J-REIT (Public REIT) market

Total assets of properties held by J-REITs, based on acquisition prices, amounted to JPY 18,523.7 billion at the end of May.

The J-REIT market showed strength this spring, bolstered by the continuing worldwide trend toward interest-rate reduction, including the first rate cut in a decade by the US Federal Reserve in July. In the domestic real estate market, rising office rents and occupancy rates also had a positive impact on J-REIT earnings.

Robust sectors in the domestic real estate market included office space, residential, logistics, and hotels. Most large, new office buildings in central Tokyo are fully occupied. Residential rents rose unexpectedly, mainly in central Tokyo. The logistics sector is increasingly popular due to ongoing enlargement and sophistication of operations at e-commerce warehouses and distribution centers. Hotels are benefiting from increases in inbound tourism, with more expected.

Despite its growth, the J-REIT market does not show signs of overheating. The "price/nav ratio" — REIT price divided by net asset value (NAV) – was 1.1 at the end of May. That ratio has maintained a fairly constant 10-year average owing to a rise in both J-REIT prices and NAVs.

Reports that the J-REIT market was moved by foreign investors did not prove true this quarter. While foreigners sold a net JPY 70 billion in J-REIT interests in April, the Tokyo Stock Exchange REIT Index rose slightly from 1,907.36 in March to 1,916.92 in May. Domestic investors, mainly investment trusts and newer participants such as property and casualty insurers, snapped up the entirety of J-REIT interests sold by foreigners and more.

Private REIT market

Total assets of properties in private REITs, based on acquisition prices, were valued at JPY 3,161.6 billion at the end of May.

Private REITs are extremely popular among domestic institutional investors, especially local financial institutions and pension funds, who face difficulties in asset management. Demand greatly exceeds supply in the private REIT market. New private REIT offerings are few as attractive properties are difficult to acquire at reasonable prices. According to news reports, however, the number of new private REITs is expected to increase, as some funds which were to be listed may now be offered privately instead.

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