. Office demand remains solid on the back of the stable economy and record corporate profits, while the tight labour market continues to encourage occupiers to seek primary locations and higher-grade premises which would help to attract and/or retain talent. However, in an environment where it is still difficult to raise prices of merchandise or services, companies remain cost-conscious.

New supply in regional cities is expected to be limited, even in cities where vacancy is lower than in Tokyo. The tight supply-demand balance is therefore likely to persist, and rents are expected to continue rising in Osaka, Nagoya and other regional cities.

CBRE Research expects office vacancy rates in Tokyo to rise by about 3 percentage points to just under the 5% mark by the end of 2019. As a result, Grade A assumed achievable

Figure 3: Tokyo Grade A Rents: Forecasts by different tax scenario

JPY/tsubo

Base scenario (with consumption tax hike)

55,000

No consumption tax hike

Forecast

50,000 45,000 40,000 35,000 30,000

Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020 Q1 2021 Q3 2021 Q1 2022 Q3 2022

25,000

Source: CBRE, November 2017.

Figure 4: New Supply in Tokyo and Regional Cities

‘000 tsubo

2017-2011

2012-2016

Figure 5: Office Rental Growth and Vacancy Rate Forecast (2017–2019)

15%

2017-2021

250 Rental Growth

10%

200 150

Hiroshima

0%

Osaka (Grade A)

Yokohama Kobe

Nagoya (Grade A)

-10%

50

-15% Tokyo

3%pt

Regional Cities

2%pt

Source: CBRE, November 2017.

Source: CBRE, November 2017.

© 2018 CBRE, Inc.

Saitama Kanazawa Takamatsu

Kyoto

5%

Sendai

-5% Tokyo (Grade A)

100

0

Sapporo Fukuoka

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 6

1%pt 0%pt -1%pt Change in Vacancy Rate

-2%pt

-3%pt

CBRE RESEARCH

EXECU TIVE SU M M ARY

Ginza high street retail rents have adjusted following the slowdown in demand from luxury brand retailers since 2016. However, luxury goods sales have recovered on the back of the bullish stock market and relatively stable currency. Should this trend continue, luxury retailer demand may also pick up, leading to rents bottoming out during 2018. The spread of show-room stores may also push up rents, particularly in prime locations.

LOGISTICS Demand for logistics facilities will continue to be driven by the expansion of e-commerce, although the labour shortage poses a serious challenge to growth. With automation still in its infancy, access to labour will remain a critical factor influencing logistics take-up.

New supply will remain significant in Greater Tokyo, Greater Osaka and Greater Nagoya. Greater Tokyo is scheduled to see the addition of 470,000 tsubo in 2018, and 550,000 tsubo in 2019, which would mark a record high for two consecutive years. New completions will increase the stock of large-scale multi-tenant logistics facilities (LMT) in the Greater Tokyo area by 40% compared to 2017. While overall demand is also expected to grow, take-up is likely to take some time in facilities lacking good access to the CBD. As such, average vacancy rates for Greater Tokyo as a whole are expected to rise. However, they are also likely to vary between different areas by the end of 2019, with the Tokyo Bay Area towards the tighter end at 1%, and the Ken-O-do area on the other end of the spectrum at close to 30%.

INVESTMENT Investors retain a strong appetite for Japanese real estate but supply, particularly that of prime assets, remains limited. At the same time, there is growing uncertainty around the rental outlook for some asset classes and/or areas, which is causing the price gap to widen between buyers and sellers. CBRE Research expects this to result in a y-o-y decline in transaction volume in 2018.

That said, cap rates are likely to remain at their current low levels, particularly as there is little risk of a rise in interest rates. In particular, further compression may occur in midsized offices in Tokyo, prime offices in regional cities, as well as logistics facilities in the Greater Tokyo area.

RETAIL The growth of the e-commerce sector is starting to affect the retail property market, with prime high street locations seeing more stores implementing show-room strategies.

Demand will be driven by drugstores targeting inbound tourists and also by food & beverage retailers, as spending habits shift from merchandise to “experience”.

Figure 7: Tokyo prime yields by asset

Figure 6: Investment Outlook

6%

3%

-60%

Note: Transactions of at least JPY 1bn, excluding acquisitions by J-REITs at IPO. Source: RCA, CBRE, November 2017.

© 2018 CBRE, Inc.

2018 F

Q1 2005

2%

2012 2013 2014 2015 2016 2017 2018

Q1 2017

-30%

Q1 2016

1,000

Q1 2015

0%

Q1 2014

2,000

4%

Q1 2013

30%

Q1 2012

3,000

5%

Q1 2011

60%

Q1 2010

4,000

0

Retail, Ginza High Street

90%

Q1 2009

5,000

120%

Q1 2008

Forecast

Office, Tokyo 5 wards Logistics, Tokyo Bay Area

Q1 2007

6,000

Y-o-Y (RHS)

Q1 2006

Transaction Volume

JPY bn

Source: CBRE, October 2017

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 7

CBRE RESEARCH

OFFICE SECTOR

O F F ICE SECTO R

TOKYO

Strong corporate performance continues to urge relocations to upgrade building and location. However, the vacancy rate is expected to start rising in 2018 due to new supply which is likely to exceed net absorption. Tokyo office market is expected to see a moderate shift from landlords’ market to occupiers’ market.

Corporate earnings are expected to hit a record high driven by recovery in global economy and relatively stable currency. Corporate capital expenditure has been solid, and the office sector has seen companies in an expansionary mode. The unemployment rate fell below 3% for the first time since 1994, and the labour shortage is becoming increasingly acute. Many companies planning to hire more staff are considering relocating to locations with good transportation convenience or to higher grade buildings, in order to attract and/or retain talents. Office demand is particularly strong among IT-related firms, where robust growth is envisaged in areas such as Internet of Things (IoT) and e-commerce. Demand also remains solid among manufacturers, as well as professional services firms. Net absorption in 2017 recorded 170,000 © 2018 CBRE, Inc.

tsubo, exceeding new supply of 141,000 tsubo. As a result, the All-Grade vacancy rate looks set to fall 0.7pts y-o-y to 1.5% at the close of 2017, the first time in 10 years that the vacancy rate has been below 2% at the end of a year.

However, large-scale new supply is expected from 2018 to 2020, averaging 233,000 tsubo in the two-year period in 2018 and 2019, almost 30% higher than the 10-year annual average of 180,000 tsubo. In addition, 300,000 tsubo of new supply is scheduled for completion in 2020. Furthermore, Grade A buildings account for as much as 70% of the new supply. While occupier interest in high-spec buildings remains solid, companies are highly cost-conscious in view of future political and economic uncertainty, as well as the possibility of tight labour market.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 9

CBRE RESEARCH

O F F ICE SECTO R

TOKYO (CONTINUED)

For this reason, even among larger buildings, swift takeups are only seen in relatively inexpensive premises, or those that are not yet completed and where tenants can more easily extract favourable terms. While it is estimated that tenants have been secured for around 50–60% of the space scheduled for completion in 2018 (as of November, 2017), many of these tenants are relocating from an existing large-scale buildings, where vacancy could gradually build up. All-Grade vacancy rate is expected to swing upward early in the New Year and rise to 2.3% at end-2018 and 2.8% at end-2019, versus 1.5% at end-2017.

Additionally, the economy could enter a recessionary phase in 2020, when the 300,000 tsubo of new supply is scheduled for completion. With higher supply and potential drop in demand, vacancy rate may rise further.

achievable rent is expected to have increased 1.4% y-o-y to JPY 36,450 per tsubo, a rate of increase far below last year's +4.4%. Grade A rents are forecast to take a downturn in 2018, and are expected to fall by 8.2% by the end of 2019 compared with end-2017. In 2020, which will see the biggest new supply in the next three years and a potential negative growth in economy, rents are expected to fall further.

The Grade A-Minus vacancy rate is expected to fall 0.6 points y-o-y to 1.4% by the close of 2017. A total of 67,000 tsubo of new supply is scheduled for 2018 and 2019. 2017 saw many cases of tenants relocating from Grade A-Minus buildings to new Grade A buildings. Even so, the space left vacant was filled by companies requiring additional space.

However, with the increase in supply of Grade A buildings, vacancy is likely to steadily build up at existing Grade A– Minus premises. As such, the Grade A-Minus vacancy rate is forecast to rise to 1.7% by end-2018 and to 2.6% in 2019.

