Commercial Property Investment in Japan Plummets 9% in Q3: CBRE Report

Discover the latest findings from CBRE's report on commercial property investment in Japan. Learn how the market experienced a significant 9% dip in Q3 3023, primarily driven by an 80% decrease in foreign investment. Despite this setback, domestic investors, including J-REITs, played a crucial role, contributing 2.4 times the previous year's amount. Dive into the details of this report and gain insights into the booming hotel sector, which saw a remarkable 3.5 times increase in investment volume. Stay informed with the latest trends in Japan's commercial real estate market.

Commercial real estate investment in Japan experienced a 9% decline in Q3 3023, according to new data released by CBRE. The total investment volume reached JPY 945.0 billion, primarily due to a massive 80% decrease in investment by foreign investors. However, J-REITs and non-J-REIT domestic investors played a crucial role, contributing 2.4 times the amount seen in the same quarter of the previous year. Notably, the hotel sector witnessed a significant increase in investment volume, soaring to 3.5 times that of Q3 2022 and reaching JPY 195.0 billion. CBRE reports that 75% of this figure was driven by J-REITs, making this quarter the highest ever in terms of hotels acquisition by J-REITs. 

While expected yields in Tokyo for major asset types reached new record lows in all sectors except offices and retail, both of which remained unchanged from the previous quarter, expected yields for offices in regional cities also fell to historical lows. Looking at the overall picture, cumulative transaction volume for the first three quarters of 2023 increased by 27% year-over-year. This growth was largely fueled by a striking 60% surge in investment by J-REITs. Hotel and logistics deals significantly contributed to this progress. Moreover, investment by domestic investors doubled compared to the previous year.

During Q3 2023, commercial real estate transaction volume, for transactions of JPY 1 billion or larger, experienced a 9% year-over-year decline, amounting to JPY 945.0 billion. This downturn can be attributed to the substantial 80% drop in investment by foreign investors. Additionally, the number of large transactions worth more than JPY 50 billion, which took place in the same quarter last year, decreased to only one-third. Nevertheless, the investment volume for the quarter managed to surpass the pre-pandemic levels of Q3 from 2016 to 2019. Investment volume by both J-REITs and non-J-REIT domestic investors was 2.4 times higher than the previous year.

As reported by CBRE, retail attracted the largest portion of investment volume during this quarter, amounting to JPY 321.0 billion. This was a remarkable 111% year-over-year increase. The notable bulk of this investment was due to Yodobashi Holdings' acquisition of a portfolio formerly held by Fortress Investment Group. The portfolio included the land currently occupied by Sogo & Seibu's Ikebukuro department store and was estimated to cost approximately JPY 300 billion. Additionally, the hotel and logistics sectors also saw increases in investment volume compared to the previous year. The hotel sector particularly stood out, with transaction volume reaching JPY 195.0 billion, marking a significant 3.5 times increase from Q3 2022's figure of JPY 56.0 billion. The leading player in hotel sector investment was J-REITs, responsible for 75% of the total investment. Of notable mention was Invincible's acquisition of the Fusaki Beach Resort Hotel & Villas in Okinawa from its sponsor, amounting to JPY 40.3 billion with a 5.6% yield based on actual NOI.

While the office and residential sectors experienced a decline in acquisition volume compared to the previous year, Q3 2023 witnessed several transactions with record low yields or large deals exceeding JPY 10 billion. Japan Real Estate, for instance, acquired Forecast Sakaisuji Honmachi in the office sector with an estimated NOI of 3.5%. Additionally, Singapore's City Developments made a notable residential sector purchase, acquiring a portfolio from Canada's BentallGreenOak for JPY 35.0 billion.

In conclusion, commercial real estate investment volume in Japan faced a decline in Q3 3023, mostly due to a substantial decrease in foreign investor activity. However, J-REITs and non-J-REIT domestic investors played a significant role in maintaining investment momentum. Notably, the hotel sector experienced remarkable growth, with the highest-ever hotel acquisition volume by J-REITs. Despite these fluctuations, the overall investment volume managed to exceed pre-pandemic levels for the corresponding period in previous years.