Japanese Real Estate Investment Market 2013: April, 2013

J apanese Real Est at e I nvest ment Mar k et 2013
April, 2013
Consulting Division
Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku,
Tokyo 100-0005, Japan
To create a transparent real estate investment market in Japan To create a transparent real estate investment market in Japan
This report has been produced by Nomura Research Institute solely for information purposes. It is not intended to be a
complete description of the markets or developments to which it refers. No warranty for representation, express or implied is
made as to the accuracy or completeness of any of the information herein and Nomura Research Institute shall not be liable
toanyreader of thisreport or anythirdpartyinanywaywhatsoever to any reader of this report or any third party in any way whatsoever.
Research Framework and Perspectives
for this Report p
Mac r of undament al s
GDP growth, corporate performance, demographic movements
Fi nanc i al and Capi t al Mar k et s
Interest rates, financial and other regulations, political trends
Rent al Mar k et
Suppl y
How much floor space
is newly developed ?
How much floor space
Demand
What are the key drivers of demand?
Which industries require more space?
Which districts are in demand?
Tr adi ng Mar k et
Lender s Sel l er s Buyer s
What properties
interest buyers?
How strong is their
What properties
are lenders willing
to finance?
Who are the
potential sellers?
What assets are
f p
is demolished?
Vac anc i es
Increase or decrease?
How strong is their
buying appetite?
Li qui di t y
What kinds of properties are transacted successfully
d h t t?
to finance?
What are the lending
conditions?
What assets are
likely to be sold?
Rent and NOI
Increase or decrease?
Cap Rat e
What cap rate level leads to successful transactions?
and what are not?
Times New Roman, size 8, color: Dark Gray
Ex) Source: NRI based on IMF
Asset Price Estimation
Wi l l asset val ue r i se or f al l ?
Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved. 2
)
Macro fundamentals of Japan
Overview of Real Estate Investment Market in Japan Overview of Real Estate Investment Market in Japan
Office market
Residential market
Retail property market
Hotel Market
Logistics Property Market
Real Estate Investment Market
Renewable Energy Asset Market
Office market
Residential market
Hotel Market
J apans population is shrinking due to low birth rate and aging society. Number of
Mac r o Fundament al s of Japan
households will be decreasing soon.
Total population peaked out in 2005 The number of households is increasingfor now but it is Total population peaked out in 2005. The number of households is increasing for now, but it is
projected to decrease after 2015.
Population and Households in J apan
Population
(thousand)
Households
(thousand)
60,000
70,000
120,000
140,000
Forecast Actual
( )
( )
40,000
50,000
80,000
100,000
20,000
30,000
40,000
60,000
0
10,000
0
20,000
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved.
65 1564 014
5
Source: NRI based on National Institution of Population and Social Security Research
Over 65 YRS 15-64 YRS 0-14 YRS
Households
J apans economic growth is the lowest compared to other major economies with low
forecasts for future growth
IMF forecasts estimate J apans GDP growth rate at 1%for the next 5 years
RealGDPgrowthrateofmajoreconomies
(%)
IMF forecasts estimate J apans GDP growth rate at 1% for the next 5 years.
15.0
Estimated Actual
10.0
China
5.0
China
India
Korea
United States
United Kingdom
0.0
Japan
United Kingdom
5.0
10.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: NRI based on IMF data
Despite the weak growth, J apan remains one of the largest economies in the world.
Although J apan has been overtaken by China and fell to No 3 in world nominal GDP India Brazil Although J apan has been overtaken by China and fell to No. 3 in world nominal GDP, India, Brazil
and Russia still wont catch up with J apan by 2020, assuming current growth rates continue.
Nominal GDP of Major Countries
(Billion USD)

20,000
25,000
United States
Actual Forecast
15,000
China
10,000
Japan
Note:
0
5,000
India
Korea
United Kingdom
Note:
Figures up to 2017 are IMF forecasts and those up
to 2020 are calculated with the assumption that the
CAGR from2012 to 2017 will be maintained..
Source: NRI based on IMF
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Expectations of monetary easing and trade deficit have lowered and stabilized the
yen from historic highs
Provides a boost to domestic export-oriented enterprises
USD-J PY exchange rate movement
(USDJ PY=X)
Provides a boost to domestic export-oriented enterprises
130
120
130
100
110
90
100
70
80
Source: NRI based on Bloomberg data
The Bank of J apan has set a price stability target of 2% inflation
BOJ is set to continue aggressive monetary easing to reach target as soon as possible BOJ is set to continue aggressive monetary easing to reach target as soon as possible
JapanConsumerPriceIndexmovement(exceptfreshfoodcommodities)comparedtopreviousyears
(%)
4 0
2 0
3.0
4.0
1.0
2.0
1.0
0.0
3.0
2.0
Source: NRI based on J apan Ministry of Internal Affairs data
Decrease in exports caused by the global recession and appreciation of the yens, and
p y g pp y
increase in resource imports due to the Tohoku earthquake have resulted in the trade deficit
J apan experienced its first trade deficit in 31 years in 2011 The trade deficit spilledover into 2012 J apan experienced its first trade deficit in 31 years in 2011. The trade deficit spilled over into 2012,
continuing for two years so far.
(intrillionyen)
Japansaccountbalancemovement
35
20
25
30
10
15
20
5
0
5
15
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Trade
balance
Service
balance
Income
balance
Currenttransfer
balance
Currentbalance
Source: NRI based on J apan Ministry of Finance data
10
There are concerns about J apans huge fiscal deficit, which may drive up interest
rates in the future.
Currently J apan keeps its interest rates at a lower level than that of countries rated higher than
J apan. If the irrational gap between the interest rate level and sovereign ratings is closed, J apans
interest rates may raise.
Ratio of Government Debt to GDP
(%) (%)
Long-term Interest Rates and Sovereign Ratings
5.0
6.0
(%) (%)

US
AA+/Negative/A-1+
UK
AAA/Stable/A-1+
250
300
Japan
Actual Forecast
4.0 200
2.0
3.0
Germany
AAA/Stable/A-1+
100
150
United
States
United
Kingdom
0.0
1.0 J apan
AA-/Negative/A-1+
0
50
Germany
g
0.0
11
Source: NRI based on IMF
NB: Classifications are as of J an 2013 (Long-term/expected/short-term, in local currency)
Source: NRI based on IMF and S&P
0
A financial collapse is unlikely as long as domestic capital remains in J apan and
continues to circulate.
Households financial assets, which had been decreasing since 2006, posted an increase in 2009
f th fi t ti i th for the first time in three years.
The possibility of J apanese government bonds collapsing is seen to be small, as more than 90% of
the bonds are held by domestic investors.
Government Bond Investors by Country Households Financial Assets in J apan
(Trillion yen)
2,000
100%
1,500
60%
80%
500
1,000
40%
0
500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0%
20%
Japan US UK Germany Greece
NB: Figures for Germany are current as of J an 2012; other countries are current as of Dec 2011
Source: NRI based on BoJ , FRB, ONS, Bundesbank, Bank of Greece data
Source: NRI based on Bank of J apan data
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Japan US UK Germany Greece
Domesticinvestors Foreigninvestors
Economic stimulus measures by the new administration provide a boost to the real
estate market
Primary measures/systematic change affecting the real estate market
Overview of measures Expected effect on real estate market
Establishment of
Primary measures/systematic change affecting the real estate market