Grade A–Minus rent is expected to fall by 6.9% versus end2017.

The Grade A vacancy rate is expected to fall 0.7 points y-o-y to 2.1% by the close of 2017. Buildings that were newly completed in 2017 are almost fully let. New supply will amount to 207,000 tsubo in 2018, more than double the 10year annual average of 93,000 tsubo, and including. Half of the new supply in 2018 is located in the Marunouchi / Otemachi area, although tenants have already been secured for virtually all new space in this location. In other areas, some properties are taking longer time to let, and some are likely to have vacant space upon completion. The Grade A vacancy rate is forecast to rise 1.9 points y-o-y to 4.0% at the end of 2018, and by 2.7 points y-o-y at the end of 2019 to 4.8%. At the close of 2017, Grade A assumed

The Grade B vacancy rate is expected to fall 1.1 points y-o-y to 1.4% by the close of 2017. Only averaged 27,000 tsubo of new supply is scheduled for completion in 2018 and 2019 – 84% of the last 10-year average. Grade B vacancy rate is likely to remain at around 1.8%, even at the end of 2019.

Drop in Grade B rent is expected to be limited to around 4.0% by the end of 2019 (versus end-2017).

Figure 1: New Supply and Vacancy Rate

Figure 2: Assumed Achievable Rent

2%

10,000

0

0%

0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: CBRE, November 2017.

© 2018 CBRE, Inc.

2019

50,000

2018

20,000

2017

4%

100,000

2016

30,000

150,000

2015

6%

200,000

Forecast

2014

40,000

2013

8%

250,000

2012

50,000

Forecast

2011

10%

300,000

Grade A Face Rent Grade A minus Face Rent Grade B Face Rent

JPY/tsubo

2010

Non-Grade A New Supply Grade A minus Vacancy Rate (RHS)

2009

Grade A New Supply Grade A Vacancy Rate (RHS) Grade B Vacancy Rate (RHS)

2008

tsubo

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 10

CBRE RESEARCH

O F F ICE SECTO R

OSAKA

2017 was a year of unparalleled growth in demand in the Osaka office market. Demand from occupiers seeking to upgrade their location and/or building was buoyant, with vacancy rates falling to historic lows across all grades. Net absorption in 2017 is expected to be second only to the 80,000 tsubo recorded in 1993. As a result, the All-Grade vacancy rate is expected to stand at 2.4% at the close of 2017, the lowest level since CBRE's surveys began in 1993.

annual average of 33,000 tsubo. As a result, the All-Grade vacancy rate is forecast to be 2.4% at the close of 2019, the same as at the close of 2017.

Supply-demand conditions look set to remain tight, meaning that rents are expected to continue rising. Grade A rent is forecast to rise by 4.1% to JPY 22,850 per tsubo by the close of 2019 (versus end-2017). Grade B rent is also expected to rise by 8.8% to JPY 13,550 per tsubo. These gains significantly exceed those forecast for Tokyo and Nagoya.

Demand is forecast to remain strong in 2018 and beyond.

Meanwhile, new supply during 2018–19 is forecast to be averaged only 5,000 tsubo, a mere 15% of the 10-year

Figure 3: New Supply and Vacancy Rate

Source: CBRE, November 2017.

Š 2018 CBRE, Inc.

2019

0

2018

0%

5,000 2017

0

10,000

2016

4%

2015

20,000

15,000

2014

8%

20,000

2013

40,000

Forecast

25,000

2012

12%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

60,000

Grade B Face Rent

30,000

16%

2011

Forecast

Grade A Face Rent

JPY/tsubo

2010

80,000

Non-Grade A New Supply Grade B Vacancy Rate (RHS)

2009

Grade A New Supply Grade A Vacancy Rate (RHS)

2008

tsubo

Figure 4: Assumed Achievable Rent

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 11

CBRE RESEARCH

O F F ICE SECTO R

NAGOYA

Space in the two Grade A buildings completed in Q1 2017 was leased to financial institutions consolidating their premises as well as several manufacturers looking to improve their locations. Buildings left vacant by tenants moving to these new properties were also filled as new tenants relocated from the suburbs. In 2017, net absorption outstripped supply at 32,000 tsubo against new supply of 26,000 tsubo. As a result, the All-Grade vacancy rate is expected to have fell below 3% at the close of 2017, marking the first time it has done so since Q1 1999.

Grade A building to be completed in 2018 is expected to be almost fully let with a tenant moving out from their own building slated for reconstruction. As no large-scale supply is scheduled for completion in 2019, space should continue to be filled, and rents to continue rising.

Demand among tenants for new offices and relocations are expected to remain strong in 2018 and beyond. One

The Grade A vacancy rate is forecast to fall 0.8 points to 1.8% by the close of 2019 (versus end-2017), while rents are expected to rise by 2.2% to JPY 25,050 per tsubo. Rents are expected to surpass JPY 25,000 for the first time since 2009.

The Grade B vacancy rate is forecast to fall 0.6 points to 1.7% by the close of 2019 from end-2017, while rents are expected to rise by 7.5%.

Figure 5: New Supply and Vacancy Rate

Figure 6: Assumed Achievable Rent

30,000

12%

25,000 20,000

9%

20,000

6%

10,000

3%

5,000

0

0%

0

15,000

Source: CBRE, November 2017.

2019

2018

2017

2016

2015

2014

10,000

2013

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

30,000

Š 2018 CBRE, Inc.

Grade B Face Rent

Forecast

2012

40,000

15%

Grade A Face Rent

2011

Forecast

JPY/tsubo

2010

50,000

Non-Grade A New Supply Grade B Vacancy Rate (RHS)

2009

Grade A New Supply Grade A Vacancy Rate (RHS)

2008

tsubo

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 12

CBRE RESEARCH

O F F ICE SECTO R

REGIONAL CITIES

SAPPORO In 2017, a newly constructed building, the first since 2015, was fully let upon completion. No vacancy arose at existing buildings, ensuring the vacancy rate to remain at close to 0%. Demand for new offices or larger premises remains strong. Two new buildings scheduled for completion in 2018 and 2019 are eagerly awaited, and both are expected to open with high levels of occupancy.

KYOTO 2017 saw brisk leasing activity among tenants seeking new openings or expansions, and the vacancy rate fell below 1%.

Tenants are finding it difficult to secure space even if they relaxed their criteria. Existing buildings are being converted into hotels or other use, resulting in a decline in office stock.

With no new supply in the pipeline, rents are expected to continue rising over the next two years.

SENDAI 2017 saw one new building, the first since 2014, which was almost fully let on completion. Existing spaces were also filled at a faster pace, including those left vacant by tenants moving to the new building. In addition to upgrades of premises and expansions, there was also strong demand to establish new offices. With no new supply scheduled for the next two years, rents are expected to rise at a rapid pace.

KOBE Space continued to be filled as tenants relocated to upgrade and/or consolidate premises. The vacancy rate fell below 5% for the first time since CBRE's survey started in Q4 1996.

There is no available space in the Sannomiya Station area, and other areas are also seeing a continued stream of companies moving from the suburbs. The vacancy rate is expected to fall further and rents will likely continue to rise.

SAITAMA The vacancy rate stood close to 0% throughout 2017. The year saw more tenants relocating from the suburbs to the Omiya Station area. Whenever a tenant decides to move out from a premise, replacement tenants are being found even before the vacant space is advertised. Supply-demand conditions are expected to remain tight, with further upside in rents.

HIROSHIMA In 2017, a newly constructed building, the first since 2012, was completed almost fully let as several large tenants relocated from the suburbs. The year saw strong demand, leading to a fall in the vacancy rate to around 3%. Two new buildings are scheduled for completion in 2019. One of these, Hiroshima Futabanosato Project, is a development in an up-and-coming area attracting attention from tenants.

Rents are expected to continue gradually rising.

YOKOHAMA In H1 2017, a large-scale building was completed in the Minato Mirai area, marking the first new supply in three years. The building opened fully let, and the vacancy rate subsequently fell to 2.9% in Q2 2017. In H2 2017, another large-scale building was completed in the same area with some space still unlet, causing the vacancy rate to rise.

However, given the strong demand for relocation from companies in the suburbs, the available space is expected to be steadily filled. As the occupancy rates in these buildings increase, the overall rent level is likely to gradually rise.

