Thursday, September 29, 2005

The New Real Estate 'Tankan' Survey

Waseda University’s Institute of Finance recently announced the results of the first Real Estate Investment Tankan Survey. The survey, modelled after the Bank of Japan’s much-watched quarterly survey of business sentiment, asked 56 investors about present and future cap rates, risk premiums, IRRs and values of various asset classes in Japan, such as A-class buildings, prime retail, suburban shopping centers, and multifamily and studio rental housing.

A look at the results (see below) indicates that investors are expecting a slight cooling-down of the market, but also coupled with healthy growth in some regional markets, notably excepting Sapporo and Hiroshima. Even within Tokyo, investors still see room for growth for Class A office in Marunouchi/Otemachi and for residential in Meguro-ku and Setagaya-ku.

Investors were generally positive about business prospects in the six months ahead both for their own firms (84% of respondents) and for the real estate sector (87%), but less so compared to recently. They expected to see a further rise in market selling and buying prices (72% and 74% of respondents respectively), but the perception seems to be that most of the rises have already occurred. Investors feared a tightening of credit : 62% of them thought banks would be lenient with loans in the next half-year, down from 77% presently. However, most respondents (82%) expected interest rates to stay the same.

Cap rate expectations diverged widely according to the location and class of assets.

Cap Rate Expectations (next 6 months)
Class A Office
Strongest: 4% - Marunouchi, Otemachi, Weakest: 6.5% - Sapporo Ekimae
Prime Retail
Strongest: 4.3% - Ginza, Omotesando, Weakest: 6.4% - Hiroshima
Suburban Retail
Strongest: 5.8% - outside Tokyo, Weakest: 6.7% - outside Sapporo
Multifamily Rental Apts.
Strongest: 4.8% - Minato-ku (Tokyo), Weakest: 6.4% - Sendai
Studio Rental Apts.
Strongest: 4.8% - Minato-ku (Tokyo), Weakest: 6.3% - Hiroshima

The respondents thought that prices for A-Class office buildings would go up all over Japan, the most in Nihonbashi, Akasaka, and (surprisingly) Sapporo, by about 4%. They were also positive that prime retail properties would rise, especially in Chiba and Fukuoka (3%), and steep price rises were also predicted (6%) for suburban retail in these two areas. Notably, investors thought that Nagoya suburban retail would continue to drop in price. For residential properties, the highest increases were expected in Sendai for multifamily and in Minato-ku (Tokyo) for studios.

The researchers used the difference between unleveraged IRRs and current yields to arrive at the implied ‘growth premium’ for different markets, reflecting how much investors thought yields would improve in the near future. It was highest for Class A office in Fukuoka at 70 basis points, Marunouchi/Otemachi (50 bp), and Saitama (45 bp). For prime retail, they most expected the Chiba (60 bp), Nagoya, and Osaka markets to improve, and for suburban retail in Yokohama (50 bp), Osaka and Kobe, but not in Fukuoka. Markets in Meguro-ku/Setagaya-ku (45 bp) and in Sendai (50 bp) were most expected to improve for multifamily and studio apartments respectively.

Survey Full Report (Waseda Institute of Finance)
Full Story (Nikkei) – Real Estate ‘Tankan’ Survey

Japan Real Estate Blog
Tags : japan, real estate, property, investment, 不動産


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