Establishment of
price stability
target
Establishmentof2%targetinflationrate
Moneyflowtorealestateduetoinflation
outlook
EstablishmentofExpandedConsumption
Increased
consumption tax
TaxLawthatwillincreaseconsumptiontax
to8%inApril2014andto10%inOctober
2015
Demandfromlastminutehousing
purchasesandreactionarydownturn
Fundamental
E i f h h ld i L li f i d f
Fundamental
overhaul of tax
system
Extensionofhouseholdtaxexemptions
andhousingloandeductions
Levelingofreactionarydownturnafter
lastminutedemandspike
Revision of
I t t T t
Removalofmajorityownershipprovisions
forinvestmentbusiness,toencourage
U f J REIT f f i i t t
Investment Trust
Act Expected in
2013
, g
foreignrealestateacquisition
Removalofprohibitiononrightsofferingsor
selfacquisitionofinvestmentequity
UseofJREITforforeigninvestment
JREIT deregulation
N ti l
Expansionofpublicprojectsfordisaster
I d bli i t t i
National
Resilience Plan
p p p j
recovery,preventionandantideteriorating
countermeasures
Increasedpublicinvestmentin
infrastructuremaintenance
Tokyo continues to be the worlds largest city in terms of population and GDP
compared to other cities
Tokyo is expected to maintain its overwhelmingpopulation and economic scale Tokyo is expected to maintain its overwhelming population and economic scale
2020GDP/populationestimatebycity
2020GDPscalebycity
inbillionUSD
Tokyo
1,800
Tokyo
NewYork
1,400
1,600
LosAngeles
1,000
1,200
London
Chicago
Paris
MexicoCity
Osaka/Kobe
B Ai
SaoPaulo
400
600
800
2020populationbycity
(in1000s)
BuenosAires
Shanghai
Mumbai
0
200
400
( )
Source: NRI based on PricewaterhouseCoopers, UN data
0
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Population continues to increase in Greater Tokyo while declining in J apan overall.
The growth of Tokyos population and households is expected to continue over the long termon the The growth of Tokyos population and households is expected to continue over the long term on the
strength of both natural and social increases.
Net Population Inflow into Greater Tokyo
()
150,000
200,000 Kanagawa Tokyo Chiba Saitama Total
()
Inflow
50,000
100,000
Inflow
Outflow
0
50,000
100,000
50,000
Source: NRI based on Basic Resident Register Population Migration Report
Tokyo has the largest concentration of world-class major enterprises
Tokyo has the largest number of companies ranked in the Fortune Global 500 Tokyo has the largest number of companies ranked in the Fortune Global 500
Number of Fortune Global 500 companies by city (2012)
Fortune Global 500 companies in Tokyo (within top 200)
Rank Company Name
Revenue
(in million USD) ( )
13 J apan Post Holdings Co., Ltd. 211,019
29 Nippon Telegraph and Telephone Public Corp 133,077
38 Hitachi Ltd. 122,419
41 J X Holdings. Inc. 119,258
Tokyo,48
Beijing 44
64 Honda Motor Company, Ltd. 100,664
87 Sony Corporation 82,237
96 Meiji Yasuda Life Insurance Company 77,463
97 Toshiba Corporation 77,261
115 Mitsubishi Corporation 70,492
Beijing,44
Paris,19
p
127 Tokyo Electric Power Company, Inc. 67,751
132 Mitsui & Co., Ltd. 66,512
144 Mitsubishi UFJ Financial Group, Inc. 62,706
145 The Daiichi Life Insurance Company, Ltd. 62,462
151 S &I H ldi C Ltd 60 668
NewYork,18
London,17
Seoul,11
O k 8 151 Seven & I Holdings Co., Ltd. 60,668
166 Fujitsu Ltd. 56,582
168 Marubeni Corporation Ltd. 55,604
180 Nippon Steel & Sumitomo Metal Corporation 51,812
191 Mitsui Sumitomo Financial Group, Inc. 49,967
Osaka,8
Toronto, 7
Others,328
199 Idemitsu Kosan Co., Ltd. 48,828
Source: NRI based on Fortune Global 500 (2012) data
Office market
Residential market
Hotel Market
J apan has the second largest real estate investment market in the world accounting
Over vi ew of Real Est at e I nvest ment Mar ket i n Japan
for around 10%.
Estimated Size of Institutional-Grade Real Estate by Country Estimated Size of Institutional-Grade Real Estate by
Country in Asia-Pacific
26,559
US$B
Latin America
6.7%
Gulf Cooperation
Council
2.5%
US$B
Europe
35.4%
Asia
Pacific
27.0%
26,559
US$B
US/Canada
28.4%
Source : PramericaInvestment Management A Birds Eye View of Global Real Estate Markets: 2012 Update
J apans securitized real estate market has grown to 51 trillion yen for the last 15
years since 1997.
Although the amount of acquisitions has dropped steeply since 2008 assets worth 2 3 trillion yen
1,800 10,000
(No.ofTransactions)
(bn)
Although the amount of acquisitions has dropped steeply since 2008, assets worth 2.3 trillion yen
were acquired for securitization in FY2011.
Acquisitions of Securitized Real Estate
8,273
8,884
1,582
1,642
1,523
1,400
1,600
8,000
9,000
6,242
7,205
5,335
6,930
1,119
1,000
1,200
5 000
6,000
7,000
4,440
5,158
,
2,778
2,541
3,984
2,838
2 341
620
518
576
600
800
3,000
4,000
5,000
611 676
895
1,772
2,031
1,679
628 604
792
2,167
2,236
3,308
2,210
1,359
1,591
1,549
62
316
1,167
1,867
1,798
2,195
2,341
74
161
269
343
456
275
200
400
1,000
2,000
611
305
676 628
439
604
792 62
9
26
74
0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FY)
JREIT (LeftAxis) NonJREIT (LeftAxis) No.ofTransactions (Right Axis)
19
Source: NRI based on MLIT
The office sector accounts for 37% of the total amount of securitized real estate.
Residential properties comprise 18% and retail 15%; thus, office, residential and retail combined
tit t b t 70% f iti d l t t
8,000
(bn)
constitute about 70% of securitized real estate.
In particular, 2011 was a boom for warehouse securitizations
Acquisitions of Securitized Real Estate by Asset Class
1,644
1,398
6,000
7,000
Office
37 0%
Others
23.9%
790
1,107
981
193
120
291
259
263
359
1,472
1,706
4,000
5,000
37.0%
Retail
Industrial
2.9%
Hotel
3.3%
Total
Approx 51 trillion yen
686
808
1,293
1,589
1,321
161
404
835
34
67
12
77
122
38
512
805
902
418
493 607
2,000
3,000
Residenti
al
18.2%
14.7%
49
211
597
746
1,611
710
1,516
1,728
2,194
2,124
2,503
891
556
768
512
97
166
267
552
686
348
235
441
406
59
160
565
270
479
289
252
309
25
130
168
63
215
79
71
61
32
48
54
4
19
145
300
365
493 607
0
1,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Office Residential Retail Industrial Hotel Others
20
Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 2001. Becauseof this, the yearly totals and amounts
will not match up with the documents cited for this entry.
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Survey of the Current State of Real Estate Securitization
J apans securitization market was dominated by office properties at first, but various
other types of real estate have been securitized in recent years.
Manufacturing facilities logistics facilities and hotels are being securitized in addition to office
7.2%
6.1%
12.4%
16 1%
100%
Manufacturing facilities, logistics facilities and hotels are being securitized in addition to office,
residential, and retail properties.
Net Asset Amount of Securitized Real Estates by Asset Class
13.3%
8.1%
18.8%
6.2%
7.7%
1.0%
0.7%
1.3%
3 0%
1.8%
4.2%
5.4%
10.1%
3.1%
6.8%
3.8%
0.5%
2.1%
2.4%
4.0%
3.8%
5.2%
1.7%
2.0%
2.3%
2.6%
12.4%
16.1%
19.9%
33.2%
24.8%
29.2%
26.5%
24.0%
20.4%
18.1%
22.2%
23.9%
28.9%
70%
80%
90%
8.3%
8 9%
10.4%
18.9%
20 1%
19.3% 15.1%
21.3%
13.7%
30.3%
11.1%
11.1%
16.5%
12.3%
16.2%
14.3%
20.8%
17.6%
12.2%
14.7%
1.1%
1.6%
3.0%
10.1%
2.5%
50%
60%
79.4%
67.0%
51.2%
39 9%
62.4%
41 7%
8.9%
22.7%
16.0%
20.1%
23.2%
14.3%
19.3%
20%
30%
40%
39.9%
29.3%
41.7%
34.2% 34.1%
31.0%
36.5%
38.7%
33.8%
37.1%
24.3%
0%
10%
20%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Office Residential Retail Industrial Hotel Others
21
Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 2001.
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Survey of the Current State of Real Estate Securitization
Most securitized property is in the Tokyo Metropolitan Area, but properties from
provincial areas are slowly increasing.
Tokyo Metropolitan Area properties comprise 70%of the total while properties in the Kinki area Tokyo Metropolitan Area properties comprise 70% of the total, while properties in the Kinki area
comprise 12%
Number of Properties Securitized by Prefecture
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Greater Tokyo Area: 70.8%
58.8% 5.2% 5.2% 1.6% 8.0% 2.3%
1.6%
4.0%
2.3%
2.3%
1.6% 7.3% 2011
Greater Tokyo Area: 70.8% y
66.0% 6.2% 2.9%2.7% 6.9% 1.2%
1.4%
2.1%
1.2%
1.5%
1.7%
6.2% 2010
y
51.9%
53.0%
5.1%
4.0%
3.1%
4.0%
4.5%
2.5%
8.8%
8.4%
1.4%
2.2%
5.5%
6.9%
3.7%
4.0%
2.6%
2.8%
2.0%
2.2%
11.4%
10.0%
2008
2009
41.9% 6.4% 3.3% 2.4% 10.5% 6.4% 6.0% 4.6% 3.1% 15.3% 2007
Source: NRI based on MLIT

Tokyo Kanagawa Chiba Saitama Osaka Hyogo Kyoto Aichi Fukuoka Hokkaido Miyagi Others
Note: not including securitization of real estate of SPC
The J apanese real estate market experienced a speculative bubble and collapse
around 1990.
Land prices rose and fell steeply in the late 1980s and early 1990s especially inthe commercial
600
Land prices rose and fell steeply in the late 1980s and early 1990s, especially in the commercial
districts of metropolitan areas.
Long-Term Trend of J apanese Land Prices
500
300
400
100
200
0
AverageofThreeCategories Commericial Residential Industrial
23
*Index: The end of March of 2000 =100 , Data of six major cities of Tokyo, Yokohama, Nagoya, Kyoto, Osaka and Kobe
Source: NRI based on J apan Real Estate Institute
Total return has recovered to the plus level at about 4%and capital return is
showing signs of following suit.
After the summer of 2009 capital return finally ceased decliningand reversed trends upwards
20 0%
After the summer of 2009, capital return finally ceased declining and reversed trends upwards.
Meanwhile, income return remained stable at around 5% even during the turmoil period following the
Lehman Shock.
Performance Trend in J apan
15.0%
20.0%
5.0%
10.0%
5.0%
0.0%
15.0%
10.0%
TotalReturn CapitalReturn IncomeReturn
24
Source: IPD J apan
Cap rates have leveled off since returning to 2005 level.
The J apanese cap rate steadily decreased until the first half of 2008 but reversed course and The J apanese cap rate steadily decreased until the first half of 2008, but reversed course and
increased afterwards.
This slow and steady crawl upwards continued until Oct 2012, when the cap rate for homes fell down.
7 0%
8.0%
Cap Rate Trend in J apan
6.0%
7.0%
5.0%
3.0%
4.0%

25
Source: NRI based on J apan Real Estate Institute
Miyagi
Office TokyoMarunouchi
Office OsakaMidosuji Business TokyoGinza Home TokyoJounan
Lenders liberal attitude has slightly increased.
Although domestic financial institutions are becoming more relaxed in their lending practices they
100
Although domestic financial institutions are becoming more relaxed in their lending practices, they
tend to be selective with prospective borrowers.
Financial Institutions Lending Attitude DI toward Real Estate Industry
60
80
0
20
40 Loose
40
20
Tight
100
80
60

26
Source: NRI based on BOJ
All
Large
enterprise
Medium
enterprise
SMEs
Office market
Residential market
Hotel Market
Of f i c e Mar ket
Tokyo, Osaka and Nagoya account for 50% of J apans commercial real estate.
Commercial Real Estate Stock in J apan by region New Construction of Office Space by Area
22,711
25,000
(m
2
)
16.0%
2723.9%
Tokyo Area
29.7
Tokyo16.0%
OtherPrefectures23.9%
1,000m
2
20,099
20,000
6.0% Kanagawa6.0%
1,777
1,803
13,857
11,337
10,132
12,262
11,602
15,000
3.9%
3.8% 1.6%
1.6%
1.5%

8
Chiba3.9%
Saitama3.8% Miyagi1.6%
Nagano1.6%
Tochigi1.5%
CommercialRealEstate
Approximately800millionm
2
3,352
2,506
1,803
1,134
959
1 002 583
838
8,699
8,345
9,001
8,496
6,955
6,880
7,670
8,369
7,852
7,053
8,659
6,941
6,350
5,684
5 000
10,000
8.5%
2 9%
2.3%
2.1%
1.8%
Osaka8.5%
Shizuoka 4.1%
Hiroshima2.3%
Ibaraki2.1%
Niigata1.8%
8,344
7,616
4,249
2,878
2,443
3,019
2,885
2,195
2,934
3,798
3,495
2,365
2,331
3,094
3,460
2,432
2,452
3,491
3,921
2,736
2,548
1,803
1,397
1,354
2,248
1,754
1,184
1,029
1,028
937
953
835
691
975
1,450
844
1,092
654
1,221
598
929
838
1,002
934
729
583
701
664
768
768
651
751
879
838
472
390
401
0
5,000
3.9%
2.0%
0.7%
6.3%
1.6%
1.4%
4.1%
4.1%
2.9%
Osaka Area
15.1
Hyogo3.9%
Kyoto2.0%
Nara0.7%
Aichi6.3%
Gifu1.6%
Mie1.4%
Hokkaido4.1%
Fukuoka4.1%
Shizuoka4.1%

28
Note: Commercial Real Estate means offices, retails, and banks.
Source: NRI based on Ministry of Internal Affaires and Communications
Nagoya Area
9.3
Source: NRI based on MLIT Statistics of Building Construction Starts
Others
Nagoya
Area
Osaka
Area
Tokyo
Area
Corporate-owned rental real estate is 96 trillion yen in 2008,
Of f i c e Mar ket
which has increased by 30 trillion yen over five years.
Based on the land survey conducted by Ministry of Land, Infrastructure, Transportation and Tourism
(MLIT) 5 th t l f t d t l l t t ( l di id ti l)
()
(MLIT) every 5 years, the asset value of corporate-owned rental real estate (excluding residential)
increased by 30 trillion yen over five years, from 68 trillion yen in 2003 to 96 trillion yen in 2008.
Asset Value of Corporate-Owned Rental Real Estate (excl. Residential)
Trillion
26
96
80
90
100
35
19
68
60
70
21
35
30
40
50
28
35
10
20
0
2003 2008

