Macro Economy: Japan’s real GDP growth was estimated to be around 1.1% in the second quarter of 2017 with a healthy corporate sector and exporting industry contributing to growth, while sluggish consumer spending remained a risk. The Nikkei 225 index rose by 5.2% in the first six months in 2017, exceeding 20,000 for the first time since December 2015, while core CPI turned into positive territory in January 2017 at 0.4% in April 2017.
Capital and Investment Market: In June 2017, the Bank of Japan’s Diffusion Index for lending attitudes of banks to the real estate industry recorded the largest decline since the global credit crisis, as some major banks gradually became more selective over tightly priced transactions. Despite this the value remains at a favorable level. Deal flow is limited in Central Tokyo, except for the bay areas, due to a lack of assets on the market and fully priced valuations. The J-REIT index softened by 8.7% in the first six months of 2017 due to concerns over interest rate hikes in the global market and also strong capital outflows from J-REIT mutual funds following the announcement from the Japan’s Financial Services Agency.
Real Estate Market Fundamentals: Leasing markets and real estate fundamentals on the other hand remained healthy. Office vacancy rates posted a further recovery in Tokyo, Osaka and other major cities as the average rent continued to post moderate growth. Retail and residential rents also posted healthy growth in Central Tokyo. Demand remains robust in the logistics and hotel sectors both in Tokyo and Osaka, while a recent supply surge continues to moderate the occupancy rates in both sectors in these respective markets.
Source : Deutsche Asset & Wealth Management