TAKAMATSU The vacancy rate continued to trend sideways over the course of 2017. While the year saw an increase in demand for new openings and upgrades, there were also companies which decided to withdraw from Shikoku. The vacancy rate remains around the 9% level. As many tenants are considering relocating from the suburbs, the vacancy rate is expected to drop and rents to rise, although at a moderate pace for both.

FUKUOKA 2017 saw brisk demand from tenants seeking expansions.

The vacancy rate fell below 1% as spaces were filled at an accelerated pace, as some tenants are having to move out of their building for the Tenjin Big Bang Project. The increase in rent over the course of the year was again the fastest among all cities in Japan surveyed by CBRE. While over 6,400 tsubo is slated for completion between now and 2019, this is unlikely to meet the current level of demand.

KANAZAWA Rents exceeded JPY 10,000 for the first time in nine years. In an attempt to attract and retain talent, tenants are focusing more on higher-grade locations and buildings, even at higher rent levels. The vacancy rate is expected to fall further, mainly in the Kanazawa Station area, due to demand for relocation from the suburbs. Rents should also rise steadily.

Š 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 13

CBRE RESEARCH

O F F ICE SECTO R

Figure 7: Vacancy Rate and Rental Forecast Vacancy Rate

Assumed Achievable Rent (JPY/tsubo)

2013 2014 2015 2016 2017 2018 2019 2017-2019 2013

2014

2015

2016

2017

2018

2019 2017-2019

TOKYO Grade A

7.1% 4.1% 3.3% 2.8% 2.1% 4.0% 4.8%

2.7pts

30,650 32,200 34,450 35,950 36,450 35,250 33,450

-8.2%

Grade A-Minus

6.8% 4.2% 2.6% 2.0% 1.4% 1.7% 2.6%

1.2pts

20,700 22,150 23,800 24,400 25,200 24,650 23,450

-6.9%

Grade B

5.0% 4.0% 3.2% 2.5% 1.4% 1.8% 1.8%

0.4pts

18,000 19,200 20,300 20,800 21,450 21,200 20,600

-4.0%

All Grade

6.2% 4.1% 3.0% 2.3% 1.5% 2.3% 2.8%

1.3pts

Grade A

12.2% 8.1% 4.5% 2.8% 0.3% 1.1% 1.3%

1.0pts

18,800 19,300 20,100 20,350 21,950 22,650 22,850

4.1%

Grade B

6.6% 4.8% 4.8% 3.2% 2.2% 1.8% 2.1%

-0.1pts

10,500 10,700 11,150 11,650 12,450 13,200 13,550

8.8%

All Grade

8.8% 6.4% 5.6% 3.9% 2.4% 2.2% 2.4%

-0.0pts

Grade A

4.0% 2.6% 4.0% 4.0% 2.6% 2.0% 1.8%

-0.8pts

21,750 21,500 23,250 23,500 24,500 24,850 25,050

2.2%

Grade B

9.5% 5.1% 3.5% 3.2% 2.3% 1.7% 1.7%

-0.6pts

11,800 11,750 12,050 12,150 12,650 13,150 13,600

7.5%

All Grade

9.0% 5.7% 4.3% 4.1% 2.6% 2.1% 2.0%

-0.6pts

6.6% 6.7% 5.6% 3.8% 5.5% 2.7% 3.9%

-1.6pts

12,550 13,300 13,780 14,120 14,700 14,880 15,580

6.0%

2.6% 4.8% 3.0% 1.4% 0.4% 0.2% 1.3%

0.9pts

14,380 14,630 14,930 15,880 16,680 17,300 17,740

6.4%

7.2% 4.5% 3.3% 0.8% 0.5% 0.2% 1.6%

1.1pts

9,910 10,340 11,000 11,870 12,720 13,120 13,460

5.8%

10.2% 7.8% 7.5% 6.1% 4.0% 1.5% 3.2%

-0.8pts

8,910 9,110 9,380 9,600 10,070 10,680 11,330

12.5%

14.7% 13.8% 11.2% 8.3% 6.8% 4.4% 6.2%

-0.6pts

8,800 8,910 9,520 9,710 10,160 10,550 10,820

6.5%

7.3% 4.4% 4.2% 2.1% 0.6% 0.2% 2.5%

1.9pts

11,300 11,290 11,490 11,850 13,060 13,420 13,690

4.8%

10.2% 8.2% 6.6% 5.7% 4.3% 2.0% 3.4%

-0.9pts

10,200 10,470 10,660 10,780 10,920 11,020 11,190

2.5%

6.8% 5.6% 3.9% 3.3% 3.1% 0.5% 4.7%

1.6pts

9,590 9,720 10,010 10,370 10,690 10,780 10,960

2.5%

13.5% 10.8% 10.4% 9.8% 8.4% 6.4% 8.6%

0.2pts

8,740 8,710 8,650 8,770 8,890 9,050 9,230

3.8%

7.9% 5.1% 2.5% 1.5% 0.5% 0.2% 2.1%

1.6pts

10,090 10,350 11,020 11,940 13,230 13,940 14,490

9.5%

OSAKA

NAGOYA

YOKOHAMA All Grade

SAITAMA All Grade

SAPPORO All Grade

SENDAI All Grade

KANAZAWA All Grade

KYOTO All Grade

KOBE All Grade

HIROSHIMA All Grade

TAKAMATSU All Grade FUKUOKA All Grade

Note: All the numbers above are Q4 data every year. The numbers for 2013-2016 are actual data and those for 2017-2019 are forecast as of November 2017.

Source: CBRE, November 2017.

© 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 14

CBRE RESEARCH

O F F ICE SECTO R

Figure 8: Major Development Pipeline No

Building Name

Location

Projected Completion

GFA (tsubo)

TOKYO 1

Otemachi 2-chome Redevelopment Building A

2, Otemachi, Chiyoda-ku

2018

60,198

2

Hibiya Mitsui Tower

1, Yurakucho, Chiyoda-ku

2018

57,165

3

Marunouchi Nijubashi Building

3, Marunouchi, Chiyoda-ku

2018

53,000

4

Otemachi 2-chome Redevelopment Building B

2, Otemachi, Chiyoda-ku

2018

45,375

5

Nihonbashi Takashimaya Mitsui Building

2, Nihonbashi, Chuo-ku

2018

44,789

6

Taiyo Life Nihonbashi Building

2, Nihonbashi, Chuo-ku

2018

18,189

7

Shibuya Stream

3, Shibuya, Shibuya-ku

2018

35,181

8

Tamachi Station Tower S

3, Shibaura, Minato-ku

2018

41,836

9

Nippon Life Hamamatsucho Crea Tower

2, Hamamatsucho, Minato-ku

2018

30,031

10

Sumitomo Fudousan Osaki Garden Tower

1, Nishishinagawa, Shinagawa-ku

2018

53,843

11

Nihonbashi Muromachi 3-chome Redevelopment District A

3, Nihonbashimuromachi, Chuo-ku

2019

50,820

12

Nagasaka Sangyo Kyobashi Building

1, Kyobashi, Chuo-ku

2019

12,614

13

Toranomon Hills Business Tower

1, Toranomon, Minato-ku

2019

51,000

14

Toranomon 2-10 Project

2, Toranomon, Minato-ku

2019

19,400

15

Atagoyama Project Area F, G

1, Atago, Minato-ku

2019

16,000

16

Shinbashi 1-chome Project

1, Shinbashi, Minato-ku

2019

10,920

17

Sumitomo Fudosan Nishi Shinjuku 6-chome Project

6, Nishishinjuku, Shinjuku-ku

2019

18,550

18

Shibuya Scramble Square

2, Shibuya, Shibuya-ku

2019

54,752 19,360

19

Shibuya Parco Project

Udagawacho, Shibuya-ku

2019

20

Dogenzaka 1-chome Redevelopment Ekimae District

1, Dogenzaka, Shibuya-ku

2019

17,750

21

Nanpeidai Project

1, Dogenzaka, Shibuya-ku

2019

14,204

22

Shinjuku Minamiguchi Project

5, Sendagaya, Shibuya-ku

2019

13,349

23

Sumitomo Fudosan Shibuya Project

Udagawacho, Shibuya-ku

2019

11,671

24

Hato Bus Konan Building

1, Konan, Minato-ku

2019

11,050

25

Seibu Railway Ikebukuro Building

1, Minamiikebukuro, Toshima-ku

2019

15,022

1

Sapporo Sosei Square

1, Kitaichijonishi, Cyuo-ku

2018

39,653

2

Minami Odori Building Kita 1-jo Project

9, Kitaichijonishi, Cyuo-ku

2019

2,872

1

Nishiki 2-chome Project District A

2, Nishiki, Naka-ku

2018

13,790

1

Namba SkyO

5, Nanba, Chuo-ku

2018

25,410

Shin-Hiroshima Building

Noboricho, Naka-ku

2019

3,479

Hiroshima Futabanosato Project

3, Futabanosato, Naka-ku

2019

15,037

1

Kamiyo Hakata Chuo Building

7, Hakata-eki Chuogai, Hakata-ku

2018

5,596

2

Hakata Gion NK Building

Reisenmachi, Hakata-ku

2018

1,315

SAPPORO

NAGOYA OSAKA HIROSHIMA 1 2

FUKUOKA

3

Reisenmachi Building

Reisenmachi, Hakata-ku

2019

2,298

4

JR Kyushu Building Complex

2, Hakata-ekimae, Hakata-ku

2019

2,885

Source: CBRE, November 2017.