29
Source: NRI based on MLIT Basic Survey on Land
Rentedbuildings
Siteswithrentedbuildings Rentedland
Of f i c e Mar ket
Tokyo Area holds 58% of J apans office rental market.
J apan has a stock of around 94 million of available office rental space The Tokyo area holds an J apan has a stock of around 94 million of available office rental space. The Tokyo area holds an
overwhelming share of the market at 55 million , comprising 58% of the total.
Office Floor Space Shares by Major City
2.0%
1.2%
5.5%
3.7%
2.7%
2.3%
1.8%
80%
90%
100%
Office Floor Space Shares by Major City
(1 9 illi )
(1 1 million)
(5.2 million )
(3.5 million )
(2.5 million )
(2.1 million )
(1.7 million )
5.2%
1.1%
2.1%
14.6%
50%
60%
70%
(4.9 million )
(1.0 million )
(1.9 million )
(13.71 million )
(1.9 million )
(1.1 million )
Osaka Area
17.8
12 major cities
57.9%
30%
40%
50%
(54.48 million)
Tokyo Metropolitan Area
66.3
ajo c t es
94.09 million
0%
10%
20%

(54.48 million )

30
Source: NRI based on J REI
As of Dec .2011
The investigation focus on central area of each city.
In Tokyo, Osaka and Nagoya buildings which are smaller than 5,000 square meter are excluded
In other nine cities buildings which are smaller than 3,000 square meter are excluded
TokyoArea Yokohama Saitama Chiba Osaka Kobe Kyoto
Nagoya
Fukuoka Sapporo Sendai Hiroshima
Of f i c e Mar ket
There are five sub sectors in Tokyos Central Business District.
Tokyos Central Business District(CBD) has an accumulation of office buildings and is concentrated Tokyos Central Business District(CBD) has an accumulation of office buildings and is concentrated
in an area around 5km wide. 35 million people from 1 municipality and 3 prefectures use this space
to make Tokyo function like a megacity unlike any other in the world.
Itabashi
Adachi
Saitama
715millionpeople
Itabashi
Kita
Katsushika
Sumida
Taito
Arakawa
Toshima
Bunkyo
Nakano
Nerima
30km
Tokyo
13.22millionpeople
Kanagawa
9.07millionpeople
Chiba
6.15milionpeople
Setagaya
Minato
Edogawa
Koto
Shibuya
Shinjuku
Chiyoda
Chuo
Nakano
Suginami
Setagaya
Meguro
Shinagawa
30km
Ohta
31
Of f i c e Mar ket
Tokyos vacancy rate is at a historic high, but may reduce in some areas.
The muffled impact of the so-called2003 office problemresulted in a rapid reduction in vacancy The muffled impact of the so-called 2003 office problem resulted in a rapid reduction in vacancy
rates in the Tokyo office market from 2005 to 2007. However, this all changed during the Lehman
shock of 2008 , resulting in a rapid increase of over 8%.
In 2012, the vacancy rates in some areas began to decrease and has so far fallen to below 8%.
12%
0 , e aca cy a es so e a eas bega o dec ease a d as so a a e o beo 8%
Shinjuku
VacancyratemovementinTokyoCBD
Shi j k
Yearly Monthly
8%
10%
Minato
Chuo
Shinjuku
Minato
Chuo
Shinjuku
4%
6%
Shibuya
Chiyoda
Shibuya
Chiyoda
2%
0%
32
Source: NRI based on Miki Shoji Co., Ltd. data
Of f i c e Mar ket
Rental rate levels in Tokyo CBD are on a slow downward trend.
Rental rate levels in each area are the lowest they have been in the past 10 years Rental rate levels in each area are the lowest they have been in the past 10 years.
RenttrendsinTokyoCBD(yen/tsubo permonth)
24,000
26,000
(yen/tsubo permonth) Yearly Monthly
20,000
22,000
14 000
16,000
18,000
Minato
Shibuya
Chuo
Chiyoda
Shinjuku
Minato
Shibuya
Chuo
Chiyoda
Shinjuku
10,000
12,000
14,000
j
Shinjuku
Note: One tsubo is 3.3 square meters
Source: NRI based on Miki Shoji Co., Ltd. data
Since 2013, the supply of mega office buildings is on a lull, with only from10 to 20
Of f i c e Mar ket
buildings built for the whole year in Tokyos 23 districts.
In 2012 34 mega office buildings with a gross floor area of at least 10 000 each were completed In 2012, 34 mega office buildings with a gross floor area of at least 10,000 each were completed
in Tokyos 23 districts, for a total of 1.75 million of floor space which is the third largest in the citys
history.
As a result of the 2011 Tohoku earthquake, 5 buildings that were scheduled for completion in 2011 s a esu o e 0 o o u ea qua e, 5 bu d gs a e e sc edued o co pe o 0
were pushed back to 2012.
Suppliedfloorarea(1,000) Numberofbuildings
OfficeSpaceSupplyinTokyos23districts
2,160
1,750
40
50
2,000
2,500
Suppliedfloorarea
Numberofbuildings
880
1,170
580
910
1,020
590
1,160
20
30
1,000
1,500
0
10
0
500
Source: NRI based fromMori Building Companys Mega Office Building Market Trends Survey (Preliminary figure) dated March 21, 2012
Estimate
Of f i c e Mar ket
The cap rate has risen, but is still below the 5% threshold.
The cap rate in Tokyos office market has rapidly decreased since 2000 This is because plenty of The cap rate in Tokyos office market has rapidly decreased since 2000. This is because plenty of
equity traders are participating in the market, making it easy to raise capital.
Since 2006, Marunoichis cap rate has been at 3%, per unit, a level that should be substantially
impossible to achieve. Despite rising due to the Lehman shock, it stabilized in 2009 and is currently poss be o ac e e esp e s g due o e e a s oc , s ab ed 009 a d s cu e y
maintaining standard levels.
Tokyo office market cap rate trend
6.0%
6.5%
7.0%

Tokyo office market cap rate trend
Tokyo Marunouchi
4.5%
5.0%
5.5%

TokyoMarunouchi
Nihonbashi Nihonbashii stationarea
Roppongi Roppongi stationarea
Kounan Shingawa stationarea
3 0%
3.5%
4.0%
%

g
Nishi ShinjukuTokyoAdministrativeArea
3.0%
35
Source: NRI based on J apan Real Estate Institutes Real Estate Investors Survey
Of f i c e Mar ket
Osaka struggles with constitutional weakness.
The vacancy rate in the Osaka market rose to 11% due to the large supply in 2008 and 2009. This
t d h ti d i t 2013 d t th i fl f ffi trend has continued into 2013 due to the influx of new office spaces.
The supply/demand imbalance is structural in nature. The number of office sales workers in Osaka
has had a remarkable drop from its peak ahead of the rest of the country. The vacancy rate is
expected to remain at high levels for the long term
14 0% 350
1,600
expected to remain at high levels for the long term.
OfficeSpaceSupplyandVacancyinOsaka NumberofOfficeWorkersandSalesWorkersbyMajorCity
1,000people Vacancyrate Suppliedfloorarea1,000
241
234
11.5%
11.2%
8 0%
10.0%
12.0%
14.0%
200
250
300
350
1,000
1,200
1,400
1986
1991
83
135
168
96
158
4.0%
6.0%
8.0%
100
150
200
400
600
800
1996
2001
2006
2011
0.0%
2.0%
0
50
0
200

2016
Saitama Sendai Yokohama Nagoya Osaka Fukuoka
Source: NRI based on NLI Research Institute Trends in the Number of Sales/Office Employees in Major Cities
Aug 5 2009
Source: NRI based on NLI Research Institute Current State of the Osaka Office Market and Future Prospects
Forecast
Of f i c e Mar ket
Cap rates in regional cities are currently on a plateau after having risen steeply.
In Tokyo cap rates have remained at the same level since 2009 Similarly cap rates in regional In Tokyo, cap rates have remained at the same level since 2009. Similarly, cap rates in regional
cities such as Sapporo, Nagoya and Osaka have leveled off.
Office CapRates in Major Regional Cities
7 0%
8.0%
Office Cap Rates in Major Regional Cities
6.0%
7.0%

