Japanreport2013 en Final

8/13/2019 Japanreport2013 en Final

1/93

Japanese Real Estate Investment Market 2013

April, 2013

Consulting Division

Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku,Tokyo 100-0005, Japan


2/93

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

o any rea er o s repor or any r par y n any way w a soever.


3/93

Research Framework and Perspectives

for this Report

MacrofundamentalsGDP growth, corporate performance, demographic movements

Financial and Capital MarketsInterest rates, financial and other regulations, political trends

Rental Market

SupplyHow much floor space

is newly developed ?

How much floor space

DemandWhat are the key drivers of demand?

Which industries require more space?

Which districts are in demand?

Trading Market

Lenders SellersBuyers

What properties

interest buyers?

What properties

are lenders willing

Who are the

potential sellers?

is demolished?

VacanciesIncrease or decrease?

buying appetite?

Liquidity

What kinds of properties are transacted successfully

What are the lending

conditions?

likely to be sold?

Rent and NOIIncrease or decrease?

Cap RateWhat cap rate level leads to successful transactions?

an w a are no

Times New Roman, size 8, color: Dark Gray

Ex Source: NRI based on IMF

Asset Price Estimation

Will asset value rise or fall?

Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved. 2


4/93

Macro fundamentals of Japan

Office market

Residential market

Retail property market

Hotel Market

Logistics Property Market

Real Estate Investment Market



5/93


Office market

Residential market


Hotel Market





6/93

Japans population is shrinking due to low birth rate and aging society. Number ofMacro Fundamentals of Japan

households will be decreasing soon.

. ,

projected to decrease after 2015.

Population and Households in JapanPopulationthousand

Households(thousand)

60,000

70,000

120,000

140,000

ForecastActual

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


7/93

Japans economic growth is the lowest compared to other major economies with lowMacro Fundamentals of Japan

forecasts for future growth

RealGDPgrowthrateofmajoreconomies

(%)

.

15.0EstimatedActual

10.0

5.0

India

KoreaUnited States

0.0 Japan

n e ng om

5.0


10.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: NRI based on IMF data


8/93

Macro Fundamentals of Japan

Despite the weak growth, Japan remains one of the largest economies in the world.

. , ,

and Russia still wont catch up with Japan by 2020, assuming current growth rates continue.

Nominal GDP of Major Countries(Billion USD)

20,000

25,000

United StatesActual Forecast

15,000

China

10,000

Japan

5,000 India

Korea

United Kingdom


Figures up to 2017 are IMF forecasts and those up

to 2020 are calculated with the assumption that the

CAGR from 2012 to 2017 will be maintained..

Source: NRI based on IMF

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020


9/93

Expectations of monetary easing and trade deficit have lowered and stabilized theMacro Fundamentals of Japan

yen from historic highs

-

USD-JPY exchange rate movement

(USDJPY=X)

120

100

110

90

70

80


Source: NRI based on Bloomberg data


10/93


The Bank of Japan has set a price stability target of 2% inflation

JapanConsumerPriceIndexmovement(exceptfreshfoodcommodities)comparedtopreviousyears

(%)

3.0

.

1.0

2.0

1.0

0.0

3.0

2.0


Source: NRI based on Japan Ministry of Internal Affairs data


11/93

Decrease in exports caused by the global recession and appreciation of the yens, and


increase in resource imports due to the Tohoku earthquake have resulted in the trade deficit

. ,

continuing for two years so far.

(intrillionyen)Japansaccountbalancemovement

35

25

30

10

15

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 Japan Ministry of Finance data

10


12/93

There are concerns about Japans huge fiscal deficit, which may drive up interestMacro Fundamentals of Japan

rates in the future.