Š 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 15

CBRE RESEARCH

LOGISTICS SECTOR

L O GI STI CS SECTO R

NEW SUPPLY REMAINS HIGH, GAP WIDENS BETWEEN AREAS

Demand for large-scale multi-tenant logistics properties (LMT) is expected to continue driven by the growth of the e-commerce market, as well as investment in automation which requires large-scale facilities. At the same time, new supply is likely to remain high for the next two years, and will widen the choice for the occupiers. Supply-demand balance is likely to vary depending on the area.

The further expansion of e-commerce over the course of 2017 pushed up the volume of home deliveries close to its structural limit, revealing labour shortages and working environment problems. This has also been a major driver of the restructuring of the logistics industry, which is widely regarded to be in dire need of automation.

Robotics, or systems for automating operations in distribution centres, have already been put into service by a growing number of logistics users, including online sellers and major retailers. Developers have also been keen to tie up with robotics manufacturers in order to attract

Š 2018 CBRE, Inc.

tenants to logistics facilities.

Distribution centres using such state-of-the-art operations are becoming larger in order to make investment more effective. A total of 610,000 tsubo of large-scale multitenant logistics facilities (LMTs) will have been supplied in the Greater Tokyo, Greater Osaka and Greater Nagoya area in 2017. However, as demand is also estimated to have expanded by more than 500,000 tsubo, the total occupied space in LMT properties in Q4 2017 will be 18% more than a year before, and 5x more compared to Q1 2007 (Figure 1).

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 17

CBRE RESEARCH

L O GI STI CS SECTO R

The main demand driver has been the e-commerce market, which has been growing at a compound annual growth rate of 12% for the past five years in Japan. Despite this, Ministry of Economy, Trade, and Industry data show that e-commerce represented only 5.4% of total retail sales in 2016. Given the comparative figure of 8.1% in the U.S. market, according to the U.S Census, there is still room for growth. As such, developers remain keen to construct new logistics projects in 2018 and beyond, as the growth of ecommerce is likely to go on boosting the volume of goods distributed, leading to new facilities and the restructuring of distribution networks. As a result, the level of new supply is expected to remain high for at least the next two years. As a result, occupancy is expected to decline in some areas, due to the mismatch between supply and demand.

However, there will be a more diverse range of locations, which will spread out to the suburbs. The stock of available space is unlikely to be filled quickly, meaning that the vacancy rate should rise gradually going into 2019.

Meanwhile, in the Greater Nagoya Area, an unprecedented volume of new supply was completed in 2017, which helped to elicit demand, and a number of major leases were signed. The Greater Nagoya Area is expected to see an increase in development in suburban and new locations. However, effective rents are expected to largely remain at current levels, as demand is also likely to remain strong.

In the Greater Osaka Area, new supply will fade somewhat compared to 2017, which saw a record volume of new completions, although the volume will remain high.

GREATER TOKYO New supply in the Greater Tokyo Area is expected to set new records for the next two years, with 470,000 tsubo due in 2018 and 550,000 tsubo scheduled for 2019. The vacancy rate is expected to stand at around 5% for Q4 2017, but is likely to subsequently trend upwards due to the large volume of new supply. In 2019, vacancy is expected to exceed 10% for the first time since Q4 2010 (Figure 3).

Nevertheless, demand for logistics space has not receded, with the majority of relocations occurring for positive reasons, including expansion and new openings. However, property valuations have increasingly tended to vary widely according to the quality of the location. One factor which has become increasingly important in the choice of location for logistics facilities is the ease of hiring staff.

While high rents are accepted for properties that are close

Figure 1: Occupied Space (LMT)

Figure 2: New Supply and Vacancy Rate

In the Greater Tokyo Area, new supply equivalent to around 40% of the existing stock of logistics facilities as of Q4 2017 is expected to be completed over the course of 2018 and 2019. 84% of this new supply will be in the two areas including Route 16 area and the Ken-O-do area. In contrast, demand is focusing on more central areas, due to stronger demand for last mile delivery. This will lead to an increasing divide in occupancy between different areas and properties. In the Greater Tokyo Area, supply is likely to peak in 2019, when the vacancy rate could exceed 10%.

tsubo

Greater Tokyo

Greater Osaka

tsubo

Greater Nagoya

New Supply 2017 Vacancy rate 2017(RHS)

3,500,000

1,400,000

3,000,000

1,200,000

2,500,000

1,000,000

2,000,000

800,000

1,500,000

600,000

1,000,000

400,000

500,000

200,000

0

0

Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: CBRE, November 2017.

Š 2018 CBRE, Inc.

New Supply 2018 Vacancy rate 2019(RHS)

New Supply 2019

24% 20% 16% 12% 8% 4%

Greater Tokyo

Greater Osaka Greater Nagoya

0%

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 18

CBRE RESEARCH

L O GI STI CS SECTO R

to residential areas and convenient for commuting, those where it appears harder to find staff will struggle to find tenants. Although automation is being steadily implemented in logistics facilities, it is still far from the stage where it can make up for the shortage of staff. As such, demand is still likely to be concentrated on properties where it is easy for hiring.

In the Route 16 Area, new supply has been a mere 50,000 tsubo in 2017, less than half of annual average between 2006 and 2016. However, 240,000 tsubo is scheduled for 2018 and 370,000 tsubo in 2019. The vacancy rate, which has declined to a record low of under 2% in 2017, is likely to rise to around 5% in 2018, and rise further to over 8% in 2019. Even so, effective rents in the Route 16 Area are likely to rise by around 2% over the next two years. This is because the area does provides good access to delivery customers. Consequently, when a large volume of supply comes onto the market, it actually stimulates demand from tenants wanting to integrate or expand. Total net absorption over the next two years is expected to be well in excess of 400,000 tsubo, which should provide support for rent levels.

In the Tokyo Bay Area, Q3 2017 saw the completion of new property in a prime location, and it is expected to be close to full occupancy before the end of the year. The tenacity of demand for properties in central Tokyo helped effective rents soar in 2017. Two new facilities are scheduled for completion in the next two years. It has already been reported that the facility due to be completed in 2018 is fully let, while there are enquiries for the facility to be completed in 2019. Consequently, the market is expected to tighten, with the vacancy rate falling to around 1% in Q4 2019, and rents are likely to remain high.

In the Ken-O-do Area, the LMT stock at the end of 2016 was around 400,000 tsubo. The new supply in 2017 and what is expected in 2018 amounts to 70% of this. As such, the vacancy rate is expected to rise to around 26% by Q4 2018. While the new supply is limited in 2019, the vacancy rate would remain high and effective rents are likely to soften through 2019. The demand is generally weaker than in other areas, primarily because of its distance from central Tokyo and concerns for hiring. However, in locations where there are likely to be fewer problems with hiring staff, some companies are considering opening new facilities. Although it is likely to take some time, the wider use of automated systems could also improve demand for facilities in the area.

In the Gaikando Area, pre-letting of a number of facilities due for completion in 2018 has made steady progress.

