Q3 volume up 77% driven by office investment

Commercial real estate investment volume rose by 77% y-o-y to JPY 1.2 trillion in Q3 2021. The major drivers were a surge in office investment volume, which rose by 472% y-o-y, coupled with a rebound from the low base in Q3 2020. Cumulative total transaction volume for the first three quarters of 2021 was JPY 2.6 trillion, down 2% on the same period last year. The number of transactions, however, has risen by around 10% y-o-y, meaning that 2021 has seen more small and medium-scale transactions than 2020, an indication that more investors have become active. 

CBRE’s quarterly cap rate survey found that expected yields in Tokyo fell q-o-q for studio-type apartments, remained unchanged for offices (Otemachi), logistics (Tokyo bay area), and family-type residential apartments, and rose for retail (Ginza Chuo-dori) and hotels (management contract). For CBRE’s Tankan Survey , the Diffusion Index for Tokyo Grade A office buildings, the biggest improvement was seen in “Lending attitude of financial institutions” (up five points q-o-q), on the back of an increase in those who indicated they planned to accelerate investment activity. Concerns over the future of demand for office space as a result of the proliferation of remote working appear to have been alleviated, at least for the time being.

Investment was also on the rise in regional cities this quarter. Total cumulative transaction volume for the year to Q3 2021 registered y-o-y increases of 23% in Osaka and 51% in Nagoya. The rise in Osaka was primarily driven by an increase in investment volume in logistics facilities.  In Nagoya, on the other hand, the increase is largely a result of a couple of large-scale office building acquisitions by foreign investors. Regional cities seem to appeal to investors for the higher yields they offer than Tokyo properties.