Investment Real Estate Market Report | 4Q FY 2021

Foreword

 Thank you very much for your continued support and business.
 We, at Mitsui Fudosan Realty, have been providing a broad range of services in order for our valued clients to make the "Best Use" of precious assets, and attentive consultation about concerns and worries clients have with respect to assets in various conditions, not only through brokerage of business and investment properties but also by helping clients to utilize assets effectively for such purposes as estate and tax planning.
 As part of these efforts, we prepare an "Investment Real Estate Market Report" for reference to help clients grasp the situation affecting real estate holdings. Since the investment real estate market is susceptible to external factors such as economic trends, an objective point of view is essential to understand the current market conditions. It is our great pleasure if this report is instrumental for readers to develop asset building strategies.
 We will continue striving to deliver long-term support through development, implementation, and follow-up of plans that will satisfy clients, meet demands of each client on a "one to one" basis by making the most of professional expertise and experience gained over the years, and prove worthy of clients' trust.
 Please feel free to contact us at the office below with any comments or requests concerning this report, or any matters related to real estate assets.
 We look forward to opportunities to serve you soon.

Mitsui Fudosan Realty Co., Ltd.
Solution Business Division
■Toll-free Number: 0120-321-376
■Hours: 9:30 am - 6:00 pm Closed Saturdays, Sundays, and holidays
■3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6019, Japan

 We, at Solution Business Division of Mitsui Fudosan Realty Co., Ltd., have been producing a "Investment Real Estate Market Report" to serve as an aid to hopefully assisting our valued clients formulate a medium-to long term asset building plan. 

 Please also take a look at our website, which is full of useful information such as properties for sale, various consultation services, and articles by real estate experts.

Areas subject to collection of data

Tokyo Central submarket: Minato-ku, Chiyoda-ku, Chuo-ku, Shibuya-ku, Shinjuku-ku, and Bunkyo-ku

Tokyo South submarket: Shinagawa-ku, Meguro-ku, Setagaya-ku, and Ota-ku

Tokyo North / West submarket: Suginami-ku, Nakano-ku, Nerima-ku, Toshima-ku, Itabashi-ku, Kita-ku, and Taito-ku

Tokyo East submarket: Koto-ku, Sumida-ku, Arakawa-ku, Edogawa-ku, Katsushika-ku, and Adachi-ku

Yokohama / Kawasaki region: Yokohama city and Kawasaki city

Detailed descriptions

Pick Up Area: For investment real estate, trends in the average gross yields on contract price and initial asking price, together with the number of closed contracts by submarkets are represented in the graph. The details of the transition of actual market value and properties both for sale and sold in certain neighborhoods are also shown.

Market Overview: As an overview of all the submarkets, the trend from the past to this quarter is available. Trends in the average gross yields based on contract price and initial asking price together with the number of closed contracts by area are shown for comparison.

Data Source: Information is extracted from the database containing properties offered for sale and contracts concluded through Mitsui Fudosan Realty Network (En-bloc condominiums / office buildings / apartment buildings).
- Number of Transactions & Average Gross Yield on Contract Price: Number of contracts closed in a quarter (three months) and average gross yield of them (including estimated values)
- Average Gross Yield on Initial Asking Price: Quarterly average gross yield of closed contracts based on their asking price initially quoted
*Figures in each chart represent indices based on values for 1Q / FY2012 set at 100.
(Average Gross Yield on Contract Price is shown as an index to Average Gross Yield on Initial Asking Price for 1Q / FY 2012 set at 100.)
[Note] The historical data may be revised subsequently due to maintenance carried out from time to time, such as adding newly acquired data. 

Pick Up Area -Tokyo Central submarket-

(*)Tokyo Central submarket: Minato-ku, Chiyoda-ku, Chuo-ku, Shibuya-ku, Shinjuku-ku, and Bunkyo-ku

◆Movements by Quarter: Average Gross Yield on Contract Price / Average Gross Yield on Initial Asking Price / Number of Transactions