Some properties in a good location have secured tenants a year before completion. This area is adjacent to residential areas, making it easier to hire staff, and also matches the demand for last mile delivery from e-commerce because it is close to central Tokyo. These advantages have attracted solid demand, and the vacancy rate is therefore likely to range between 1% and 5%, with the supply/demand balance remaining tight. As a result, the rise in effective rents should accelerate somewhat.

Figure 3: Vacancy Rates in Greater Tokyo

Greater Tokyo Gaikando Area Ken-O-do Area

30%

Figure 4: Effective Rents in Greater Tokyo

Tokyo Bay Area Route 16 Area

JPY/tsubo

Forecast

7,000

25%

Tokyo Bay Area Route 16 Area

Forecast

6,000

20%

5,000

15%

4,000

10%

3,000

5% 0%

Greater Tokyo Gaikando Area Ken-O-do Area

2,000

2012 2013 2014 2015 2016 2017 2018 2019

Source: CBRE, November 2017.

Š 2018 CBRE, Inc.

2012 2013 2014 2015 2016 2017 2018 2019

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 19

CBRE RESEARCH

L O GI STI CS SECTO R

GREATER OSAKA AREA New supply of 290,000 tsubo in the Greater Osaka Area in 2017 represent more than 40% of the existing stock at the end of 2016. The vacancy rate rose and is expected to have been around 19% in Q4 2017, although net absorption is also expected to have hit a record 180,000 tsubo.

Forthcoming new supply will be fewer, but remain high at 200,000 tsubo in 2018 and 180,000 tsubo in 2019. As a result, the vacancy rate is likely to peak at around 20% in 2019. Vacant space is likely to accumulate, especially in the waterfront area of Osaka. This area has a large number of locations that are hard to commute to by public transport, and is therefore not one where staff can reliably be hired for new facilities. Tenant demand is therefore currently limited to existing tenants looking to expand within the area. By contrast, tenant demand has been skewed towards the inland area. This is because the inland area between Osaka and Kyoto has an advantage in terms of both delivery and hiring. At the same time, there are plans for logistics facilities in areas where no LMT properties had previously been developed, including inland part of Kobe and its west side, which will become much more accessible when the Shin-Meishin Expressway is extended to the Kobe Junction in March 2018. It is hoped that these projects will unearth latent demand for logistics properties, but some could take time to let. Effective rents in the Greater Osaka Area as a whole are expected to decline by around 3% over the next two years. Rents have continued on a downward trend in the waterfront area of Osaka, but

are likely to register smaller falls in future. This is because they have already declined by around 7% in 2017, making them appear highly affordable. In the inland area, rents are likely to slightly decline in the coming years, mainly because new developments in the suburbs will restrain the average. However, demand in inland areas remains robust and the supply/demand balance will be largely unchanged.

Figure 5: Vacancy Rate and Rents in Greater Osaka

Figure 6: Vacancy Rate and Rent in Greater Nagoya

JPY/tsubo

4,500

Effective Rent (Oveall) Effective Rent (Inland)

GREATER NAGOYA AREA While new supply had been limited in the Greater Nagoya Area until 2016, 90,000 tsubo of new supply in 2017 will expand the stock in the market by around 60%. The vacancy rate consequently rose temporarily to 18% in Q2 2017. However, it is expected to fall to around 7% by Q4 2017, due to solid demand. 60,000 tsubo of supply is planned for 2018, and 70,000 tsubo for 2019. While the figures are low compared to 2017, they represent a large volume for the Greater Nagoya Area. Some of the new developments in new areas and places away from the central Nagoya may take some time to be leased. Therefore, the vacancy rate is expected to be slightly high at around 10% to 16%. However, the existing stock in the Greater Nagoya Area has not been enough to meet the local demand. In addition to e-commerce, the area has more potential demand from manufacturers. Consequently, although the vacancy rate remains high because of new supply, there is a strong sense of shortage overall and effective rents are expected to remain at around current levels.

Effective Rent (Waterfront) Vacancy Rate (RHS)

JPY/tsubo

Effective Rent

Vacancy Rate (RHS)

25%

4,500

4,000

20%

4,000

20%

3,500

15%

3,500

15%

3,000

10%

3,000

10%

2,500

5%

2,500

5%

0%

2,000

Forecast

2,000 2012 2013 2014 2015 2016 2017 2018 2019 Source: CBRE, November 2017.

Š 2018 CBRE, Inc.

Forecast

2012 2013 2014 2015 2016 2017 2018 2019

25%

0%

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 20

CBRE RESEARCH

RETAIL SECTOR

RETAIL SECTO R

RETAIL MARKET OVERVIEW

Consumer spending has been slightly positive. However, general consumers remain cautious on lack of growth in real wages. Meanwhile, luxury sales is showing recovery on the back of bullish stock market and relatively stable currency, which have encouraged spending by local high-net-worth consumers and inbound tourists.

Sales of luxury items is showing recovery on the back of bullish stock market and relatively stable currency, encouraging spending by domestic high-net-worth individuals and inbound tourists. October department store sales saw sales of luxury goods up 5.8% y-o-y, the seventh consecutive monthly increase. Sales of duty-free items also rose 87.3% y-o-y, to around JPY 28 billion, the highest ever monthly sales figure. However, recovery in luxury sales has not yet spurred recovery in store openings by luxury retailers – which have been stagnant over the past year, and it may take a while longer for sales growth to be reflected in the retail leasing market.

SIGNS OF RECOVERY IN CONSUMER SPENDING IN 2017, HIGH SHARE PRICES BOOST SALES OF LUXURY ITEMS In 2017, the consumer market showed moderate signs of recovery. In the April–June period, consumer spending as a part of real GDP rose 0.9%, the highest since January– March 2014 when there was a front-loading demand ahead of the consumption tax hike. Consumer spending in the July–September period fell for the first time in seven quarters, by 0.5%, but this appears to have been a one-off due to unseasonable weather conditions. November retail sales rose by 2.2% y-o-y. Meanwhile, real wages remain stagnant, falling by 0.1% in September, declining for the fourth consecutive month.

© 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 22

CBRE RESEARCH

RETAIL SECTO R

RETAIL MARKET OVERVIEW (CONTINUED)

Figure 1: Real Wages (y-o-y)

2% 1% 0% -1% -2% -3% -4% -5%

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 2013 2014 2015 2016 2017

Source: MHLW, Datastream, CBRE, November 2017.

Figure 2: Nationwide Department Store Sales vs. Nikkei 225

Nikkei 225 Index (RHS) Department stores Luxury goods sales Department stores in Tokyo Luxury goods sales

y-o-y

20% 15% 10% 5% 0% -5% -10% -15% -20%

Department stores Total sales Department stores in Tokyo Total sales

JPY

21,000 19,000 17,000

月 年

1

2

3

4

5

6

7 2016

8

9

10

11

12

1

2

3

4

5

6 2017

7

8

9

10

15,000

Source: JDSA, Datastream, CBRE, November 2017.

Figure 3: Duty free sales at Nationwide department stores and Sales growth rate (y-o-y)

Duty-free sales

JPY Million

Increase rate (RHS)

30,000 25,000 20,000 15,000 10,000 5,000 0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 2014 2015 2016 2017

350% 300% 250% 200% 150% 100% 50% 0% -50%

Source: JDSA, CBRE, November 2017.

© 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 23

CBRE RESEARCH

RETAIL SECTO R

GINZA HIGH STREET, TOKYO

SOLID DEMAND CONTINUED IN 2017, BUT TENANTS ADOPTED STRICT APPROACH TO STORE CRITERIA Although the retail leasing market saw strong demand in 2017, robust demand for new stores was limited to sectors that captured inbound demand and spending on “experience", such as drugstores, sportswear brands, cosmetics and F&B. Many retailers are implementing a strict approach to the whole range of criteria including store location, floor plate and rent level. In some cases, this results in them not actually opening a store. With weakness in real wages, most consumers remain costconscious, and this is also forcing retailers to be cautious towards its earnings prospects.

(Figure 5). Competition among tenants to open stores had intensified between 2015 and 2016, underpinned by a sharp rise in inbound demand, and rents had also become somewhat overheated. Recently, however, growth in inbound demand has moderated, and we believe the lull in competition to open stores is reflected in rent levels.

In April 2017, the large-scale commercial complex Ginza Six opened in Ginza's Chuo-dori. Several luxury brands moved into the roadside units, but leases for this space had been signed prior to 2015, when demand for stores was high among luxury brands. Although other luxury brands also opened stores in 2017, these all moved into properties where rents were below the market level.