Satsuma Ekimae Doori
Sendai AobaDoori
Nagoya Mei Station Area
4.0%
5.0%

Nagoya MeiStationArea
Osaka AlongMidosuji
Fukuoka Tenjin
3.0%
Source: NRI based on J REI
Office market
Residential market
Hotel Market
About 20% of all households in J apan are living in non-public rental apartments,
Resi dent i al Mar ket
and the percentage is trending upwards.
Households livingin non-public rental apartments (excludingwooden apartments; hereafter the same Households living in non-public rental apartments (excluding wooden apartments; hereafter the same
in this section), which numbered 3.32 million in 1988, increased by about 2.6 times to 8.77 million
(about 18% of all households) in 2008.
Breakdownof All Households by HousingType (2008) Number of Households by HousingType 1988 2008 Breakdown of All Households by Housing Type (2008) Number of Households by Housing Type 1988 - 2008
Private Rental
PublicRental
House
6%
Company
Housing
3%
4,686
4,960
15%
16%
18%
16%
18%
20%
5,000
6,000
0
0
)
R
a
t
i
o
PrivateRental
Housing,
Others
10%
3,741
4,077
4,392
9%
12%
10%
12%
14%
16%
3,000
4,000
e
h
o
l
d
s
(
u
n
i
t
:
1
0
,
0
0o
f
H
o
u
s
e
h
o
l
d
s
L
i
A
p
a
r
t
m
e
n
t
H
o
u
OwnHouse
PrivateRental
House,
Apartment
1,401
1,569
1,673
1,717
1,777
502
647
747
877 4%
6%
8%
1,000
2,000
N
u
m
b
e
r
o
f
H
o
u
s
e
i
v
i
n
g
i
n
P
r
i
v
a
t
e
R
e
u
s
e
s
(
n
o
n
w
o
o
d
)
63%
Apartment
House(non
wood)
18%
332
502
647
0%
2%
0
'88 '93 '98 '03 '08
N
HouseholdsLivinginHousing
e
n
t
a
l
&
Source: NRI based on data fromHousing and Land Survey, Ministry of Internal Affairs and Communications of J apan.
HouseholdsLivinginRentalHouses
HouseholdsLivinginPrivateRental&ApartmentHouses(nonwood)
RatioofHouseholdsLivinginPrivateRental&ApartmentHouses(nonwood)
The total number of moving households has decreased, but the number of
households moving to non-public rental apartments has remained fairly steady.
The number of moving households peaked out in 1994-98 and decreased to about 85%of the peak- The number of moving households peaked out in 1994-98 and decreased to about 85% of the peak-
time level in 2004-08 .
The number of households moving to non-public rental apartments remained steady, resulting in a
higher proportion of such households in the total number of moving households. g e p opo o o suc ouse ods e o a u be o o g ouse ods
Housing Choices of Moving Households 1984 - 2008
45%
46%
44%
45%
45%
50%
1,400
1,600
0
,
0
0
0
)R
a
t
i
o
1,103
1,186
1,221
1,135
1,039
782
884
868
778
39%
2 %
30%
35%
40%
800
1,000
1,200
1,400
s
e
h
o
l
d
s
(
U
n
i
t
:
1
0
o
o
f
H
o
u
s
e
h
o
l
d
s
A
p
a
r
t
m
698
427
532
557
502
466
10%
15%
20%
25%
400
600
800
o
f
M
o
v
i
n
g
H
o
u
s
s
L
i
v
i
n
g
i
n
P
r
i
v
a
t
e
m
e
n
t
H
o
u
s
e
s
0%
5%
0
200
8488 8993 9498 9903 0408
N
u
m
b
e
r
R
e
n
t
a
l
&
NumberofMovingHouseholdsinPast5Years
NumberofHouseholdsMovedintoRentalHouses
NumberofHouseholdsMovedintoPrivateRental(Apartment)Houses
RatioofHouseholdsMoved intoPrivateRental(Apartment)Houses
The majority of households moving to non-public rental apartments moved within
the same city.
Looking at the former locations of households moving into non-public rental apartments in seven
major cities those that moved within the same city were greater in number than those that moved in major cities, those that moved within the same city were greater in number than those that moved in
from outside the city.
Tokyos 23 wards and Osaka saw a decline in households moving into non-public rental apartments
fromoutside the city, while major regional cities sawno change. from outside the city, while major regional cities saw no change.
Location Choices of Moving Households
450
500
n
0
)
Householdmovinginacity
Householdmovingout acity
266
207
300
350
400
h
o
l
d
s
M
o
v
e
d
i
n
o
o
d
)
(
U
n
i
t
:
1
,
0
0
0
207
197
105
86 100
150
200
250
f
I
n
F
l
o
w
H
o
u
s
e
H
o
u
s
e
s
(
n
o
n
w
o
28 30 28 32 28 27
165
157
148
56 57 57
73
61
53
27 27 23
47 46
41
50 46 48
25
24 24
58 54 54
86
77
36 37
32
45 47
49
0
50
100
4
9
8
9
0
3
4
0
8
4
9
8
9
0
3
4
0
8
4
9
8
9
0
3
4
0
8
4
9
8
9
0
3
4
0
8
4
9
8
9
0
3
4
0
8
4
9
8
9
0
3
4
0
8
4
9
8
9
0
3
4
0
8
B
r
e
a
k
d
o
w
n
o
f
P
r
i
v
a
t
e
R
e
n
t
a
l
H
9
4
9
9
0
4
9
4
9
9
0
4
9
4
9
9
0
4
9
4
9
9
0
4
9
4
9
9
0
4
9
4
9
9
0
4
9
4
9
9
0
4
Sapporo Sendai Tokyo23
Wards
Nagoya Osaka Hiroshima Fukuoka
The supply of non-public rental apartment units has increased more sharply than
total housing stock.
The growth of rental apartments (public and non-public combined) outpaced the growth of overall The growth of rental apartments (public and non-public combined) outpaced the growth of overall
housing as well as the more modest rise of rental housing in general.
As a result, the ratio of rental apartments to total rental houses increased from 60 to 70%.
Housing Stock by Type 1988-2008 Housing Growth Rates by Type
57
60
70
124
125
130
39
44
50
53
40
50
60
(
U
n
i
t
:
m
i
l
l
i
o
n
)
108
115
108
112
110
115
120
9
8
8
1
0
0
)
16
18
20
21
22
12
14
15
10
20
30
H
o
u
s
i
n
g
S
t
o
c
k
(
100
108
100
103
100
95
100
105
G
r
o
w
t
h
R
a
t
e
(
1
9
NumberofHouses
0
10
'88 '93 '98 '03 '08
NumberofHouses
Number of Rental Houses
80
85
90
NumberofRentalHouses
NumberofRental& Apartment Houses
(nonwood)
NumberofRentalHouses
NumberofRental&ApartmentHouses(nonwood)
'98 '03 '08
Construction of new rental housing have declined and are less concentrated in the
Tokyo Metropolitan Area.
New housing construction decreased drastically in 1997, 2007 and 2009. The ratio of rental housing dropped
sharplyin 2009 andnewconstructionof rental housingdecreasedsignificantly sharply in 2009, and new construction of rental housing decreased significantly.
Looking at yearly breakdowns of new rental housing construction by region, the composition ratio of the Tokyo
Metropolitan Area has dropped sharply, while that of the Kinki region has increased.
Both the number of new constructions and rent ratios for 2012 have gone up, but have not returned to their 2008
700
800
g p
levels.
NewHousingSupplyTrend:19912012 BreakdownofNewRentalHousingConstructionbyRegion
45%
50%
1,800
2,000
0
0
)
k
ProvincialRegion
500
600
700
30%
35%
40%
1,200
1,400
1,600
n
S
t
a
r
t
s
(
U
n
i
t
:
1
,
0
0
R
a
t
i
o
o
f
R
e
n
b
y
R
e
g
i
o
n
KinkiRegion
ChuubuRegion
Metropolitan
Region
300
400
10%
15%
20%
25%
400
600
800
1,000
b
e
r
o
f
C
o
n
s
t
r
u
c
t
i
o
e
n
t
a
l
H
o
u
s
e
s
n
g
C
o
n
s
t
r
u
c
t
i
o
n
U
n
i
t
:
1
0
0
0
0
100
200
0%
5%
10%
0
200
400
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
N
u
m
b
H B ilt f S l C H R t l H
w
R
e
n
t
a
l
H
o
u
s
i
n
(
U
0
9
1
9
2
9
3
9
4
9
5
9
6
9
7
9
8
9
9
0
0
0
1
0
2
0
3
0
4
0
5
0
6
0
7
0
8
0
9
1
0
1
1
1
2
Source: NRI based on data fromSurvey of Construction Work Started, Ministry of Land, Infrastructure, Transport and Tourismof J apan.
HouseBuiltforSale CompanyHouse RentalHouse
OwnHouse RatioofRentalHouse
N
e
w
43
Vacancy rates trended downwards in central Tokyo and in Osaka.
Vacancyrates trended downwards in central Tokyo (23 wards) and Osaka but upwards in major Vacancy rates trended downwards in central Tokyo (23 wards) and Osaka but upwards in major
regional cities.
More recently, vacancy rates in the Tokyo area and Kanagawa are on a slight downward trend.
16
17
Vacancy Rates of Rental Housing (non-wood) in Major Cities Vacancy Rates of Rental Housing in Tokyo Metropolitan Area
25%
t
:
%
)
'98 '03 '08
13
14
15
15%
20%
(
n
o
n
w
o
o
d
)
(
U
n
i
t
y
R
a
t
e
(
U
n
i
t
:
%
)
10
11
12
23
10%
f
R
e
n
t
a
l
H
o
u
s
i
n
g
(
H
o
u
s
i
n
g
V
a
c
a
n
c
y
AllTokyoareas
23Tokyodistricts
8
9
10
1
0%
5%
Sapporo Sendai Tokyo 23 Nagoya Osaka Hiroshima Fukuoka
V
a
c
a
n
c
y
R
a
t
e
o
f
R
e
n
t
a
l
H
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
t
O
c
t
N
o
v
D
e
c
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
t
O
c
t
N
o
v
D
e
c
y
Tokyocities
Kanagawa
123456789
1
0
1
1
1
2123456789
1
0
1
1
1
2
2011 2012
44
Source: NRI based on data fromReport on Rental Housing Market, TAS Corp.
(Analyzed by TAS Corp. Data Supplied by At Home Co., Ltd.).
Source: NRI based on data fromData fromHousing and Land Survey, Ministry of Internal Affairs and
Communications of J apan.
Sapporo Sendai Tokyo23
Wards
Nagoya Osaka Hiroshima Fukuoka MSMS
2011 2012
The rent level of non-public rental housing continues to fall.
The rent level of non-public rental housing rose steadily from1990 to 2000 after which it gradually The rent level of non-public rental housing rose steadily from 1990 to 2000, after which it gradually
declined. The rent level downward trend continued in 2011.
Rent in the Private Sector (Annual Average) Nationwide and Central Tokyo
104.0
106.0
108.0
Y
e
a
r
2
0
1
0
)
98.0
100.0
102.0
R
e
n
t
I
n
d
e
x
(
B
a
s
e
Y
92.0
94.0
96.0
n
n
u
a
l
A
v
e
r
a
g
e
)
R
Japan
86.0
88.0
90.0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
P
r
i
v
a
t
e
(
A
n
p
Tokyo23Wards
Source: NRI based on data fromConsumer Price Index, Ministry of Internal Affairs and Communications of J apan.
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Occupancy rates of REIT-owned properties are rising, while their rent levels remain
stable.
Lookingat the changes in the REIT-owned occupancyrate and monthly rent the monthly rent level Looking at the changes in the REIT-owned occupancy rate and monthly rent, the monthly rent level
has slightly decreased although the occupancy rate in Tokyos 3 central districts and its 23 districts
has been on an uptrend since 2010
OccupancyRatesofREITownedProperties MonthlyRentsofREITownedProperties
98%
100%
)
Tokyo3centraldistricts
Tokyo23districts
Nagoya city
Osakacity
4,000
4,500
5,000
/
m
2
)
96%
98%
a
t
e
(
U
n
i
t
:
%
)
Fukuokacity
2 500
3,000
3,500
4,000
e
l
(
U
n
i
t
Y
e
n
/
94%
O
c
c
u
p
a
n
c
y
R
1 000
1,500
2,000
2,500
n
t
h
l
y
R
e
n
t
L
e
v
Tokyo3centraldistricts
Tokyo23districts
Nagoya city
90%
92%
a
n
a
r
a
y
u
l
e
p
o
v
a
n
a
r
a
y
u
l
e
p
o
v
a
n
a
r
a
y
u
l
O
0
500
1,000
a
n
a
r
a
y
J
u
l
e
p
o
v
a
n
a
r
a
y
J
u
l
e
p
o
v
a
n
a
r
a
y
J
u
l
M
o
n
Nagoyacity
Osakacity
Fukuokacity
Source: NRI based on data fromARES J -REIT Property Database, Association for Real Estate Securitization of J apan.
46
J
a
M
a
M
a
J
S
e
N
o
J
a
M
a
M
a
J
S
e
N
o
J
a
M
a
M
a
J
2010 2011 2012
J
MM
J
S
e
N
J
MM
J
S
e
N
J
MM
J
2010 2011 2012
The rate of housing ownership, which has a negative impact on rental housing
demand, has reversed trends downwards.
Average annual income has decreased since 2007 and the housing ownership rate has declined Average annual income has decreased since 2007, and the housing ownership rate has declined
since 2008.
Housing Ownership Rate and Average Annual Income in J apan
71.5%
72.5%
71.4%
71.9%
554
551
553
547 550
560
72.0%
73.0%
71.0%
535
530
540
70 0%
71.0%

h
i
p
r
a
t
e
A
n
n
u
a
l
i
n
c
o
m
Ownership rate
69.2%
69.4%
521
520
520
530
69.0%
70.0%

H
o
m
e
o
w
n
e
r
s
h
m
e
(
1
0
,
0
0
0
Y
e
n
Ownershiprate
Yearlyincome
500
510
67.0%
68.0%
H
n
)
2005 2006 2007 2008 2009 2010 2011
47
Source: NRI based on data fromConsumer Price Index (CPI), Ministry of Internal Affairs and Communications of J apan.
2005 2006 2007 2008 2009 2010 2011
Office market
Residential market
Hotel Market
Ret ai l Pr oper t y Mar ket
Development of large-scale retail stores has started to recover since 2010.
Development of large-scale retail stores whichfell steeply after Lehman shock bottomed out in Development of large-scale retail stores, which fell steeply after Lehman shock, bottomed out in
2009 and is now on the path to recovery.
New Retail Space Supply vs. Number of Development Projects
b
638
786
738
731 730
750
654 700
800
900
4,000
4,500
5,000