Currently Japan keeps its interest rates at a lower level than that of countries rated higher than

Japan. If the irrational gap between the interest rate level and sovereign ratings is closed, Japans

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

4.0200

2.0

3.0

Germany

AAA/Stable/A-1+

100

150UnitedStates

UnitedKin dom

0.0

1.0 JapanAA-/Negative/A-1+

50 Germany


11

Source: NRI based on IMFNB: Classifications are as of Jan 2013 (Long-term/expected/short-term, in local currency)

Source: NRI based on IMF and S&P


13/93

A financial collapse is unlikely as long as domestic capital remains in Japan andMacro Fundamentals of Japan

continues to circulate.

Households financial assets, which had been decreasing since 2006, posted an increase in 2009

or t e rst t me n t ree years.

The possibility of Japanese government bonds collapsing is seen to be small, as more than 90% of

the bonds are held by domestic investors.Government Bond Investors by CountryHouseholds Financial Assets in Japan

(Trillion yen)

2,000 100%

1,500

60%

80%

500

1,000

40%

0 0%

20%


NB: Figures for Germany are current as of Jan 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 Japan data Domesticinvestors Foreigninvestors


14/93

Economic stimulus measures by the new administration provide a boost to the realMacro Fundamentals of Japan

estate market

Overview of measures Expected effect on real estate market

price stabilitytarget

Establishmentof2%targetinflationrate Moneyflowtorealestateduetoinflation

outlook

EstablishmentofExpandedConsumptionIncreased

consumption tax

TaxLawthatwillincreaseconsumptiontax

to8%

in

April

2014

and

to

10%

in

October

2015

Demandfromlastminutehousing

purchasesand

reactionary

downturn

overhaul of taxsystem

xtens ono ouse o taxexempt ons

andhousingloandeductions

eve ngo react onary ownturna ter

lastminutedemandspike

Revision o f Removalofmajorityownershipprovisions

forinvestmentbusiness toencoura e nvestment rustAct Expected in

2013foreignrealestateacquisition

Removalofprohibitiononrightsofferingsor

selfacquisitionofinvestmentequity

seo or ore gn nves men

JREIT deregulation

Expansionofpublicprojectsfordisaster


a onaResilience Plan

recovery,preventionandantideteriorating

countermeasures

ncrease pu c nves men n

infrastructuremaintenance


15/93

Tokyo continues to be the worlds largest city in terms of population and GDPMacro Fundamentals of Japan

compared to other cities

2020GDP/populationestimatebycity

2020GDP

scale

by

city

inbillionUSD1,800

NewYork

1,400

1,600

LosAngeles1,000

1,200

London

Chicago Paris MexicoCity

Osaka/Kobe SaoPaulo

600

800

2020populationbycity

in1000s

uenos res

ShanghaiMumbai

200

400


Source: NRI based on PricewaterhouseCoopers, UN data

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000


16/93


Population continues to increase in Greater Tokyo while declining in Japan overall.

strength of both natural and social increases.

Net Population Inflow into Greater Tokyo

150,000

200,000 Kanagawa Tokyo Chiba Saitama Total

50 000

100,000

Outflow

0

100,000

50,000


Source: NRI based on Basic Resident Register Population Migration Report


17/93


Tokyo has the largest concentration of world-class major enterprises

Number of Fortune Global 500 companies by city (2012) Fortune Global 500 companies in Tokyo (within top 200)

Rank Company NameRevenue

(in million USD)

13 Japan Post Holdings Co., Ltd. 211,019

29 Nippon Telegraph and Telephone Public Corp 133,077

38 Hitachi Ltd. 122,419

41 JX Holdings. Inc. 119,258

Tokyo,48

64 Honda Motor Company, Ltd. 100,664

87 Sony Corporation 82,23796 Meiji Yasuda Life Insurance Company 77,463

97 Toshiba Corporation 77,261

115 Mitsubishi Corporation 70,492

,

Paris,19

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

NewYork,18

London,17

Seoul,11

even o ngs o., . ,

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

sa a,Toronto, 7

Others,328


199 Idemitsu Kosan Co., Ltd. 48,828

Source: NRI based on Fortune Global 500 (2012) data


18/93


Office market

Residential market


Hotel Market





19/93

Japan has the second largest real estate investment market in the world accountingOverview of Real Estate Investment Market in 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 Latin America

6.7%

Gulf Cooperation

Council2.5%

Europe35.4%

Asia

Pacific

27.0%

26,559

US$B

US/Canada28.4%


Source : Pramerica Investment Management A Birds Eye View of Global Real Estate Markets: 2012 Update


20/93

Japans securitized real estate market has grown to 51 trillion yen for the last 15Overview of Real Estate Investment Market in Japan

years since 1997.