◆Brokered Transactions of Investment Real Estate in the Submarket

 Number of transactions in Tokyo Central submarket 4Q / FY 2021 decreased YoY.　Index of Average Gross Yield on Initial Asking Price went up by 2.5 pt. (or asking prices fell) and Index of Average Gross Yield on Contract Price also went up by 3.2 pt. (or contract prices fell). There seemed to be a tendency to somehow control asking prices.
 While some sellers set asking prices at a reasonable level judging "now is the time to sell" based on the current condition of and outlook for real estate market, others were as aggressive as before in setting asking prices encouraged by a vigorous demand for properties in central Tokyo. Overall, this submarket is still thriving as of 4Q / FY 2021 despite an increase in yields, which sometimes precedes a price correction phase.
 Tokyo Central submarket is quite sensitive to changes in financial and foreign exchange markets. It will be necessary to keep a close eye on market conditions and to see how the Japanese economy will react to and is affected by such factors as quantitative tapering and interest rate hikes in the United States, concern for inflation caused by rising energy prices in Japan, and expectation for the recovery of inbound tourists' demand following containment of the COVID-19 pandemic.
 

Pick Up Area -Tokyo South submarket-

(*) Tokyo South submarket: Shinagawa-ku, Meguro-ku, Setagaya-ku, and Ota-ku

◆Movements by Quarter: Average Gross Yield on Contract Price / Average Gross Yield on Initial Asking Price / Number of Transactions

◆Brokered Transactions of Investment Real Estate in the Submarket

 Index of Average Gross Yield on Contract Price went up (or contract prices fell) three quarters in a row, and marked 75 in 4Q / FY 2021, inching up by 1.2 pt. QoQ.　Index of Average Gross Yield on Initial Asking Price also went up (or asking prices fell) by 4.8 pt. QoQ to reach 76. Number of Transactions increased by approximately 10% QoQ. This is the third consecutive quarterly increase. Probably, there are two reasons for the increase in Number of Transactions. Buyers had more properties to choose from due to an increase in the supply of properties for sale. And prospective buyers' interest was aroused by higher yields on asking prices.
 Indices of both Average Gross Yield on Initial Asking Price and Average Gross Yield on Contract Price have been on a slight upward trend recently in this submarket, but the difference between them is quite small now. Therefore, it seems rather easy to match buyers and sellers. Even though the investment property market here has been relatively stable for the past 1 to 2 years, upward pressure on commodity prices and interest rates at home and abroad may change the mindset of sellers and buyers. It is necessary to pay close attention to the impact by such change on the supply of properties for sale and price movements.

Pick Up Area -Tokyo North / West submarket-

(*) Tokyo North / West submarket: Suginami-ku, Nakano-ku, Nerima-ku, Toshima-ku, Itabashi-ku, Kita-ku, and Taito-ku

◆Movements by Quarter: Average Gross Yield on Contract Price / Average Gross Yield on Initial Asking Price / Number of Transactions

◆Brokered Transactions of Investment Real Estate in the Submarket

 Number of Transactions in Tokyo North / West submarket in 4Q / FY2021 showed little QoQ change. Index of Average Gross Yield on Contract Price went up (or contract prices fell) by 3.8 pt. QoQ to 77, and Index of Average Gross Yield on Initial Asking Price also went up (or asking prices fell) by 5.0 pt. QoQ to 73. This is the first increase in Average Gross Yield on Contract Price (or drop in contract prices) since 3Q / FY 2020.
  According to Official Land Values 2022 announced by the government, land prices both commercial and residential in all parts of this submarket stood higher than last year, reflecting a good market condition in FY 2021. However, the economic outlook for FY 2022 is becoming increasingly uncertain under bewildering changes in global economy such as hikes in a policy interest rate to counter inflation by FRB and surging prices of energy and natural resources as a consequence of economic sanctions against Russia, which in turn cause accelerating devaluation of Japanese Yen, a steep rise in prices of construction materials, and concern for the future monetary policy by the Bank of Japan. Inbound demand is certainly expected to grow, as depreciation of the Japanese Yen makes Japanese real estate a bargain to foreign investors. However, it will be prudent to watch even more carefully a trend in the investment real estate market in FY 2022 as uncertainty looms over the real economy.