N
u
Floor
Area
Number
of
projects
450
638
500
584
620
500
600
2,500
3,000
3,500
(
1
0
0
0
m
2
)
u
m
b
e
r
o
f
p
r
o
j
e
2,455
3,335
3,729
4,178
4,545
3,983
4,369
1 919
2,081
2,351
2,193
200
300
400
1 000
1,500
2,000
F
l
o
o
r
A
r
e
e
c
t
s
(
c
a
s
e
s
)
1,919
2,081
0
100
0
500
1,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NRI based on data fromMinistry of Economy, Trade and Industry of J apan.
Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication.
Tokyos mega retail chains are refraining from expanding to new locations
Of all the main prefectures only Fukuoka registered continued growth from2009 in terms of the Of all the main prefectures, only Fukuoka registered continued growth from 2009 in terms of the
number of new retail chain expansions.
Numberofnewexpansionsandfloorareaoflargeretailchainsinprimaryprefectures
45
50
400
450
Tokyo
40
50
300
400
m
b
e
r
0
0

m
2
)
Osaka
40
50
300
400
m
b
e
r
0
0

m
2
)
Kobe
6

FloorArea
Reported
numbers
30
35
40
45
300
350
400
b
e
r
0
0

m
2
)
0
10
20
30
0
100
200
300
R
e
p
o
r
t
e
d

n
u
m
F
l
o
o
r

A
r
e
a

(
1
0
0
0
10
20
30
0
100
200
300
R
e
p
o
r
t
e
d

n
u
m
F
l
o
o
r

A
r
e
a

(
1
0
0
15
20
25
30
150
200
250
R
e
p
o
r
t
e
d

n
u
m
b
o
o
r

A
r
e
a

(
i
n

1
0
0
0 0
200120032005200720092011
0 0
200120032005200720092011
40
50
400
b
e
r
m
2
)
Aichi
40
50
400
b
e
r
m
2
)
Fukuoka
5
10
15
50
100
F
l
o
10
20
30
100
200
300
R
e
p
o
r
t
e
d

n
u
m
b
F
l
o
o
r

A
r
e
a

(
1
0
0
0

10
20
30
100
200
300
R
e
p
o
r
t
e
d

n
u
m
b
F
l
o
o
r

A
r
e
a

(
1
0
0
0

Source: NRI based on data fromthe Ministry of Economy, Trade and Industrys Large-scale Retail Chain Site Expansion Report
NB: The number of cases for 2002 and 2008 include submissions with no reported floor area
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0 0
200120032005200720092011
0 0
200120032005200720092011
For shopping centers, the total floor area for all stores and the floor area per store
are both on the rise.
Overallfloorareaandperstorefloorareaforshoppingcenters
(in1millionm
2
)
OldSCstandard NewSCstandard (in1000m
2
/store)
42 7
44.2
45.7
11.8
11.6
12.1
12.4
12.8
13.2
13.6
14.1 14.2
14.5
14.8
14
16
50
60
e
r
30.6 30.4
31.5
33.1
34.6
36.5
38.0
42.1
42.7
44.2 11.6
8
10
12
30
40
e
r
s
h
o
p
p
i
n
g
c
e
n
t
e
a
l
l
f
l
o
o
r
a
r
e
a
2
4
6
10
20
F
l
o
o
r
a
r
e
a
p
e
O
v
e
r
a
NB: In the old SC standard, only shopping malls with more than 10 retail tenants were considered.
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
In the new SC standard, the shopping center must have more than 10 tenants including food stalls, service centers and retail outlets.
There is an improvement in the downward trend in shopping centers sales.
Sales took a heavy downturn in 2008 and 2009 due to the Lehman shock but the scale of the
Yearlycomparisonofshoppingcenterssales
Sales took a heavy downturn in 2008 and 2009 due to the Lehman shock, but the scale of the
downturn is getting progressively smaller.
(%)
0.3 0.3
0.0
1
0
1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(%)
3 4
-2.2
-2.1
-1.6
-1.7 -1.5
-2.0
-1.3
-3
-2
-1
-3.4
-6
-5
-4
Source: NRI basedontheJ apanCouncil of ShoppingCenters Overall SalesStatisticsReport
-6.8
-8
-7
Source: NRI based on the J apan Council of Shopping Centers Overall Sales Statistics Report
The outlook held by consumers continues to recover and exceeds levels prior to the
2011 Tohoku disaster
Consumers had a negative outlook after the 2011 Tohoku disaster but starting 2012 this has
60
Consumers had a negative outlook after the 2011 Tohoku disaster, but starting 2012, this has
recovered to levels reported prior to the disaster
Consumeroutlookindexchart
40
50
March2011
Tohokuearthquake
20
30
0
10
2012 2011 2010 2009 2008 2007
NB: Consumer outlook index calculation methodology:
Consumers are asked to rate their outlook for the next 6 months for the following 4 categories: Lifestyle, Income, J ob environment and Determining when to purchase consumer
durables using a 5-scale index.
Source: NRI based on fromCabinet Office Consumer Trends Survey
Each of the 5 scales is assigned a value: +1 for Will get better, +0.75 for Will get somewhat better, +0.5 for Wont change, +0.25 for Will get somewhat worse, and +0 for Will get
worse. This numerical index is used to provide a component ratio for each of the answers, fromwhich the results are calculated.
To illustrate, a value of 50 will be produced if all participates answer Wont change for all available items.
The disparity in rental rates between the Tokyo Metropolitan Area and the provincial
areas is closing.
60,000
(Yen/Average Month)
1
st
floorrentrankingin13principalbusinessareas(yen/month/tsubo)
(yen/month/tsubo)
50,000
Tokyo
Metropolitan Area
Ginza
Shi j k
Ikebukuro
Omotesando
(TokyoMetropolitanArea)
30,000
40,000
MetropolitanArea
Shinjuku
Shibuya
Yokohama*
Shinsaibashi
O d i (S )
( y p )
(TokyoMetropolitanArea)
20,000
Provincial
Areas
Oodori(Sapporo)
Sannomiya(Kobe)
Sendai
Tenjin(Fukuoka)
Shij K hi
(ProvincialAreas)
(ProvincialAreas)
0
10,000
2010 2011 2011 2012
ShijoKawaramachi
Late 2010 Early 2011 Late 2011 Early 2012
Sakae(Nagoya)
2010 2011 2011 2012
54
NB: Rent in Yokohama seems to have spiked for the early half of
2012, but this can be attributed to the extremely small sample size
Late2010 Early2011 Late2011 Early2012
Source: NRI based on the J apan Real Estate Institute, BAC Urban Projects, and Attractors Labs Retail Chain Rental Trends
The cap rate which had been constantly rising since the latter part of 2008 settled
down in 2010.
Commercialestablishmentcaprates(expectedyield)
6 0%
7.0%
8.0%
Tokyo
Suburban
shoppingcenters
Metropolitanhighclassspecialty
store: Omotesando area
4.0%
5.0%
6.0%

Tokyo
Suburbs
store:Omotesandoarea
Metropolitanhighclass
specialtystore:Ginzaarea
specialtystores
1.0%
2.0%
3.0%
Nagoya
O k
p y
Suburban
shoppingcenters
specialtystores
NB:
Metropolitan high-class specialty stores:
Lengthof timeafter construction-or- large-scalerepair/improvement: lessthan5years
0.0%

Osaka
p y
Suburban
shoppingcenters
Length of time after construction -or- large-scale repair/improvement: less than 5 years
Tenants: Mainly retailers of high-class brands.
Rent system: Mainly fixed-term, variable rental schemes based on the revenue.
Areas: Along Chuodoori in Ginzas Chuo district.
Along Omotesandoin OmotesandosShibuya district.
Suburban shopping centers:
Sales floor area: around 20,000m
2
Source: NRI based on the J apan Real Estate Institutes Real Estate Investors Survey
Key tenants: Prominent general merchandise stores (GMS)
Rent system: Mainly fixed-term, fixed-charge rental schemes
Areas: 1-hour Shinkansen ride along key stations to Tokyos Metropolitan District
Stores for areas outside Tokyo follow similar locational conditions as above.
The number of large-scale commercial establishments operated by railway
companies has increased in recent years.
Railway companies have been renovating station buildings and opening new tourist facilities while
aggressively developing commercial centers used by department stores and specialist shops.
State of commercial establishments near station areas announced for opening or development in 2011 and 2012
Station SendaiStation Station TokyoSkytreeStation
(formerly Narihirabashi Station)
Developer EastJapanRailwayCompany
Investment
Details:
Hotelandcommercialestablishmentonaroughly
68,000m
2
plot;officebuildingmaintenance;total
investmentworth10billionyen
Opening: 20172018
(formerlyNarihirabashiStation)
Developer TobuRailwayCompany
Investment
Details
MaintenanceofSoraMachi (SkyTown),anareaof
retailestablishmentswithroughly50,000m
2
offloor
spacealongtheSkytreestructure
Opening May,2012
Station ShibuyaStation
Developer TokyuRailwayCorporation
Investment
Details
MaintenanceofTokyuTokosenShibuyaStation
22,000m
2
commercialareacalledHikarie,
t bli h d d i th t f f th T k T k
Station OsakaStation
Developer WestJapanRailwayCompany
Investment
Details
Northentrancebuildingandstationbuilding
renovation;establishmentof130,000m
2
retailarea
fordepartmentspecialtystores;officebuilding
p g y,
establishedduringthetransferoftheTokyuTokosen
ShibuyaStation
Opening April,2012
maintenance
Opening May,2011
Station OsakaStation
Developer HankyuHanshinHoldings Station YokohamaStation
Investment
Details
Renovationofcommercialestablishments/Hankyu
Umeda mainoffice.Investmentworth60billionyen;
companyisalsonegotiatingdevelopmentof
commercial/officeestablishmentnorthoftheOsaka
stationwitha12companyconsortium.Thegroups
investmentamountisroughly51billionyen.
Developer EastJapanRailwayCompany
TokyuRailwayCorporation
Investment
Details
Maintenanceof130,000m
2
commercialcenterand
officespacetobeopenedduringrenovationofthe
stationswestentrance
i
Source: NRI based on publicly available materials
Opening HankyuUmeda Main:Nov,2012
Northarea:Apr,2013(estimate)
Opening 2019
Office market
Residential market
Hotel Market
Hot el Mar ket
The number of new/planned guest rooms across the country is on an upward trend.
Lookingat the changes in the number of new/additional planned hotel rooms fromthe downward Looking at the changes in the number of new/additional planned hotel rooms from the downward
trend of 2009, an upward trend starting from the latter half of 2012 can be observed.
Numberofnew/additionalplannedguestrooms
324
350 50
38
43
42
42
39
247
226 226
254
286
293
308308
315
324
297
262
269
255
224
250
300
350
40
45
50
29
26
24
26
27
33
38
37 38
39
37
32
31
29
25
26
25
226
215
172
136
159
157
184
161
176
226
224
209
179
193
150
200
250
25
30
35
g
u
e
s
t
r
o
o
m
s
1
0
0
0
r
o
o
m
s
)
N
u
m
b
e
24
21
15
20
23
23
25
23
25
136
50
100
150
10
15
20
P
l
a
n
n
e
d
(
u
n
i
t
:
1
r
o
f
p
l
a
n
s
Plannedno.ofguest
rooms
0
50
0
5
00
01
02
03
04
05
06
07
08
09
10
11
12
rooms
No.ofplans
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: NRI based on Ohta Publications Weekly Hotel and Restaurants: Dec 7, 2012 Issue