1,80010,000(No.

of

Transactions)

(bn)

, .

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

6,000

7,000

4,440

5,158

2,778 2,541

3,984

2,838

620

518

576 600

800

3,000

4,000

,

895

1,772 2,031

1,679

792

2,1672,236

3,308

2,210

1,3591,591

1,549

316

1,167

1,867 1,798

2,195 ,

74

161

269

343

456

275

200

400

1,000

2,000


305 4399 26 00

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

FY)JREIT(LeftAxis) NonJREIT (LeftAxis) No.ofTransactions (RightAxis)

19Source: NRI based on MLIT


21/93

Overview of Real Estate Investment Market in Japan

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

8,000

(bn)

cons u e a ou o secur ze rea es a e.

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

Others

23.9%

790

1,107 981193

120 291

259

263

359

1,472

1,706

4,000

5,000

.

Retail

Industrial

2.9%

Hotel3.3%

TotalApprox 51 trillion yen

808

1,293 1,589

1,321

161

404

835

34

67

12

77

122

38

512

805

902

4182,000

3,000

Residenti

al

18.2%

14.7%

49 211597 746

1,611

710

1,516 1,728

2,194 2,1242,503

891556

768512

97166

267

552 348

235

441

406

59

160

565270 479

289

252

309

25

130

168

63215

79

7161

32

4854

419

145

300

365

0

1,000


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Off ic e Resid en tial Retail In du str ial Ho tel Others

20

Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 2001. Because of 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


22/93

Japans securitization market was dominated by office properties at first, but variousOverview of Real Estate Investment Market in Japan

other types of real estate have been securitized in recent years.

7.2% 6.1%12.4%

100%

, ,

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% 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%

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%

10.4%

18.9%

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% .

10.1%2.5%

50%

60%

79.4%

67.0%

51.2%

62.4%

.22.7%

16.0% .

23.2%14.3%

19.3%

30%

40%

.

29.3%

.

34.2% 34.1%31.0%

36.5% 38.7% 33.8% 37.1%

24.3%

0%

10%


Offic e Re side ntial Re tail Industr ial Hote l Othe rs

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


23/93

Most securitized property is in the Tokyo Metropolitan Area, but properties fromOverview of Real Estate Investment Market in Japan

provincial areas are slowly increasing.

,

comprise 12%

Number of Properties Securitized by Prefecture

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Greater Tok o 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%

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

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% 1 0.5% 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


24/93

The Japanese real estate market experienced a speculative bubble and collapseOverview of Real Estate Investment Market in Japan

around 1990.

600

,

districts of metropolitan areas.

Long-Term Trend of Japanese 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 Japan Real Estate Institute


25/93

Total return has recovered to the plus level at about 4% and capital return isOverview of Real Estate Investment Market in Japan

showing signs of following suit.

, .

Meanwhile, income return remained stable at around 5% even during the turmoil period following the

Lehman Shock.Performance Trend in Japan

15.0%

.

5.0%

10.0%

5.0%

0.0%

15.0%

10.0%


TotalReturn CapitalReturn IncomeReturn

24

Source: IPD Japan


26/93


27/93

Overview of Real Estate Investment Market in Japan

Lenders liberal attitude has slightly increased.

100

,

tend to be selective with prospective borrowers.

Financial Institutions Lending Attitude DI toward Real Estate Industry

60

80

0

20

40Loose

40

20

Tight

100

80

60


26

Source: NRI based on BOJAll

Large

enterpriseMedium

enterprise SMEs


28/93


Office market

Residential market


Hotel Market





29/93

Office Market

Tokyo, Osaka and Nagoya account for 50% of Japans commercial real estate.

