Investment Real Estate Market Report | 1Q FY 2022

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 / FY2017 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 2017 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 1Q / FY 2022 in Tokyo Central submarket exceeded that of any 1Q in the past 3 fiscal years. Index of Average Gross Yield on Initial Asking Price fell by 1.9 pt. QoQ and Index of Average Gross Yield on Contract Price also fell (or both prices increased) by 5.4 pt. QoQ, as a result of an upward trend in both asking and contract prices.
  The property market was in a wait-and-see atmosphere last quarter because of Russian aggression in Ukraine, quantitative tapering in the United States, and inflation fears at home caused by rising energy prices and devaluation of the Japanese Yen. In this quarter, however, the market regained stability to some extent, which must have caused the increase in the number of transactions.
   There was also a sign of a recovery in inbound demand mainly for properties in central Tokyo (especially condominium units), which led to transactions at low yields (or high prices). For overseas investors, properties in Japan become bargains when the Japanese Yen depreciates. Assuming it stays weak from now on, demand from abroad for not only condominium units but also en-bloc residential and office buildings will be stimulated, and the market will maintain a certain level of yields. It will be necessary, however, to closely watch movements in supply of for-sale properties and price levels as well as the ongoing impact of COVID-19, stock prices, and foreign exchange rates under the instable conditions of the real economy.

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 1Q / FY 2022 in this submarket rose by 3.1 pt. QoQ to 103, though small, recording the 4th quarterly increase (or decrease in price) in a row. On the other hand, Index of Average Gross Yield on Initial Asking Price fell by 6.3 pt. QoQ to 96 (or price increased). Number of properties put up for sale increased slightly from the previous quarter, marking the 4th consecutive quarterly increase.
   Index of Average Gross Yield on Contract Price has been on an upward trend lately, widening a gap between yields on asking price and contract price. For the past year or so, condition of this submarket was favorable for effecting transactions as a gap between yields on asking price and contract price was small. If the upward trend of a yield on contract price continues in the future, however, it will be difficult for buyers and sellers to agree on prices, resulting in a fewer transactions. Besides, if interest rates actually start to rise in the future, investors' expected rate of return will also rise. So it is necessary to closely monitor trends in prices and interest rates both in Japan and overseas as well as changes in monetary policy. Now the market is entering a new phase where investors need to detect quickly the impact of various changes in the economic environment on the real estate market and deal with it deftly.

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 1Q / FY 2022 came down slightly QoQ. Index of Average Gross Yield on Initial Asking Price fell by 0. 6 pt. QoQ, while Index of Average Gross Yield on Contract Price increased by 1.4 pt. QoQ (price decreased). This was the second consecutive quarterly increase in Index of Average Gross Yield on Contract Price, which used to be trending down (or price increased) for four consecutive quarters since 3Q / FY 2020. Apparently, momentum in this submarket started to slow down a bit. This could be attributed to a sharp decline in yield on asking price and a cautious attitude by buyers against such an aggressive attitude by sellers. There is, however, a brisk demand still, and properties conveniently located near stations attracts multiple buyers immediately after being put up for sale. On the other hand, properties far from stations tend to be left unsold for a long time. The market seems to be bipolarized now.
   Going forward, there is a danger of the "seventh wave" of COVID-19 spreading across the country, and impacting socio-economic activities. There are expectations for inbound demand because of weakening of the Japanese Yen. On the other hand, outlook for the global economy is uncertain, as GDP in the United States and China declined QoQ in the April-June quarter, and FRB kept raising interest rates in the months of June and July. It is necessary to keep a close eye on how the spread of the pandemic in the seventh wave and the global economic conditions will affect the domestic real estate market.
 

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 1Q / FY 2022 in Tokyo East submarket showed an increase YoY. Index of Average Gross Yield on Contract Price was 105 (minus 4.6 pt. QoQ, price increased) and Index of Average Gross Yield on Initial Asking Price was 95 (minus 12.5 pt. QoQ, price increased). Index of Average Gross Yield on Initial Asking Price kept going up (prices fell) in the last 3 quarters, but in this quarter it returned to the same level as in the same quarter of the previous fiscal year.
   It is necessary to pay close attention to the impact of grounds for concern such as the conflict in Ukraine, quantitative tapering and interest rate hikes in the United States, and inflation associated with the rise in energy prices in Japan. However, inbound demand from overseas investors seems to be surfacing due to devaluation of the Japanese Yen. Having such popular tourist’s spots as Asakusa and Skytree, this submarket is likely to benefit from growing inbound demand maybe after Tokyo Central submarket abounding with high-rise condo.'s.　
   There is no change in the "wait-and-see" attitude taken by developers from the previous quarter because of an oversupply in studios and 1K units for single person households and consequent decline in rental rates. There are, however, certain signs of gradual improvement in the situation, and land suitable for high-volume condo. development is attracting a growing interest.

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

   Number of Transactions 1Q / FY 2022 in Yokohama / Kawasaki region increased not only QoQ but also significantly YoY, and this market can be said to be vibrant still. There are cases where properties changed hands at lower level of gross yields than the previous quarter, so prices of income properties here were also reflecting bullish sentiment.
   On the other hand, there must be cases where asking prices of properties in suburbs, far from stations, and / or antiquated were discounted (to push up gross yields) for the sake of quick deals. "Bipolarization in terms of property conditions" must have been continuing and spreading.
   Usually number of properties coming on market 1Q at the turn of a fiscal year tend to be held down after the end of a previous fiscal year. Both numbers of properties put on market and transacted, however, were growing from the beginning of this quarter as mentioned above, evidencing continued inflow of investment money into the property market and a vigorous buyers' appetite.
   Although it is estimated that there will be no significant shift in the market for the time being in FY 2022, there are still many uncertain factors in the real economy such as the future trend of COVID-19, of which number of infectants is on the rise again, increasing costs due to rising prices of natural resources, interest rate hikes in the United States and Europe, and further decline 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

   Since a large number of Japanese companies close their books in March, number of transactions in 1Q (April - June) tends to be smallest thru a year. Number of transactions in 1Q / FY 2022, however, recorded the highest among 1Q's since 2017. The aggregate number of transactions for all the submarkets and Yokohama / Kawasaki region was almost as many as that of the previous quarter which was the end of a fiscal year. There was an increase in Tokyo South submarket and Yokohama / Kawasaki region, little change in Tokyo Central submarket, and a slight drop in Tokyo North / West and East submarkets, respectively.
   Index of Average Gross Yield on Contract Price fell (prices rose) in Tokyo Central and East submarkets, while it rose (prices fell) in other submarkets including Yokohama / Kawasaki region. In the previous quarter, both Indices of Average Gross Yield on Contracts and on Initial Asking Price rose in all submarkets of Tokyo. Index of Average Gross Yield on Initial Asking Price 1Q / FY 2022, however, fell (prices rose) in all submarkets and region except for Tokyo North / West submarket (± 0%). It can be said that the real estate investment market is still 'robust' since yields remain low and there are as many transactions as the previous quarter.
   While the political and economic situations have been unstable both at home and abroad, the biggest concern for the real estate market here is a movement of currency exchange rate. Inquiries and requests for consultation about real estate investment from overseas buyers are increasing because of devaluation of the Japanese Yen.
   In the last fiscal year, average gross yield on contract price fell below average gross yield on initial asking price in certain submarkets. The same kind of phenomenon may repeat again especially in such areas as Tokyo South, and North / West submarkets, if a growing number of overseas investors enter into the market here and the shortage in supply of investment properties becomes apparent.