Year (first half)
Hot el Mar ket
The number of guest rooms for hotels across the country is still on an upward trend
Lookingat the changes in the number of existing hotel guest rooms and establishments we see that Looking at the changes in the number of existing hotel guest rooms and establishments, we see that
although there has been no change in the current upward trend in the number of guest rooms, the
number of establishments is slowing increasing.
Numberofexistingguestroomsandestablishments
649
664
681
698
722
756
781
798
802
814
10,000
12,000
700
800
900
583
596
613
622
638
649
664
7,769
7,944
8,110
8,220
8,363
8,518
8,686
8,811
8,990
9,180
9,442
9,603
9,688
9,629
9,863
6 000
8,000
500
600
700
N
u
m
b
e
r
o
u
e
s
t
r
o
o
m
s
0
0
r
o
o
m
s
)
4,000
6,000
200
300
400
o
f
e
s
t
a
b
l
i
s
h
m
e
n
t
s
P
l
a
n
n
e
d
g
u
(
u
n
i
t
:
1
0
0
0
2,000
0
100
200
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
s
No.ofhotelguestrooms
No.ofhotel
establishments
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NRI based on data fromthe Ministry of Health, Labor and Welfares Health Administration Reports Note: These are year-end values
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Hot el Mar ket
There is a healthy domestic demand for lodging.
Changes in domestic lodging demand reveal that the demand for the whole of 2012 exceeded that of Changes in domestic lodging demand reveal that the demand for the whole of 2012 exceeded that of
the previous years, indicating that domestic demand is on an uptrend. Tourist arrivals have also
recovered to their pre-Tohoku levels.
Numberofdomesticlodgingguestsinrecentyears
100
120
e
s
t
s
60
80
e
s
t
i
c
l
o
d
g
i
n
g
g
u
e
m
i
l
l
i
o
n
s
)
20
40
N
u
m
b
e
r
o
f
d
o
m
e
(
u
n
i
t
s
:
No.oflongtermlodgingguests
No.offoreignguests
0
20
07 07 08 08 09 09 10 10 11 11 12 12

N
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012
Note: Only establishments with more than 10 employees were counted
1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q
Source: NRI based on the J apan TourismAgencys Lodging and Travel Statistics Survey
Hot el Mar ket
The utilization rate of guest rooms nationwide is on an upward trend
All establishments are observing an upward trend when looking at changes in guest roomutilization All establishments are observing an upward trend when looking at changes in guest room utilization
rates.
Utilization rate of guest rooms per establishment in recent years
60
70
%
40
50
t
i
l
i
z
a
t
i
o
n
r
a
t
e
p
e
m
e
n
t
(
u
n
i
t
:
%
)
20
30
G
u
e
s
t
r
o
o
m
u
t
e
s
t
a
b
l
i
s
h
m
Resorthotels
Businesshotels
0
10
08080808090909091010101011111111121212
Cityhotels
2008
1Q
2008
2Q
2008
3Q
2008
4Q
2009
1Q
2009
2Q
2009
3Q
2009
4Q
2010
1Q
2010
2Q
2010
3Q
2010
4Q
2011
1Q
2011
2Q
2011
3Q
2011
4Q
2012
1Q
2012
2Q
2012
3Q
Notes: Figures fromthe 2
nd
quarter of 2010 count establishments with less than 9 employees
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Source: NRI based on the J apan TourismAgencys Lodging and Travel Statistics Survey
Hot el Mar ket
Rates for a single nights stay are on the rise.
An uptrend is observable for 2012 when lookingat the rates for a single nights stay An uptrend is observable for 2012 when looking at the rates for a single nights stay.
Ratesforasinglenightstayforrecentyears
16,500
17,000
17,500
e
n
)
15,000
15,500
16,000
o
m
r
a
t
e
(
u
n
i
t
:
Y
e
13,500
14,000
14,500
Pernightstay(regulardays)
S
i
n
g
l
e
n
i
g
h
t
r
o
o
12,500
13,000
03 04 05 06 07 08 09 10 11 12
()
Pernightstay(holidays)
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(Question
Source: NRI based on data fromthe Ministry of Internal Affairs Retail Commodity Statistics Survey.
62
Note: The question until 2011 was Private hotel: rate for a single nights stay with breakfast for 1 person. For 2012, it was rate for a single nights stay with breakfast for 1 person.
()
(Question
revised)
Hot el Mar ket
The room utilization rate for main hotels in Tokyo and Osaka is on the rise.
Lookingat the guest roomutilization rates we see a large dip in 2011 after the 2011 Tohoku Looking at the guest room utilization rates, we see a large dip in 2011 after the 2011 Tohoku
earthquake. This has since resurged and has been climbing steadily since 2012.
Guest room utilization rate by hotel type of hotels in Tokyo and Osaka
80
90
100
t
:
%
)
50
60
70
z
a
t
i
o
n
r
a
t
e
(
u
n
i
t
20
30
40
19
Top19Tokyohotels
G
u
e
s
t
r
o
o
m
u
t
i
l
i
0
10
1
1
0
1
1
1
2
1
0
1
1
1
2
1
0
1
1
1
2
15
Top15Osakahotels
G
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
t
O
c
t
N
o
v
D
e
c
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
t
O
c
t
N
o
v
D
e
c
J
a
n
F
e
b
M
a
r
A
p
r
M
a
y
J
u
n
J
u
l
A
u
g
S
e
p
t
O
c
t
N
o
v
D
e
c
Source: NRI based on The Nikkei
63
2010 2011 2012
2010 2011 2012
Office market
Residential market
Hotel Market
The truck-based transport volume (in tons), which forms the bedrock of J apans
Logi st i c s Pr oper t y Mar ket
cargo industry, has continued to decline in recent years.
Truck-based(automobile) transport is the primary transport methodthat constitutes a large share of J apans freight traffic. Truck based (automobile) transport is the primary transport method that constitutes a large share of J apans freight traffic.
In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for
private use.
The quantity transported by business-purpose vehicles is growing, but has not shown the same level of growth since it last peaked in
2000.
Automobilecargoquantitymovement
(Unit:1milliontons)
Cargoquantitybytransportmethod
(Unit:1milliontons;%)
Business Personal
5,000
6,000
7,000
Railways
Coastwise
vessels
367
7.3%
Domesticaviation
1
0.0%
3,000
4,000
,
44
0.9%
0
1,000
2,000
Motorvehicles
4,582
Source: NRI based on the Ministry of Affairs Transport quantity by transport method
and the Ministry of Land, Infrastructure, Transport and Tourisms Automobile Transport Statistics Survey
NB: The chronological continuity of data fromprior to 2009 could not be guaranteed due to the changes made to the in
tallying methodology in the middle of 2010.
'60'65'70'75'80'85'90'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10
91.8%
While transport quantity experiences an overall decline, the ratio of freight handled
While transport quantity experiences an overall decline, the ratio of freight handled
by the warehousing industry is on the rise.
L i i i b i d ( i hi d) Logistics quantity by industry (quantity shipped)
(unit: 1 million tons)

Warehousing
industry
Wholesale
industry
Manufacturing
industry
Steel
works
Warehousing
Industryshare
8%
10%
3,000
3,500
4,000
6%
2,000
2,500
3,000
2%
4%
500
1,000
1,500
0% 0
500
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourisms Logistics Census
As the movement to smaller logistics lots progresses, the quantity distributed in
such lots appears to be in upward trend based on the number of instances.
As the movement to smaller logistics lots progresses across the whole industry the quantitydistributedhas As the movement to smaller logistics lots progresses across the whole industry, the quantity distributed has
increased to a yearly rate of 4.0% based on the number of reported instances.
The increased quantity of distribution in warehouses is remarkably high. This increase is propelled by the increase
in distribution quantity using small lots that are less than 0.1 tons.
Industry-wide (except warehousing) distribution quantity by lot size
(unit: number of instances)
Warehousing distribution quantity per lot size
(number of instances)
64.4%
0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000
2000
0.1t 0.10.5t 0.51t 15t 5t
46.4%
0 500,000 1,000,000 1,500,000 2,000,000
2000
0.1t 0.10.5t 0.51t 15t 5t
(instances)
Below0.1t Above5t Below0.1t Above5t
(instances)
69.2% 2005 59.2% 2005
CAGR
4.5%
CAGR
CAGR
7.3%
CAGR
75.3% 2010 72.4% 2010
3.7% 12.6%
Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourisms Logistics Census
While new supply has stopped dwindling, facilities are growing larger due to
businesses consolidating their logistics capabilities
The number of suppliedwarehouse buildings fell to roughly24%of the peak level in 1991(25,000buildings/year) whichhas stabilized The number of supplied warehouse buildings fell to roughly 24% of the peak level in 1991 (25,000 buildings/year) which has stabilized
in recent years.
The number of supplied warehouse buildings for the transport industry is dwindling at a more relaxed pace compared to the rest of the
industry (see figure below left), but the floor space per building is on an upward trend (below right).
This explains the increased need for SCM support for generic enterprises and new/large-scale logistics facilities for logistics p pp g p g g g
consolidation.
Nationwidenumberofsuppliedwarehouses
includingwarehousesfortransportandtransportindustryshare
(units:buildings,%)
%
Floorspaceperwarehousebuilding
(unit:m
2
)

Transport
I d t
Otherthan
t t
Transport
i d t h
Entire
I d t
Otherthan
t t
Transport
i d t
Buildings
%
20%
25%
50,000
60,000
1,500
2,000
Industry transport industryshare Industry transport industry
g
10%
15%
20 000
30,000
40,000
1,000
0%
5%
0
10,000
20,000
0
500
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Construction Statistics
Development of logistics real estate, which had been shrinking since the Lehman
shock, is now back in full swing
Order volume for construction of warehouses/logistics facilities by ordering industry
(unit: 1 billion yen)
400

