Japan’s GDP is estimated to have experienced a contraction in the first quarter of 2016
due to the unfavourable currency exchange rate and intensified uncertainties including China’s
slowdown. External demand continued to deteriorate and consumer demand remained muted. The recent momentum of Japan’s corporate sector also softened especially in the manufacturing sector owing to the strengthening of the Japanese yen’s value. The stock price declined in tandem with the strengthening Japanese yen in the first four months of 2016, while the negative interest rate policy newly implemented this year has proved ineffective in turning the exchange rate around.
The stock price of listed J-REITs is structurally sensitive to the interest rate, and it was reactivated by the announcement of the implementation of the negative interest rate policy in January. J-REITs or mutual fund REIT products became a popular investment target for yield seeking investors which saw strong capital flows into these segments. Cap rates are expected to further tighten in the first half of this year partially driven by those J-REITs. On the other hand lending volume is not growing indicating some banks have become more selective for new lending in light of the recent price surge in some sub markets.
Leasing markets and real estate fundamentals were generally firm but started to provide early signs of the momentum change. Office vacancy rates in Tokyo edged up by 30 basis points to 4.3% in the first quarter of 2016. They are still at a healthy level but it was the first meaningful increase in four years. Vacancy rates also increased to 5.0% in the industrial sector in Greater Tokyo in the fourth quarter of 2015 for the first time since the quarter ended in September 2011. Rents continued to grow in the office and residential sectors with some signs of slowing down while they were broadly flat in the high street retail sector. Industrial rents softened both in Greater Tokyo and Greater Osaka in the quarter to December 2015.
Source : Deutsche Asset & Wealth Management