Pick Up Area -Tokyo East submarket-

(*) Tokyo East submarket: Koto-ku, Sumida-ku, Arakawa-ku, Edogawa-Ku, Katsushika-ku, and Adachi-ku

◆Movements by Quarter: Average Gross Yield on Contract Price / Average Gross Yield on Initial Asking Price / Number of Transactions

◆Brokered Transactions of Investment Real Estate in the Submarket

 Number of Transactions 4Q / FY 2021 in Tokyo East submarket increased YoY. Index of Average Gross Yield on Contract Price was 82 (up QoQ by1.0 pt., or down in price) and Index of Average Gross Yield on Initial Asking Price was 81 (up QoQ by 2.8 pt., or down in price). Average Gross Yield on Initial Asking Price has been rising (or asking prices have been falling) since 1Q / FY 2021. And it is safe to say a pricing gap between sellers and buyers is narrowing this fiscal year.
 There was the prevalence of a new COVID-19 variant "Omicron" starting from the end of 3Q to the beginning of 4Q, but the number of persons with an infection stabilized as 3rd vaccination shots were taken by an increasing number of people. It is necessary to monitor the impact of the Ukraine conflict and rising commodity prices.  Assuming COVID-19 pandemic draws to an end, however, there may be a resurgence of inbound investment helped by devaluing Japanese Yen, and Tokyo East submarket, which contains such tourist spots as Asakusa and Tokyo Skytree, may come into spotlight.
 As far as rental market is concerned, rental rates particularly for studios and 1K units for single households, have continued to decline due to oversupply. Since developers, who helped to push land prices up in the last few years, are now taking a "wait-and-see" attitude, it will be prudent to keep an eye out for future trends.
 

Pick Up Area -Yokohama / Kawasaki region-

(*) Yokohama and Kawasaki region: Yokohama city, Kawasaki city 

◆Movements by Quarter: Average Gross Yield on Contract Price / Average Gross Yield on Initial Asking Price / Number of Transactions

◆Brokered Transactions of Investment Real Estate in the Submarket

 The market in Yokohama & Kawasaki region continued to be active, as Number of Transactions 4Q / FY 2021 increased YoY, even though it was slightly lower than that of 3Q.
 As can be seen from a QoQ drop in both Indices of Average Gross Yield on Contract Price and Average Gross Yield on Initial Asking Price, pricing here has maintained a bullish trend.
 The situation of market bipolarization, however, remains unchanged, as number of days on the market has grown markedly for properties located in suburban areas, distant from stations, or age-old. In order to move such properties, it is necessary to lower asking prices and attract buyers with high yields.
 While COVID-19 pandemic persisted, there were some cases where companies in certain industries accepted significant discounts for the sake of encashment in this 4Q which is the last quarter of a fiscal year for many corporations. However, there was no noticeable change in elevated levels of pricing as investment money kept flowing in due to brisk demand.
 Little change in current market conditions is anticipated in FY 2022. It will be necessary, however, to pay close attention to movements of market because there are causes of instability abound in the real economy such as higher cost of natural resources and goods due to a conflict in Ukraine, movements of interest rates in the U.S. and Europe, and devaluation of the Japanese Yen.

General overview

◆Movements by Quarter: Average Gross Yield on Contract Price / Average Gross Yield on Initial Asking Price / Number of Transactions for the 5 Areas

◆Movements in Number of Transactions by Area

◆Movements in Average Gross Yield on Contract Price by Area

◆Movements in Average Gross Yield on Initial Asking Price by Area

 Overall, Number of Transactions for this quarter showed little change QoQ, but increased YoY. Number of Transactions increased in Tokyo South and West submarkets, while it decreased in others. All told, the number in 4Q was the largest in FY 2021.
 Indices of both Average Gross Yield on Contract Price and Average Gross Yield on Initial Asking Price fell (or prices rose) only in Yokohama & Kawasaki region, while they rose (or prices fell) in the all Tokyo submarkets. Though it remains to be seen whether this marks a reversal of the market for investment properties in Tokyo, it may be safe to say for the time being that the market is still robust, as the current level of yields are still low, Number of Transactions is not falling, and a reversal phenomenon has been seen in Tokyo South submarket where the Index of Average Gross Yield on Contract Price goes below that of Average Gross Yield on Initial Asking Price.
 In the last survey, Index of Average Gross Yield on Initial Asking Price in Tokyo North / West submarket plummeted and fell below that of Tokyo South submarket for the first time. The phenomenon appeared again this quarter. We believe the tendency for investors to broaden the geological area in order to search for properties with attractive yields still persists.
 Economic outlook in Japan is bleak as the Japanese Yen is devaluing quickly and the stock market is fluctuating wildly. However, the depreciation of the Japanese Yen may stimulate demand from overseas investors.