Commercial Real Estate Stock in Japan by region New Construction of Office Space by Area

22,711

25,000

( m2)

16.0%

27 23.9%

Tokyo Area29.7

Tokyo16.0%OtherPrefectures23.9%

1,000m2

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

Approximately800millionm2

3,352

2,506

1 803

1,134

95 91 002

8,699

8,345

9,0018,496

6,9556,880

7,670

8,3697,852

7,053

8,659

6,9416,350

5,684

10,000

8.5%

2 9 %

2.3%

2.1%

1.8%

Osaka8.5%Shizuoka 4.1%

Hiroshima2.3%Ibaraki2.1%Niigata1.8%

8,3447,616

4,249

2,878 2,4433,019

2,8852,195

2,9343,798

3,495

2,3652,331

3,094 3,460

2,4322,4523,4913,921

2,7362,548

,

1,3971,354

2,2481,754

1,184

1,029

1,02893 7

95 3 83 5

69 197 5

1,45084 4

1,092 65 4

1,22159 8

92 983 8

,

93 472 9

70 1

66 4 76 876 8

65 175 1

87 9

47 2

39 0

40 1

0

,

3.9%

2.0%

0.7% 6.3%

1.6% 1.4%

4.1%

4.1%

.

Osaka Area15.1

Hyogo3.9%Kyoto2.0%

Nara0.7%Aichi6.3%

Gifu1.6%Mie1.4%Hokkaido4.1%

Fukuoka4.1%


28

Note: Commercial Real Estate means offices, retails, and banks.

Source: NRI based on Ministry of Internal Affaires and Communications

Nagoya Area

9.3Source: NRI based on MLIT Statistics of Building Construction Starts

Others Nagoya

Area

Osaka

Area

Tokyo

Area


30/93

Corporate-owned rental real estate is 96 trillion yen in 2008,Office Market

which has increased by 30 trillion yen over five years.

Based on the land survey conducted by Ministry of Land, Infrastructure, Transportation and Tourism

()

every years, t e asset va ue o corporate-owne renta rea estate exc u ng res ent a

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

19

68

60

70

21

30

40

50

2835

10

20


0

2003 2008

29Source: NRI based on MLIT Basic Survey on Land

RentedbuildingsSiteswithrentedbuildingsRentedland


31/93

Office Market

Tokyo Area holds 58% of Japans office rental market.

.

overwhelming share of the market at 55 million , comprising 58% of the total.

2.0% 1.2% 5.5%

3.7% 2.7%

2.3% 1.8%

80%

90%

100%

(5.2 million )

(3.5 million )

(2.5 million )(2.1 million )

(1.7 million )

5.2% 1.1% 2.1%

14.6%

60%

70%

(4.9 million )

(1.0 million )(1.9 million )

(13.71 million )

. m on ).

Osaka Area17.812 ma or cities

57.9%30%

40%

54.48 million )

Tokyo Metropolitan Area

66.3

94.09 million

0%

10%

20%


30

Source: NRI based on JREI

As of Dec .2011The 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


32/93

Office Market

There are five sub sectors in Tokyos Central Business District.

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.

Adachi

Saitama

715millionpeople

Kita

Katsushika

SumidaTaito

Arakawa

Toshima

Bunkyo

Nerima

30km

Tokyo

13.22millionpeople

Kanagawa

9.07millionpeople

Chiba

6.15milionpeople

Minato

Edogawa

KotoShibuya

ShinjukuChiyoda

Chuo

Suginami

Meguro

Shinagawa


30km

Ohta

31


33/93


34/93

Office Market

Rental rate levels in Tokyo CBD are on a slow downward trend.

.