Realestate
Industry
Transport
Industry
Others
300
100
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Only contracts worth 5 billion yen above are included
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Construction Order Trends, Statistics and Survey
Big foreign logistics real estate players are gearing for developments along the
railway lines in anticipation of the completion of the tri-ring railway.
Prologis ParkKawajima 2&
Kitamoto
K ji 2 C d i 2013
LogiportKitakashiwa
Constructed:Sept2011
Completed:Oct2012
l fl 12 000
2
LogiportSagamihara
d l
Joban
Kawajima 2 Constructed:spring2013;
Completion:spring2014
Kitamoto Constructed:Jan2013;
Completion:Mar2013
Totalfloorarea:45,000m
2
;36,000m
2
Developer:Prologis
2
Developer:LaSalle
Constructed:Jul2012
Completion:Aug2013
2
Developer:LaSalle,MitsubishiLand
AtsugiLogisticsCenter
Constructed:May2012
Joban
Expressway
KashiwaCityParkConversion
Acquired:Dec2012
Completion:Apr2013
2
Narita
Airport
y
Completion: Apr2013
2
Developer:LaSalle
KenO
Expressway
Gaikan
Expressway
MisatoCityLogisticsCenter
Constructed:Jan2013
Completion:Oct2013
2
2
Developer:Kenedix,CPD
Seller:YKKAP
GLPAtsugi
Constructed:Nov2012
Completion:Dec2013
2
Haneda
Airport
AkanehamaLogisticsCenter
Acquired:May2011
2
Buyer:LaSalle,IIF
Seller:SapporoBrewery
2
Developer:Kennedix,ItochuCorporation
Chuo
Expressway
PrologisParkZama2
,
Developer:GLProperties
KoutoLogisticsCenterBldg2
Acquired:Aug2011
Totalfloorarea:
Buyer:LaSalle
Seller:
Tomei
Expressway
Constructed:Aug2012
2
Developer:Prologis
Expressway New developments
Expressway
Expressway
(planned)
Newdevelopments
Newlyoperational
Underacquisition
Source: NRI based on respective company webpages
Vacancy rate has recovered, allowing rental rates to recover in the future
Vacancy rate for rented large-scale logistics facilities has recovered to 2.0%. y g g
Rent levels which crashed after 2008 are expected to make an eventual recovery.
Monthlyrentaloffersandvacancyratesoflogisticsrealestatein
the Tokyo area
Monthlyrentaloffersandvacancyratesoflogisticsrealestatein
the Osaka area theTokyoarea
(units:yen/tsubo;%)
theOsakaarea
(units:yen/tsubo;%)
Rentoffer Vacancy
rate
Rentoffer Vacancy
rate
12%
14%
16%
18%
4,200
4,400
4,600
12%
14%
16%
18%
4,200
4,400
4,600
4%
6%
8%
10%
3,400
3,600
3,800
4,000
4%
6%
8%
10%
3,400
3,600
3,800
4,000
0%
2%
4%
3,000
3,200
4 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1
2008 2009 2010 2011 2012 2013
0%
2%
4%
3,000
3,200
4 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1
2008 2009 2010 2011 2012 2013
Source: NRI based on data fromIchigo Real Estate Information Services Survey on the Logistics Facilities Rental Market
NB: Logistics facilities which have a total lot area or total floor area of 10,000m2
The cap rate increase that continued from the latter half of 2008 has settled down in
2010.
The cap rate in Tokyo is now on a downward trend beginning in 2012.
Logistics real estate cap rate (expected yield) g p ( p y )
(unit: %)

Singletenant Multitenant
Tokyo(bay)
Tokyo
(inland)
Chiba
(inland)
Tokyo(bay)
Tokyo
(inland)
Chiba
(inland)
7.0%
7.5%
7.0%
7.5%
(inland)
(inland)
(inland) (inland)
6.0%
6.5%
6.0%
6.5%
5.0%
5.5%
Oct05 Apr06 Oct06 Apr07 Oct07 Apr08 Oct08 Apr09 Oct09 Apr10 Oct10 Apr11 Oct11 Apr12 Oct12
5.0%
5.5%
Oct05 Apr06 Oct06 Apr07 Oct07 Apr08 Oct08 Apr09 Oct09 Apr10 Oct10 Apr11 Oct11 Apr12 Oct12
NB: Single tenant: 2-3 floors; total floor area of around 10,000m2
NB: Multi-tenant: 3-4 floors; total floor area of around 50,000m2
Source: NRI based on J apan Real Estate Institutes Real Estate Investors Survey
Office market
Residential market
Hotel Market
Real Est at e I nvest ment Mar ket
An overall perspective of the J apanese real estate market
J apans first unlisted open-end private REIT investment was offered in November 2010 expanding
18.3
20
(tn)
J apans first unlisted open-end private REIT investment was offered in November 2010, expanding
the available selections in the J apanese real estate investment market.
Market scale and overview of the real estate investment market in J apan
14.6
12
16
9.1
4
8
0.3
1.3
0
4
REIT REIT RMBS CMBS
ListedREIT
Privatefund
UnlistedREIT

Equitytype
Listed
Unlisted
Close ended Open ended
Debttype
Homeloans
Loansforcommercial
realestate

NB: Listed REIT figure is updated as of end of Dec 2012, private fund figure is updated as of end of J une 2012, unlisted REIT isan estimated figure, RMBS/CMBS figure is updated as of end of Sept 2012
Closeended Openended
Source: NRI based on the Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and theJ apan Securities Dealers Association
The J -REIT market capitalization which started in Sept 2001 has recovered to
approximately 7 trillion yen.
The J -REIT market began trading on the stock market in Sept 2001 with 2 companies traded and a
45 8 000
(No.ofJREITs) (bn)
market capitalization of 2.5 trillion yen.
Today, there are 39 companies traded worth approximately 7 trillion yen.
J -REIT Market Capitalization and Number of Companies Traded
35
40
45
7,000
8,000
25
30
5,000
6,000
15
20
3,000
4,000
5
10
1,000
2,000
0 0
2003/09/30 2004/09/30 2005/09/30 2006/09/30 2007/09/30 2008/09/30 2009/09/30 2010/09/30 2011/09/30 2012/09/30
MarketCapitalization No.ofJREITs
75
Source: Bloomberg
More than 70% of J -REIT assets are located in the Tokyo Metropolitan Area, and
approximately 55% of J -REIT assets are office properties.
Over 70% of real estate owned by J -REIT is in the Tokyo Metropolitan Area, and more than half of
Asset Mix of J -REITs by Area and Asset Class
y y p ,
these are office properties.
Others
9.3%
Other Areas
7.5%
Retail
18.8%
5 Central
Wards of
Tokyo
Chubu Area
40%
Kinki Area
12.1%
Office
53.6%
Tokyo
43.6%
Kanto Area
16.0%
4.0%
Approximately
9.1 trillion yen
Approximately
9.1 trillion yen
Residential
18.3%
23 Wards of
Tokyo
%
G t T k A
y
16.8%
76
Greater Tokyo Area
76.4%
* As of the end of November of 2012
Source: NRI based on ARES
The Tokyo Stock Exchange (TSE) REIT Indices have recovered from 2013.
The TSE REIT Indices has droppedsharplyfromits peak in May 2007 andhas recoveredrapidlytoday
3,500
(Index:Feb10=1,000)
The TSE REIT Indices has dropped sharply from its peak in May 2007, and has recovered rapidly today.
TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index
2,500
3,000
1,500
2,000
500
1,000
0
500
TOPIX TOPIXRealEstate Index TSEREIT Index
TSEREIT OfficeIndex TSEREIT Retail &Logistics, OthersIndex TSEREIT Residential Index
77
Source: NRI based on Bloomberg
J -REIT dividend yields rapidly increased to around 10%, but are currently down to
around 3%.
The yield spread is at roughly 2 5%level
12.0
(%)
The yield spread is at roughly 2.5% level.
JREITdividendyieldandJapaneseGovernmentBond10yearyield
10.0
6.0
8.0
4.0
2.0
0.0
2003/09/01 2004/09/01 2005/09/01 2006/09/01 2007/09/01 2008/09/01 2009/09/01 2010/09/01 2011/09/01 2012/09/01
YieldSpread JREITs DividendYield JGB10YearYield
78
Source: NRI based on Bloomberg
The leveraged performance of core funds recovered to positive in the capital return.
Accordingto the index based on actual performance of core funds invested in domestic real estate According to the index based on actual performance of core funds invested in domestic real estate,
the leveraged property index (ARES J apan Fund Index) recovered to positive in the capital return.
ARES J apan Property Index (AJ PI) and ARES J apan Fund Index (AJ FI)
15%
20%
25%
AJPI:Total Return
AJFI:Total Return
15%
20%
25%
AJPI:IncomeReturn
AJFI:IncomeReturn
l
5%
10%
15%
5%
10%
15%
AJPI:Capital Return
AJFI:Capital Return
10%
5%
0%
10%
5%
0%
25%
20%
15%
25%
20%
15%
Source: NRI based on data fromThe Association for Real Estate Securitization
2002/12 2004/3 2005/6 2006/9 2007/12 2009/3 2010/6 2011/9 2002/12 2004/3 2005/6 2006/9 2007/12 2009/3 2010/6 2011/9
Source: NRI based on The Association for Real Estate Securitization (ARES) ARES J apan Property Index and ARES J apan Fund Index
CMBS issuance has decreased drastically since 2008, and at present only RMBS is
issued at a constant pace.
Most recently, about 80% of residential mortgage-backed securities were originated by the J apan
H i Fi A
60,000
(100m)
Housing Finance Agency.
Backed Securities Breakdown by Type of Backing and RMBS Breakdown by Originator
0% 20% 40% 60% 80% 100%
50,000
15.5%
14.2%
44.8%
39.6%
39.8%
46.4%
66.7%
2004FY1H
2004FY2H
2005FY1H
2005FY2H
2006FY1H
2006FY2H
2007FY1H
4,370
7,418
30,000
40,000
66.7%
71.6%
79.7%
65.9%
85.1%
88.4%
87.6%
93.7%
00
2007FY2H
2008FY1H
2008FY2H
2009FY1H
2009FY2H
2010FY1H
2010FY2H
32,311
30,260
1,994
6,937
7,679
8,755
10,338
563
20,000
89.8%
94.8%
83.0%
2011FY1H
2011FY2H
2012FY1H

Others Nonbank Regional
Banks
Metropolitan
Bank/TrustBank
Housingfinance
agencies
9,702
14,815
16,935
20,955
16,276 16,352
12,143
7,537
11,113
8,491 8,341
11,132
15,064
10,742 11,148
3,511
2,038
1,701
980
341
138
413 1,288 140
0
10,000
0
2004
1stHalf
2004
2ndHalf
2005
1stHalf
2005
2ndHalf
2006
1stHalf
2006
2ndHalf
2007
1stHalf
2007
2ndHalf
2008
1stHalf
2008
2ndHalf
2009
1stHalf
2009
2ndHalf
2010
1stHalf
2010
2ndHalf
2011
1stHalf
2011
2ndHalf
2012
1stHalf
RMBS CMBS CDO

