There are already signs that some sectors of the real estate market are emerging from the pandemic-induced slump, with the total commercial transaction value in June recovering by a considerable amount from the record low seen in May.
According to Jones Lang LaSalle, the commercial transaction volume in June reached 280 billion Yen, an almost eight-fold increase from the 38 billion Yen in sales recorded in May. The total is still 40% below the level seen in June 2019.
Daiwa Real Estate Appraisal reported that inquiries for valuations in June have recovered to about 2% below the average seen during January to March. In April and May, inquiries were down 70 ~ 80%. Appraisals are typically carried out before real estate acquisitions, implying that transaction activity may be returning to pre-corona levels. A chief researcher from the company said the low cost of borrowing and relatively attractive yield on real estate has made market conditions attractive for institutional investors.
Although there are concerning signs of a second wave, domestic real estate investors are being buoyed by the low interest rate environment. This time around, however, they are focusing their attention on prime, central locations.
Back in May, Unizo Holdings sought bids for their flagship Unizo Yaesu Building in front of Tokyo Station. Despite the state of emergency, Japan’s top developers, insurers and even US-funds had expressed interest. The winning bidder was Sumitomo Realty & Development, who paid somewhere between 80 ~ 90 billion Yen (approx. 750 ~ 840 million USD) for the 53-year old building. Currently operating at a high occupancy rate, the 9-story building forms part of the Yaesu 2 Chome Central District Redevelopment which will see a 45-story office tower completed sometime in the mid-2020s.
In late April, UK-based Grosvenor Group acquired 460 sqm of land in Ginza to develop a retail building. Retail has taking a pummeling during the pandemic, but the group believes Ginza’s retail sector to recover in the future. In the same month, Prologis acquired four logistics assets from Nippon Express for over 50 billion Yen.
German-based Allianz SE acquired eleven apartment buildings in Tokyo’s 23 wards for approximately 13 billion Yen in May, banking on stable returns in the residential rental market. AXA Investment Managers recently paid 20 billion Yen for Sakae Tower Hills, a 28-story, 156-unit luxury rental building in Nagoya.
On July 8 it was reported that US-based GreenOak paid 36 billion Yen for an 8-year old office building in Kojimachi. The seller was Unizo Real Estate.
Location, Logistics and Residential
For real estate that isn’t in the best location, or for non-logistics and non-residential properties, the market outlook remains dim.
Offices in second-tier locations may see vacancies rise as companies downsize or switch to telecommuting. On July 6, Fujitsu announced a plan to halve their office space over the next three years as they encourage office workers to work from home.
The hotel sector continues to suffer from a severe downturn in the tourist industry. With inbound visitors close to zero due to travel bans, and domestic tourism still lagging admits fears of a second wave of coronavirus, potential revenue for the rest of the year is in doubt.
Source: The Nikkei Shimbun, July 6, 2020.
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