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J-REIT malaise pulls down Japanese deal volumes

Japanese real estate investment trusts were the only investor type in the country to register a drop in investment volumes in the second quarter, but that was enough to see an overall quarter on quarter fall, according to the property consultancy CBRE.

The total value of real estate transactions in Japan in the second quarter of 2016 declined by 9.2 percent to ¥692.8 billion ($6.8 billion; €6.1 billion) on a year-on-year basis, largely due to muted buying and selling activity by the Japanese real estate investment trusts (J-REITs), according to the property consultancy CBRE.

In its quarterly investment report, CBRE has said the J-REITs were the only investor type to register a yearly decline.

“The environment seems to have become more difficult for real estate acquisitions by J-REITs, due to rising property prices and the shortage of properties offered for sale. Although the yield on Japanese government bonds fell, the TSE REIT index was largely flat,” the consultancy said.

Acquisitions by J-REITs in the second quarter were estimated to be ¥225 billion, a 32 percent drop from the same period a year before. The volume of dispositions was also the lowest among other domestic and international investors, with the J-REITs sales accounting for only around 10 percent of all property transactions.

Restrained investment activity by the J-REITs in the last quarter is a stark contrast from the first quarter when public trusts were on an aggressive buying spree on the back of the negative interest rate announcement by the Bank of Japan. Prompted by the policy announcement, J-REIT share prices, as measured by the TSE-REIT Index, rose by over 5 percent in February.

According to the NLI Research Institute, a Japanese think-tank, J-REITs acquired a whopping ¥550 billion worth of properties in the first quarter of 2016, an 11 percent increase over the same quarter last year.

Since March however the J-REIT share prices have been treading water, CBRE said in the report. Additionally the capital raised through public equity offerings by the J-REITs was also down by 42 percent from a year before, with only six offerings made this quarter.

In comparison, property purchases by other Japanese investors increased by 13 percent to ¥251 billion this quarter while those by overseas investors recorded an 8 percent increase to ¥217 billion. Some of the major transactions included PGIM Real Estate’s acquisition of a retail property in the Ginza district of Tokyo for an undisclosed sum, and the property developer Hulic’s purchase of the Grand Pacific Le Daiba Hotel for ¥67 billion.