External concerns over China’s slowdown and the possible impacts from the U.K.’s referendum to leave the European Union (EU) could cause a further lull in Japan’s economy in the latter half of the year with the Nikkei stock market plunging about 13% since the start of 2016 to mid July. The sentiment deteriorated in the manufacturing sector due to the appreciation of the Japanese yen. The negative interest rate policy has proved ineffective in turning the exchange rate around thus far.
Cap rates remain under further downward pressure because of the negative rate policy signaling stronger capital flows into the real estate market. Fuelled by yield seeking investors the J-REIT index performed better and more stable than the general stock market amid volatility. Accordingly listed J-REITs became once again the dominant purchaser group in the investment market which accounted for more than 60% of all the transaction volume over the last six months.
Leasing markets and real estate fundamentals remain healthy overall while there are deteriorations observed in some sectors, such as logistics. Office vacancy rates recovered in all major cities in Japan in the second quarter of 2016 while rents struggled to make a recovery in the industrial sector despite the low vacancy rates. Rents were broadly flat in the retail and the residential sectors after they made significant increases over the course of last year.
Source : Deutsche Asset & Wealth Management