Renttrends

in

Tokyo

CBD

(yen/tsubo per

month)

24,000

26,000

(yen/tsubo permonth) Yearly Monthly

20,000

22,000

16,000

18,000Minato

Shibuya

Chuo

Chiyoda

Shinjuku

Minato

Shibuya

Chuo

Chiyoda

10,000

12,000

,


Note: One tsubo is 3.3 square meters

Source: NRI based on Miki Shoji Co., Ltd. data


35/93

Since 2013, the supply of mega office buildings is on a lull, with only from10 to 20Office Market

buildings built for the whole year in Tokyos 23 districts.

, ,

in Tokyos 23 districts, for a total of 1.75 million of floor space which is the third largest in the cityshistory.

As a result of the 2011 Tohoku earth uake 5 buildin s that were scheduled for com letion in 2011

were pushed back to 2012.

Suppliedfloorarea(1,000) Numberofbuildings

OfficeSpaceSupplyinTokyos23districts

2,160

1,750 40

50

2,000

2,500

Suppliedfloorarea

Numberof

buildings

880

1,170

580

9101,020

590

1,160

20

30

1,000

1,500

0

10

0

500


Source: NRI based from Mori Building Companys Mega Office Building Market Trends Survey (Preliminary figure) dated March 21, 2012

Estimate


36/93

Office Market

The cap rate has risen, but is still below the 5% threshold.

.

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

im ossible to achieve. Des ite risin due to the Lehman shock it stabilized in 2009 and is currentl

maintaining standard levels.

Tok o office market ca rate trend

6.0%

6.5%

7.0%

4.5%

5.0%

5.5%

Nihonbashi Nihonbashii stationarea

Roppongi Roppongi stationarea

Kounan Shingawa stationarea

3.5%

4.0% NishiShinjukuTokyoAdministrativeArea


.

35Source: NRI based on Japan Real Estate Institutes Real Estate Investors Survey


37/93

Office Market

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

tren as cont nue nto ue to t e n ux o new o ce 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

1,600

.

OfficeSpaceSupplyandVacancyinOsaka NumberofOfficeWorkersandSalesWorkersbyMajorCity

1,000peopleVacancyrateSuppliedfloorarea1,000

241234

11.5%11.2%

10.0%

12.0%

.

250

300

1,000

1,200

1,400

1986

1991

83

135

168

96

158

4.0%

6.0%

8.0

100

150

200

400

600

8001996

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 CitiesAug 5 2009

Source: NRI based on NLI Research Institute Current State of the Osaka Office Market and Future Prospects

Forecast


38/93

Office Market

Cap rates in regional cities are currently on a plateau after having risen steeply.

, . ,

cities such as Sapporo, Nagoya and Osaka have leveled off.

8.0%

6.0%

.

Satsuma

Ekimae Doori

Sendai AobaDoori

4.0%

5.0%

Osaka AlongMidosuji

FukuokaTenjin

3.0%


Source: NRI based on JREI


39/93


Office market

Residential market


Hotel Market




R id ti l M k t


40/93

About 20% of all households in Japan are living in non-public rental apartments,Residential Market

and the percentage is trending upwards.

-

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.

-

PublicRental

House

6%

Company

Housing

3%4,686

4,96015%

16%

18%18%

20%

5,000

6,000

00)

Ratio

Housing,

Others10%

3,741

4,0774,392

9%

12%

10%

12%14%

3,000

4,000

holds(unit:10

,0 o

fHouseholdsLi

ApartmentHo

Own

House

PrivateRental

House,

1,4011,569 1,673

1,717 1,777

647 747

877 4%

6%

8%

1,000

2,000

u

mberofHous

vinginPrivate

R

ses(nonwood)

63%House(non

wood)

18%

332

0%

2%

0

'88 '93 '98 '03 '08

Households LivinginHousing

ntal&


Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.

Households LivinginRentalHousesHouseholds LivinginPrivateRental&ApartmentHouses(nonwood)

RatioofHouseholdsLivinginPrivateRental&ApartmentHouses(nonwood)

R id ti l M k t


41/93

The total number of moving households has decreased, but the number ofResidential Market

households moving to non-public rental apartments has remained fairly steady.

- -

time level in 2004-08 .