In Q3 2017, the vacancy rate in the Ginza high street area fell 0.2 points q-o-q to 0.8%. However, it is 0.4 points higher compared to Q4 2016, when CBRE's survey started.

Retailers’ cautious stance on their earnings prospects is reflected in the higher vacancy rate. While vacant space is filled quickly in properties with a small floor area and/or reasonable overall rent, units in relatively large properties with rents above the market level have tended to remain available for some time.

Meanwhile, at properties in the prime locations close to the Ginza 4-chome intersection, several retailers accepted high rents for the sake of branding strategy. As a result, prime rents in Q3 2017 were flat at JPY 400,000 (month/tsubo) for the ninth consecutive quarter, maintaining the high level seen since Q2 2015.

Figure 4: Ginza High Street Vacancy Rate

GROWTH OF INBOUND DEMAND MODERATED, BUT PRIME RENTS REMAIN HIGH The rent index covering the overall Ginza high street area (including prime rents) weakened after peaking in Q2 2016, and by Q3 2017 had largely returned to the 2014 level

Source: CBRE, November 2017.

Figure 5: Ginza High Street Rent Index (Q3 2014=100)

Figure 6: Tokyo Prime Rent Trend (Ginza)

Ginza

Q3 2017

Q3 2017

Q3 2017

Q3 2017

0.4%

0.6%

1.0%

0.8%

JPY/tsubo

130

450,000

120 400,000 110

300,000

80

250,000

Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

90

Source: CBRE, November 2017.

© 2018 CBRE, Inc.

Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

350,000

100

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 24

CBRE RESEARCH

RETAIL SECTO R

GINZA HIGH STREET, TOKYO (CONTINUED)

since bottoming out at JPY 147,000 in October–December 2016. In July–September 2017, it was up by 6.6% y-o-y to JPY 165,000.

2 0 1 8 M A Y S E E R E C OVE RY A M ON G LUXURY BRANDS In 2018, the consumer market is expected to see further growth in sales of luxury items, supported by the run of share prices thus far and further prospects of low but stable economic growth. As a result, store demand among luxury brands – which has been weak since H2 2016 – could stage a recovery.

Openings of drugstores in the major retail areas have accelerated, buoyed by tourist demand for Japanese pharmaceuticals and cosmetics. Drugstores are expected to remain keen to expand this year. That said, they are no longer competing for locations in secondary areas, even in Ginza. This is due to doubts about store profitability in such location, firstly due to number of openings by competitors, and secondly, shopping by foreign visitors has shifted to an area centered on Ginza Six where tourist buses arrive and depart. Future store demand is likely to focus on these areas along the high street area. However, many owners with properties on such areas tend to be particular on the type of tenants they accept. For this reason, the actual number of store openings by drugstores may not increase significantly, in spite of strong demand.

There are already indications of this trend. In November, one of the luxury brands with an existing store in the Ginza high street area decided to relocate to a more favourable location. The store which has been vacated by this move is being considered by a different luxury brand which does not have a roadside store presence in Japan. If more units in prime locations were made available, this could bring out further latent demand among luxury brands.

STRONG DEMAND FROM DRUGSTORES CONTINUES, BUT CONFINED TO SELECTED AREAS Spending by inbound tourists is poised to increase further in 2018. The number of foreign visitors to Japan in 2017 rose 18% y-o-y between January and October, to 20.1 million. Over the full year, the number of visitors could top 28 million, more than 16% higher than the 24 million recorded in 2016. Total spending by foreign visitors to Japan in July-September 2017 rose 26.7% y-o-y to JPY 1.23 trillion, a record high. In addition, spending per inbound visitor, which had weakened since 2015, has been rising

Among cosmetics brands that have captured inbound demand and are seeing strong sales even in department stores, some are looking to open roadside units. This is because demand among foreign visitors to Japan has shifted from large volume purchasing to include makeup advice and beauty experiences, leading to the need for larger spaces in which to accommodate customers. Several luxury cosmetics brands in particular are looking for roadside stores.

© 2018 CBRE, Inc.

Q3 2017

Q1 2017

2011 2012 2013 2014 2015 2016 2017 2020 2030

Source: Japan National Tourist Organization (JNTO), JTB (2017 forecast), Prime Minister's Official Residence (2020 / 2030 targets), CBRE, November 2017.

Q3 2016

10,000

Q1 2016

20,000

165

Q3 2015

30,000

Q1 2015

40,000

Q3 2014

50,000

JPY/USD

187

Q3 2013

200 190 180 170 160 150 140 130 120

60,000

0

Travel expenditure per person Dollar-yen exchange rate(RHS)

JPY Thousand

Q1 2013

70,000

Estimated

Q3 2012

Inbound Tourists

Q1 2012

Thousand

Figure 8: Travel Expenditure per Foreign Visitor to Japan

Q1 2014

Figure 7: Number of Foreign Visitors to Japan – Actual and Forecast

140 130 120 110 100 90 80 70 60

Source: Japan National Tourist Organization (JNTO), Datastream, CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 25

CBRE RESEARCH

RETAIL SECTO R

GINZA HIGH STREET, TOKYO (CONTINUED)

CONTINUED EVOLUTION OF PHYSICAL STORES INTO SHOWROOMS The role of physical stores is changing along with the expansion of e-commerce. Up until now, luxury brands and fashion brands have established roadside stores on the main streets to build their brand image and increase visibility. Now, stores are increasingly being opened by retailers in other categories for the same purpose. In addition, stores have started to appear where the emphasis is on showroom features rather than product sales.

GROWING DEMAND FROM F&B BOOSTED

BY SHIFT TO “EXPERIENCE" As part of the shift to spending on “experience", demand from F&B retailers is growing. Looking at the chronological development of the share of F&B among overseas brands that opened their first store in Tokyo, while they accounted for around 20% of the total in 2012 when CBRE began its survey, since 2015 this has increased to over 50% each year. One factor behind this is the trend for the millennial generation to share experiences through social media. The Instagram photo sharing app has become particularly popular recently, and this is impacting significantly on the performance of F&B retailers.

Some of the main sectors include sports, home appliances, and heat-not-burn tobacco products. In recent years, many roadside stores in these sectors have been allocating part of the floor area for customers to actually try out products.

In these sectors, stores are being positioned as places to actually try out products before customers make a purchase online. In many cases, such tenants have the capacity to absorb relatively high rents, since by positioning physical stores as places for advertising and promotion, they can appropriate advertising costs to cover the cost of store opening.

However, as individual items are relatively low-priced, F&B retailers do not necessarily have the capacity to bear high levels of rent. Furthermore, as tenants with significant newsworthiness, such as those launching their first store in Japan, have substantial customer-pulling power, they do not necessarily need to have a presence on the prime high street. As a result, store demand among F&B retailers is concentrated in secondary areas where rent levels are relatively low.

These brands are focusing on prime locations around the high street when opening stores. In future, when stores are advertised in popular streets or properties with high visibility, the sectors mentioned above are likely to compete for space and tenants contracted at rents exceeding the market level.

Figure 9: Share of food retail among overseas brands launching their first store in Tokyo

F&B 2012

20.8%

2013

18.8%

2014

17.5%

100

Others

80 60 40

56.1%

Source: CBRE, November 2017.

© 2018 CBRE, Inc.

2017.11

100%

2017.10

80%

2017.9

60%

2017.8

40%

2017.7

20%

2017.6

0%

0 2017.5

51.2%

2017.4

Jan to Nov 2017

20 2017.3

50.0%

2017.1

2016

2017.2

2015

Figure 10: Number of Google searches for “insta-bae“ [instagenic] (index)

Source: Google Trends, CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 26

CBRE RESEARCH

RETAIL SECTO R

GINZA HIGH STREET, TOKYO (CONTINUED)

recent lull in competition to open stores due to the moderation of inbound demand, they are likely set for some downward adjustments.

GINZA HIGH STREET RENTS LIKELY TO BOTTOM OUT IN Q4 2018 Ginza high street rents (including prime rents) covering the main areas of Ginza weakened after peaking in Q2 2016, and is now back to the level seen in 2014. They are forecast to fall further, by around 7%, in 2018, but expected to gradually recover after bottoming in Q4 2018.