80
Source: NRI based on J apan Securities Dealers Association
Lease
ConsumerLoan Shoppingcredit
Accountsreceivable/
CommercialBills
Others
Office market
Residential market
Hotel Market
Since the fixed purchase price system had started, over 90% of equipment that has
Renewabl e Ener gy Asset Mar ket
been operating are solar generators.
BeginningJ uly 1 2012 the J apanese government began implementation of a fixed purchase price Beginning J uly 1, 2012, the J apanese government began implementation of a fixed purchase price
system wherein the country purchases electricity produced via renewable resources (solar, wind,
tidal, geothermal, biomass) from power producers at a fixed price who are required to produce it for a
specific period.
Currentstateofrenewableenergyequipmentinstallation(asofendofNovember2012)
Solar
(Home)
Solar
(Nonhome)
Wind
Smallmedium
tidal(over
1000kW)
Small
mediumtidal
(lessthan
1000kW)
Biomass Geothermal
Capacityof
operational
equipment(kW)
1,027,000 371,000 14,000 1,000 2,000 28,000 0
Capacity of newly Capacityofnewly
approved
equipment
727,000 2,535,000 34,300 0 2,000 40,000 100
Course: NRI based on data fromthe Agency of Natural Resources and Energy
The non-home market is focusing on mega solar projects
As of the end of November 2012 the total capacity of devices that produce over 10kW reached As of the end of November 2012, the total capacity of devices that produce over 10kW reached
approximately 2,500MW. The authorized capacity for so-called mega-solar devices that generate
more than 1MWwas at approximately 1,400MW, or about 56%of the total authorized capacity.
Currentstateofauthorizationfornonhomesolardevices(asofendofNov2012)
1,423,763
1,400,000
1,600,000
(kW)
( )
AuthorizedSolar
power
Homeoperation
727127
1,111,393
1,000,000
1,200,000

started
727 127
727,127
400,000
600,000
800,000
727,127
279,505
89,963
0
200,000
10kW 10kW 1000kW
Lessthan10kW Morethan10kWbut Morethan1000kW
0 0
1000kW
000
83
lessthan1000kW
Course: NRI based on data fromthe Agency of Natural Resources and Energy
Mega-solar equipment is abundant in Hokkaido and other locations with good solar
exposure such as Kyushu, Pacific Ocean coastlines, and along the Seto Inland Sea
(kWh/
2
/)
Currentstateofauthorizationfornonhomesolardevices
4.20
4.40
400,000
450,000
500,000
(kWh/m
2
/)
(kW)
Megasolar
Nonmegasolar
Solarradiation
3.60
3.80
4.00
200,000
250,000
300,000
350,000
300
3.20
3.40
0
50,000
100,000
150,000
3.00 0
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Course: NRI based on data fromthe Agency of Natural Resources and Energy and data fromNEDO Solar Radiation Database
Subsidiary aid and the surplus power purchase system are invigorating the home
solar market
The surplus power purchase systembegan in November 1 2009 Any excess power that exceeds The surplus power purchase system began in November 1, 2009. Any excess power that exceeds
that which are used by homes can be sold for 42 yen per kW, fixed for a period of 10 years, to power
companies.
National and local governments provide subsidiary aid for the purchase of solar power equipment a o a a d oca go e e s p o de subs da y ad o e pu c ase o soa po e equp e
systems for home use.
Capacityofsolarpowercellsshippeddomestically
2012 Detailsofnationalaidprovidedforhomesolar(FY2012)
Costeligibleforaidper1kW
(beforetax)
Aidunitamountper1kW
MorethanJPY35,000butlessthanJPY475,000 JPY35,000
MorethanJPY475,000butlessthanJPY550,000 JPY30,000
1 000 000
1,200,000
1,400,000
1,600,000
k
W
Home
Nonhome
d
Source: J apan Photovoltaic Expansion Center

Listoflocalaidforhomesolar(FY2012)
Local body Aid unit amount
400,000
600,000
800,000
1,000,000
k
D
o
m
e
s
t
i
c
a
l
l
y
s
h
i
p
p
e
d
c
a
p
a
c
i
t
y
(
k
W
)
Localbody Aidunitamount
TokyoMunicipalGovt JPY100,000/kW(maximumofJPY1million)
KanagawaPrefecture JPY15,000/kW(maximumofJPY52,000)
0
200,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FisicalYear
Source: J apan Photovoltaic Energy Association statistics
SaitamaPrefecture Morethan4kW:fixedrateofJPY40,000
Morethan2kWbutlessthan4kW:fixedrateofJPY
50,000
Source: NRI based on public documents fromTokyo, Kanagawa and Saitama
Plenty of home solar equipment is installed in urban areas
Plenty of home solar equipment is installed in urban locations with high populations such as Tokyo Plenty of home solar equipment is installed in urban locations with high populations such as Tokyo,
Kanagawa, Chiba, Saitama, Aichi, Osaka, Hyogo and Fukuoka
(kW)
Currentstateofauthorizationforhomesolarequipment
50,000
60,000
(kW)
30,000
40,000
0
10,000
20,000
0
H
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m
a
g
u
c
h
i
T
o
k
u
s
h
i
m
a
K
a
g
a
w
a
E
h
i
m
e
K
o
c
h
i
F
u
k
u
o
k
a
S
a
g
a
N
a
g
a
s
a
k
i
K
u
m
a
m
o
t
o
O
i
t
a
M
i
y
a
z
a
k
i
K
a
g
o
s
h
i
m
a
O
k
i
n
a
w
a
A
o
m
o
r
i
Source: NRI based on data fromthe Agency of Natural Resources and Energy
Acquisition price is reviewed on a yearly basis but will consider the generating
partys profits until 2015
The purchase price and purchase period is determined by the Ministry of Economy Trade and The purchase price and purchase period is determined by the Ministry of Economy, Trade and
Industry prior to the start of each year (Chapter III Art 1)
In order to further expand the use of concentrated use of renewable energy sources, The Ministry of
Economy, Trade and Industry shall take into consideration the profit due to the supplier for up to co o y, ade a d dus y s a a e o co s de a o e p o due o e supp e o up o
three years from the enactment of this law when determining the price of energy supplied (provision
7)
Purchaseprice/periodforsolarenergy(Jul2012toMar2013)
Suppliertype
Jul2012toMar2013 Apr2013toMar2014
Morethan10kW
Lessthan10kW
(surplus purchase)
Morethan10kW
Lessthan10kW
(surplus purchase) (surpluspurchase) (surpluspurchase)
Constructioncost JPY325,000/kW JPY466,000/kW JPY280,000/kW JPY427,000/kW
IRR 6%beforetax 3.2%beforetax 6%beforetax 3.2%beforetax
S A f N t l R dE
Purchaseprice 42yen(aftertax) 42yen(aftertax) 37.8yen(aftertax) 38yen(aftertax)
Purchaseperiod 20years 10years 20years 10years
Source: Agency of Natural Resources and Energy
After the fixed price purchase system was enacted, the price of solar energy
systems fell
After the fixedprice purchase systemwas enacted home-use solar generationsystems (newequipment) fell to an After the fixed price purchase system was enacted, home use solar generation systems (new equipment) fell to an
average of J PY 14,000/kW, while non home-use systems (more than 1,000kW) fell to an average of J PY 45,000.
Supply prices are expected to fall along with the price of the systems, but since the law will consider the suppliers
profit until 2015, a supply price that can achieve the same IRR as 2012 (6% before tax) will likely be set.
45
50
25
30
35
40
/
k
W
r
i
c
e
(
J
P
Y
0
/
k
W
)
10
15
20
25
1,000kW
S
y
s
t
e
m
p
1
0
,
0
0
0
Homeusesystem(newequipment)
Nonhomeuse(over1,000kW)
0
5
10
1012 13 46 79 1012
OctDec
Jan March Apr Jun Jul Sep Oct Dec
2011 2012
2011
2012
Source: NRI based on data fromthe Agency of Natural Resources and Energy
There are examples available of mega-solar projects expanded using capital from
p g p j p g p
infrastructure funds
Tokyo Marine Asset Management raisedJ PY 9 billion fromcompanypensionandinsurance companies to create Tokyo Marine Asset Management raised J PY 9 billion from company pension and insurance companies to create
an infrastructure fund.
Mega-solar development and operation were both contracted to Mitsui & Co., Ltd., which will implement everything
from land acquisition/construction to operation(fixed price purchase period) to removal. The scale of the project is
approximately28MWfrom10 domestic locations approximately 28MW from 10 domestic locations
TokyoMarineAssetManagement
InvestmentTrust
Mitsui&Co
Fi i
Equipment
Fundcreation
Development/Operation
Consignment
Development/Maintenance/
Operation
Investmentunion(JPY9billion)
TMNipponSolarEnergyFund2012
InvestmentProjectLtd
Investors
banks,insurance
companies,
ShinkinCentralBank,
domesticpensionfunds,
Megasolarplant
(approximately28MW)
Financing
Dividends
q p
investment
Projectprofit
etc
Rent Income
Electricitysold
Localgovernment Electriccompany
Source: NRI based on press releases fromrespective companies
89
Setouchi City is planning to construct the worlds largest mega-solar facility via a
securitization scheme
The objective is to continue long-termoperation of the power plant even after the end of the 20-year The objective is to continue long-term operation of the power plant even after the end of the 20-year
fixed-price purchasing system by securitizing renewable energy.
The project is led by Toyo Engineering Corporation, Kuni Umi Asset Management, Goldman Sachs
Securities, and IBM J apan. Secu es, a d J apa
Investors
Localandnationalcitizens,pension
funds,postalsavings/pension,
financialinstitutions,etc. ,
Investment
Renewalenergysecuritization Trustbank
Renewableenergy
generator(250MW)
Deposit
Ownership
Kuni Umi Asset Management Power producers
Operation Operation
Supervision
Publicinstitutions
Supervision
KuniUmiAssetManagement Powerproducers
Source: NRI based on Setouchi City press release
90
Authors
R ji WATARAI S Y KIM T hik TANIYAMA Ph D Ryoji WATARAI
Editorial Supervisor
Mr. Watarai is engaged in consulting and research
projects such as management strategies, business
development, and overseas business development.
SungYunKIM
Mr. Kimis engaged in consulting and research projects.
As a consultant, his clients are real estate developers,
real estate asset management companies, power
companies, gas companies, trading companies etc. His
resent research theme is real estate and real asset
Tomohiko TANIYAMA, Ph.D.
Lead Author of J apan
Dr. Taniyamais engaged in consulting and research
projects. His resent research theme is the analysis of
alternative investment market including real estates and
infrastructures, and the development of new financial
Tomoki KITAZAKI
Author of Residential Market, Retail
Property Market, and Hotel Market
Kenichi KUNIMITSU
Author of Renewable Energy Asset Market
Mr. Kunimitsuis engaged in consulting and research
j t h b i t t M&A bl
Takahiro WAKANA
Author of Logistics Property Market
Mr. Wakanais engaged in consulting and research
investment by institutional investors.
instruments and new economic indices.
Yasuyuki ARAKI
Author of Macro fundamentals of J apan
Mr. Kitazaki is engaged in consulting and research
projects such as urban and real estate development,
business planning.
Akira DAIDO
Author of Residential Market and Office
projects such as business strategy, M&A, renewable
energy, intellectual property strategy.
J unMyongNA(RA)
Author of Logistics Property Market
projects such as development of business strategies
and strategy implementation for transport, logistics,
and logistics real estate sectors.
Author of Macro fundamentals of J apan
Mr. Araki is engaged in consulting and research
projects such as investment environment analysis in
real estate and infrastructure market, and planning the
business strategies.
Market
Mr. Daido is engaged in consulting and research
projects such as real estate and housing, electric
industry, and planning the business strategies.
g p y
Mr. Na(Ra) is engaged in consulting and research
projects such as real estate/infrastructure utility
business, renewable energy related survey/research,
and business strategy planning.
Keita KAMEI
Author of Retail Property Market
Mr. Kamei is engaged in consulting and research
projects such as real estate/infrastructure-related
survey/research, and business environment analysis.
Keitaro HIROSE
Author of Office Market
Mr. Hirose is engaged in consulting and research
projects such as real estate, infrastructure-related
survey/research.
Contact: Nomura Research Institute, Ltd.
Consulting Division
Masaaki UTO, Ph.D.
Dr. Utois the manager of consulting and research
projectssuchasdevelopment of businessstrategiesfor
Hirofumi TATEMATSU
Mr. Tatematsuis the manager of consulting and research
projects such as real estate development, infrastructure
projects such as development of business strategies for
urban and infrastructure sectors, and overseas business
development.
p j p ,
market, and public management and strategies. He has
lots of experiences in the field such as management
strategies and business strategies.
91

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J apanese Real Est at e I nvest ment Mar k et 2013

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