The number of households moving to non-public rental apartments remained steady, resulting in a

hi her ro ortion of such households in the total number of movin households.

Housing Choices of Moving Households 1984 - 2008

45% 46% 44% 45%45%

50%

1 400

1,600

,000) R

ati

1,103

1,186 1,2211,135

1,039

782884 868

778

39%

30%

35%

40%

1,000

1,200

eholds(U

nit:1

ofH

ouseholds

Apart

698

427

532 557 502 466

10%

15%

20%

25%

400

600

800

ofMovingHou

LivinginPriv

at

entHouses

0%

5%

0

200

8488 8993 9498 9903 0408

Number R

ental&

Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved. 40Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.

NumberofMovingHouseholds inPast5YearsNumberofHouseholdsMovedintoRentalHousesNumberofHouseholdsMovedintoPrivateRental(Apartment)HousesRatio

of

Households

Moved

into

Private

Rental

(Apartment)

Houses

Residential Market


42/93

The majority of households moving to non-public rental apartments moved withinResidential Market

the same city. Looking at the former locations of households moving into non-public rental apartments in seven

,

from outside the city.

Tokyos 23 wards and Osaka saw a decline in households moving into non-public rental apartments

, .

Location Choices of Moving Households

450

500

)

Householdmovinginacity

Householdmovingoutacity

266300

350

400

holdsMovedi

ood)(Unit

:1,0

0

197

105

150

200

250

In

FlowHouse

Houses(non

w

28 30 28 32 28 27

165157148

56 57 57 73 61 53 27 27 23 47 46 4150 46 48 25 24 24

58 54 54 77

36 37 3245 47 49

0

50

98

03

08

98

03

08

98

03

08

98

03

08

98

03

08

98

03

08

98

03

08B

reakdowno

PrivateRental

Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved. 41Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.

9 9 0 9 9 0 9 9 0 9 9 0 9 9 0 9 9 0 9 9 0

Sapporo Sendai Tokyo23

Wards

Nagoya Os aka Hiros hima Fukuoka

Residential Market


43/93

The supply of non-public rental apartment units has increased more sharply thanResidential Market

total housing stock.

-

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

70

124125

130

39

44

5053

40

50

(Unit:1million)

108

115

108

112

110

115

120

88=100)

1618

20 21 22

12 141520

30

HousingStock

100100

103

100

95

100

105

GrowthRate(1

Numberof

Houses

0

'88 '93 '98 '03 '08

NumberofHouses80

85

90NumberofRentalHouses

NumberofRental&ApartmentHouses

(nonwood)


Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.

NumberofRental&ApartmentHouses(nonwood) '98 '03 '08

Residential Market


44/93

Construction of new rental housing have declined and are less concentrated in theResidential Market

Tokyo Metropolitan Area. New housing construction decreased drastically in 1997, 2007 and 2009. The ratio of rental housing dropped

, .

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

800

levels.NewHousingSupplyTrend:19912012 BreakdownofNewRentalHousingConstructionbyRegion

45%

50%

1,800

2,000

0)

ProvincialRegion

500

600

30%

35%

40%

1,200

1,400

1,600

nStarts(Un

it:

1,0

RatioofR by

Regio

n

KinkiRegionChuubuRegion

MetropolitanRegion

300

400

15%

20%

25%

600

800

1,000

e

rofConstructio nta

lHouses

g

Constructio

n

it:1000

100

200

0%

5%

0

200

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Num

RentalHousi (


91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

Source: NRI based on data from Survey of Construction Work Started, Ministry of Land, Infrastructure, Transport and Tourism of Japan.

HouseBu t orSa e CompanyHouse Renta House

OwnHouse RatioofRentalHouse Ne

43


45/93

Residential Market


46/93

es de t a a et

The rent level of non-public rental housing continues to fall.

- ,

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

ear

2010)

98.0

100.0

102.0

entIndex(Base

92.0

94.0

96.0

nualAverage)

Ja an

86.0

88.0

90.0

Private(A

Tokyo23Wards


Source: NRI based on data from Consumer Price Index, Ministry of Internal Affairs and Communications of Japan.