However, there have recently been cases of tenants contracted at the owner's asking level. Several retailers have accepted high rents in prime locations for the sake of branding strategy. If share prices remain high and there are no major foreign exchange fluctuations, sales of luxury items are likely to remain firm. Additionally, the tight labour supply conditions could push up real wages, leading to further recovery in overall spending.

Consequently, in the event of a temporary lull in the correction of rent levels in prime and secondary areas, the pace of the decline in rents could gradually slow. After bottoming in Q4 2018, store demand is expected to strengthen further ahead of the 2020 Tokyo Olympics, and rents are forecast to continue rising at least to the end of 2019.

There are two reasons why rents are expected to weaken through to Q4 2018. Firstly, some areas of the main streets are seeing a drop in competitiveness. The opening of Ginza Six on Chuo-dori has had the biggest impact, and caused a shift in the flow of people. Demand for stores is strong in this shopping complex, where customer retention times are long, as well as in the surrounding area. However, there have been few enquiries in areas located some distance from this complex. Secondly, prime rents in the choice area close to the Ginza 4-chome intersection could fall, albeit by a small margin. Current rents are already around 20% higher than pre-financial crisis levels, and given the

Figure 11: Ginza High Street Rent Forecast (Q4 2017 to Q4 2019)

JPY/tsubo

300,000

Forecast

280,000 260,000 240,000 220,000

Q4 2019

Q3 2019

Q2 2019

Q1 2019

Q4 2018

Q3 2018

Q2 2018

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Q2 2015

Q1 2015

Q4 2014

Q3 2014

200,000

Source: CBRE, November 2017.

Š 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 27

CBRE RESEARCH

CAPITAL MARKETS

CAPITAL M ARKETS

INVESTOR APPETITE TO REMAIN STRONG, BUT TRANSACTION VOLUME IN 2018 FORECAST TO FALL

Limited upside in rents for some of the major assets and/or regions is likely to cause investors to become more cautious on pricing. Meanwhile, demand is rising for regional assets on the prospect of further office rent growth, as well as for alternative assets.

investors (excluding J-REITs) recorded an increase in total amount thanks to several big-ticket transactions.

However, acquisitions by J-REITs were down y-o-y both in terms of numbers and total amount. This was mainly due to stagnant J-REIT share prices. Whereas the Nikkei Stock Average rose by 19% during 2017, J-REIT price index (TSE REIT Index) dropped 10%. This has led to a decline in public offerings by J-REITs, of which there were nineteen in the first three quarters of 2017, four fewer than a year earlier, raising JPY 351.3 billion, down 20% y-o-y. As a result, real estate investment by J-REITs declined by 8% yo-y to JPY 986 billion, and their share of total transaction volume fell to 39% as of the end of Q3 2017, down from 48% a year earlier.

2017 PERFORMANCE： BIG-TICKET TRANSACTIONS DRIVE THE MARKET, CAP RATES CONTINUED TO COMPRESS Total real estate investment (including deals worth JPY 1 billion or more) during the first three quarters in 2017 stood at JPY 2.6 trillion, up 16% y-o-y. This was mainly due to a surge in investment in Q1 2017, led by several large transactions of over JPY 50 billion. Meanwhile, number of transactions during the same period was down 11%, recording the fewest number since 2010.

While the number of transactions were down y-o-y for all investor categories, overseas investors and domestic

© 2018 CBRE, Inc.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 29

CBRE RESEARCH

CAPITAL M ARKETS

2017 PERFORMANCE (CONTINUED)

Investor sentiment remains strong and expected yields are declining, which implies that fewer number of transactions during 2017 was mainly due to lack of supply.

In 2017, expected yields for all of the main sectors in Tokyo recorded their lowest levels since CBRE's surveys began.

The largest y-o-y decline in the October 2017 survey was for residential properties (multi-room apartments in the Joto/Josai area), where yields fell by 20 bps. Yields in other

sectors also declined by 10 to 15 bps. For retail (Ginza Chuo Dori), they fell below yields for offices (Otemachi), which had been the lowest until the October 2017 survey.

Office yields also fell in regional cities. Expected yields in the eight major regional cities were between 18 and 30 bps lower in October 2017 than a year earlier, with six cities at their lowest since CBRE's surveys began in July 2003.

Figure 1: Transaction Volume by Quarter

Figure 2: Public Offerings By J-REITs vs. Stock Market

Q1 Q3 % of J-REITs (RHS)

JPY Billion

6,000

Q2 Q4

4,000 3,000 2,000 1,000 0 2013

2014

2015

2016

TSE REIT INDEX

250

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

5,000

2012

Amount raised (LHS) Nikkei Average

JPY Billion

250

200

200

150

150

100

100

50

50

0

2017

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2005 2006 2008 2009 2011 2012 2014 2015 2017

Note: Transactions of at least JPY 1bn, excluding acquisitions by J-REITs at IPO. Source: RCA, CBRE, November 2017.

Note: Public Offerings excluding IPOs Source: Datastream, CBRE, November 2017.

Figure 3: Expected NOI Yields – Tokyo

Figure 4: Office Expected NOI Yields – Regional Cities

8%

Office (Otemachi, Tokyo) Multi-family Residential (Tokyo South, Tokyo East) Retail (Ginza, Tokyo)

Studio-type apartment (Tokyo 5 wards) Industrial (Tokyo bay area) Hotel (Tokyo 5 wards, management contract)

Index 2005=100

2003-Q3 2017

Q3 2016

0

Q3 2017

8.5%

7%

7.5%

6%

Note: Average figure of the median of lowest/highest yield each.

Source: CBRE Research Quarterly Survey, October 2017.

© 2018 CBRE, Inc.

Fukuoka

Hiroshima

Yokohama

Omiya

Sendai

Sapporo

Nagoya

2017.10

2016.10

2015.10

2014.10

2013.10

2012.10

2011.10

2010.10

4.5% 2009.10

3% 2008.10

5.5%

2007.10

4%

Osaka

6.5%

5%

Note: Average figure of the median of lowest/highest yield each.

Source: CBRE Research Quarterly Survey, October 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 30

CBRE RESEARCH

CAPITAL M ARKETS

HIGHLIGHTS IN 2018

companies also now appears to have peaked. The real estate industry's share of all new lending has been largely flat since reaching 27% in 2016, and lending in Q2 2017 fell y-o-y for the first time in six quarters. Financial institutions seem to have become more cautious, and there has been a few instances where they have been unable to lend as much as investors wanted.

LIMITED SCOPE FOR OFFICE RENTS TO RISE Investors are increasingly taking the view that upside in office rents in central Tokyo is limited, and the buyers are likely to become more conservative on pricing. In CBRE's investor survey, 48% of real estate investors said that Tokyo asset prices are now at their peak (Figure 5).

Meanwhile, the rise in office rents in regional cities accelerated in recent quarters, especially in Sapporo, Kyoto, and Fukuoka. CBRE forecasts that office rents in regional cities will continue to rise for the next two years (Figure 6).

As such, investors expect yields in regional cities to compress further.

CBRE estimates that the total value of funds raised by the closed-end real estate funds in the Asia Pacific region since 2014 stands at around US$ 116 billion (assuming leverage).

Around 60% of this has been invested so far, with an estimated US$ 15 billion invested in Japan, the second highest total after Australia. The remaining capital is expected to be invested mostly in developed Asian economies, with investment in Japan likely to be in core, core plus and value-added properties.

FUNDING ENVIRONMENT The funding environment for investors is also gradually changing. In addition to the decline in capital raising by J-REITs caused by falling unit prices, lending to real estate

Figure 5: Investors’Views on Capital Values – Large Office

October 2012

Response Rate

October 2017

One year ahead from October 2017 (Outlook)

50%

25%

Source: CBRE, October 2017.

Figure 6: Office Rental Growth and Vacancy Rate Forecast (2017 – 2019) Sendai Sapporo Fukuoka Saitama Kanazawa Kyoto Takamatsu

Kobe

Osaka (Grade A)

Nagoya (Grade A)

Recession

Recession

20%

2017.06

2016.12

2016.06

2015.12

2015.06

Change in Vacancy Rate Note: Grade A for Tokyo, Nagoya, and Osaka, All-grade for all other cities.

Source: CBRE, November 2017.

15%

2014.12

-3%pt

2014.06

-2%pt

2013.12

-1%pt

2013.06

0%pt

2012.12

1%pt

2

2012.06

-15%

© 2018 CBRE, Inc.

Recession

3

-10% 2%pt

4

25%

-5% Tokyo (Grade A)

3%pt

5

2011.12

Hiroshima

0%

30%

Yokohama

2011.06

5%

New Lending for Real Estate Sector (RHS) JPY Trillion Share of New Lending for Real Estate Sector to All Sector

2010.12

Rental Growth

10%

Figure 7: New Lending for Real Estate Sector

2010.06

15%

Slow-down →Recession

Slow-down

Slow-down

Slow-down

Peak

Boom

Boom

Boom

Recovery →Boom

Recovery

Recovery

Recovery

Recession →Recovery

Pull Q uote L2 Arhnem normal 22pts fusce convallis lectus vitae viverra phasellus nisl, iaculis a tortor quis, ellit pulvinar 0% tincidunt velit a liqua m pla cera t lectus sit

1

Note: Share is fourth quarter moving average.

Source: BoJ, CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 31

CBRE RESEARCH

CAPITAL M ARKETS

2018 OUTLOOK

on new leases are therefore likely to begin declining in 2018. This is likely to gradually start being reflected in asset prices.

TOTAL INVESTMENT TO FALL IN 2018 The total value of acquisitions in 2017 as a whole is likely to have increased y-o-y by around 30%, driven by largescale transactions. However, number of transactions will have been down y-o-y by around 20%, mainly due to fewer transactions involving small- to mid-sized deals, which generally account for the majority of deals, as well as fewer transactions in Tokyo 23 wards.

Prime retail yields on the main streets of Ginza are also expected to remain low, as investor demand remains high for prime retail properties. To be sure, high-street rents in Ginza have been on a moderate declining trend, primarily due to inactivity from the luxury retailers since 2016.

However, sales of luxury items has been showing recovery in recent quarters, led by local high net worth consumers and inbound tourists. Against this backdrop, we are also seeing signs of recovery in store openings by the luxury retailers.

CBRE expects transaction volume in 2018 to be around 6% lower than in 2017. One reason for this is that the investors are likely to take a more conservative approach on pricing.

Another reason is because more transactions are likely to be in regional cities, on the back of investors’ pursuit for higher yields. Given that unit prices are lower than in Tokyo, increase in the number of deals in regional cities would have a limited impact in terms of transaction volume.

While prime yields on central Tokyo offices are expected to remain low, they are likely to show some moderate rise.

New supply in 2018 is forecast to be 207,000 tsubo, more than the 180,000 tsubo average for the past ten years. Rents

Meanwhile, yields on logistics facilities (large multi-tenant facilities (LMTs) in the Tokyo Bay Area) may see further compression. While large new supply is expected in the Greater Tokyo LMT market over the next couple of years (equivalent of around 40% of the total LMT stock as of Q4 2017), these are very much focused on decentralized areas, and supply is limited in the prime location (the Tokyo Bay Area) where there is currently a severe shortage of LMT properties. There is also strong demand from occupiers who seek relatively higher yield and stable cash flow. As such, spread between logistics and office/retail properties is likely to narrow further.

Figure 8: Investment Outlook

Figure 9: Prime Asset Yields in Tokyo

YIELDS ON PRIME TOKYO ASSETS MAY RISE FOR OFFICES Cap rates on prime assets are likely to vary between sectors.

Transaction Volume

JPY Billion

6,000

Y-o-Y (RHS)

Forecast

5,000

6%

120% 90%

4,000

60%

3,000

30%

2,000

0%

1,000

-30%

4% 3% 2%

2012 2013 2014 2015 2016 2017 2018 Note: Transactions of at least JPY 1bn, excluding acquisitions by J-REITs at IPO. Source: RCA, CBRE, November 2017.

© 2018 CBRE, Inc.

Q4 2018 (Outlook)

5%

-60%

0

Q1 2007～ Q4 2017

Office, Central 5 wards

Retail, Ginza High Street

LMT, Tokyo Bay Area

Source: CBRE, November 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 32

CBRE RESEARCH

CAPITAL M ARKETS

FAVOURED INVESTMENT STRATEGIES

costs have risen. In October 2017, a joint venture between a major trading company and a specialist US data centre REIT was announced.

MID-SIZE OFFICES IN CENTRAL TOKYO CBRE expects rents for Tokyo Grade A offices to begin falling in 2018. That being the case, there should be greater interest in investment in mid-size buildings, where rents are comparatively stable. Unlike Grade A offices, for which a large volume of supply is forecast, the expected supply of mid-size (Grade B) buildings over the next couple of years is below historical average. There is likely to be more interest from the individual investors for which there are more platforms to invest in mid-size buildings, such as investment in strata-titles, as well as crowd-funded real estate investment.

OUTBOUND INVESTMENT Japanese outbound real estate investment should increase significantly in future. Until now, it has mostly been limited to direct investment by major developers, mainly in the US. Direct investment in real estate by Japanese companies in 2016 was US$ 2.5 billion, fifteen times higher than in 2010, when transaction volume (US$ 170 million) was at its lowest since the global financial crisis. Transaction volume continued to rise in H1 2017, increasing by 23% y-o-y. From 2018 onwards, indirect investment by pension funds and other institutional investors via funds is likely to increase.

CBRE expects this to total around US$ 15 billion over the next few years, with the main target likely to continue to be the US, but not just offices but also higher yielding logistics facilities, which are seeing high occupier demand on the back of rapid growth in e-commerce.

DATA CENTRES With yields declining for the established asset types, investors are seeking alternative assets in their search for higher yields. Interest is growing, for example, for data centres. Demand for data centres has increased in Japan alongside increase in use of cloud computing, and there is growing shortage of facilities. Operators are also very hopeful of securing funds from investors, as development

Figure 10: Expected Yields by Asset Type in Tokyo

3%

4%

Figure 11: Prime Yield: logistics spread over office in Asia Pacific

5%

11%

6%

10%

Retail (Ginza Chuo Dori)

Logistics

Office (Otemachi) Residential (Studio apartment) Solar power generator (Existing facility acquisition)

8% 7%

Sydney Tokyo Hong Kong

4%

Hotel

Beijing

Seoul

6% 5%

Logistics (Tokyo Bay)

Shanghai Taipei

3% 50

Data center Note: Project IRR for Solar power generator, NOI yields for all other asset types.

Source: CBRE Research Quarterly Survey, October 2017.

Š 2018 CBRE, Inc.

New Delhi

9%

100 150 200 Spread over Office (bps)

250

Source: CBRE, Q3 2017.

2018 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK | JAPAN 33

CBRE RESEARCH

For more information about this regional major report, please contact: RESEARCH Hiroshi Okubo Head of Research hiroshi.okubo@cbre.co.jp

Kazuko Takahashi Logistics Specialist, Senior Director kazuko.takahashi@cbre.co.jp

Asuka Honda Investment Specialist, Associate Director asuka.honda@cbre.co.jp

Koichi Suzuki Office Specialist, Senior Director koichi.suzuki@cbre.co.jp

Fuminori Asaki Logistics Specialist, Associate Director fuminori.asaki@cbre.co.jp

Yoshitaka Igarashi Investment Specialist, Associate Director yoshitaka.igarashi@cbre.co.jp

Takeshi Yamaguchi Office Specialist, Associate Director takeshi.yamaguchi@cbre.co.jp

Kaoru Kurisu Retail Specialist, Associate Director kaoru.kurisu@cbre.co.jp

Naoko Kaihata Office Specialist, Associate Director naoko.kaihata@cbre.co.jp

Sayuri Kaneko Retail Specialist, Analyst sayuri.kaneko@cbre.co.jp

Hisari Asai Office Specialist, Analyst hisari.asai@cbre.co.jp

For more information regarding global research, please contact: Nick Axford, Ph.D. Global Head of Research nick.axford@cbre.com

Richard Barkham, Ph.D., MRICS Global Chief Economist richard.barkham@cbre.com

Henry Chin, Ph.D Head of Research, Asia Pacific henry.chin@cbre.com.hk

Jos Tromp Head of Research, EMEA jos.tromp@cbre.com

Spencer Levy Head of Research, Americas spencer.levy@cbre.com

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CBRE RESEARCH This report was prepared by the CBRE Japan Research Team, which forms part of CBRE Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate.

All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorized publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.

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