Residential Market


47/93

Occupancy rates of REIT-owned properties are rising, while their rent levels remain

stable.

- ,

has slightly decreased although the occupancy rate in Tokyos 3 central districts and its 23 districts

has been on an uptrend since 2010

OccupancyRates

of

REIT

owned

Properties Monthly

Rents

of

REIT

owned

Properties

100%Tokyo3centraldistricts

Tokyo23districts

Nagoyacity

Osakacity

4,500

5,000

m2)

96%

ate(Unit:

% Fukuokacity

3,000

3,500

,

el(Unit:Yen

94%

c

cupancyR

1,500

2,000

,

t

hlyRentLev

Tokyo3centraldistricts

Tokyo23districts

90%

92%

n r y ul p v n r y u

l p v n r y ul

0

500

1,000

an a

ray u

lep

ov

an a

ray u

lep

ov

an a

ray u

l

Mo

Osakacity

Fukuokacity

Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved.Source: NRI based on data from ARES J-REIT Property Database, Association for Real Estate Securitization of Japan.

46

J M M J S N J M M

J S N J M M J

2010 2011 2012

J M M S N J M M S N

J M M

2010 2011 2012

Residential Market


48/93

The rate of housing ownership, which has a negative impact on rental housing

demand, has reversed trends downwards.

,

since 2008.

Housing Ownership Rate and Average Annual Income in Japan

71.5%

72.5%

71.4%

71.9%

554

551553

547 550

560

72.0%

73.0%

71.0%

535 54071.0%

iprate

Annualinco

Ownershi rate

69.2%69.4%

521 520

52069.0%

.

omeowners

e(10,000Ye

Yearlyincome

500

510

67.0%

68.0%

)


2005 2006 2007 2008 2009 2010 2011

47

Source: NRI based on data from Consumer Price Index (CPI), Ministry of Internal Affairs and Communications of Japan.

2005 2006 2007 2008 2009 2010 2011


49/93


Office market

Residential market


Hotel Market




Retail Property Market


50/93

Development of large-scale retail stores has started to recover since 2010.

- , ,

2009 and is now on the path to recovery.

New Retail Space Supply vs. Number of Development Projects

786

738 731 730750

654 700

800

900

4,000

4,500

5,000

N

Floor

Area

Num er

of

projects

450

500

584620

500

600

2,500

3,000

3,500

a(1000m2)

mberofproj

2,455

3,3353,729

4,1784,545

3,9834,369

2 0812,351

2,193 200

300

400

1,500

2,000

FloorAre

cts(cases)

,

0

100

0

500

,

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Source: NRI based on data from Ministry of Economy, Trade and Industry of Japan.

Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication.

Retail Property Market


51/93

Tokyos mega retail chains are refraining from expanding to new locations

,

number of new retail chain expansions.

Numberofnewexpansionsandfloorareaoflargeretailchainsinprimaryprefectures

50450

Tokyo

40

50

400

ber

0m2)

Osaka

40

50

400

ber

0m2)

Kobe

FloorArea Reported

numbers

35

40

300

350

ber

0m2)

0

10

20

30

0

100

200

Reportednu

FloorArea(10

0

10

20

30

0

100

200

Reportednu

FloorArea(10

20

25

150

200

250

Reportednum

orArea(in10

2001 2003 2005 2007 2009 2011

2001 2003 2005 2007 2009 2011

40

50

400er

m2)

Aich i

40

50400

er

m2)

Fukuoka

5

10

50

100

Fl

10

20

30

100

200

300

Reportednum

FloorArea(1000

10

20

30

100

200

300

Reportednum

FloorArea(1000


Source: NRI based on data from the Ministry of Economy, Trade and Industrys Large-scale Retail Chain Site Expansion ReportNB: The number of cases for 2002 and 2008 include submissions with no reported floor area

00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201100

2001 2003 2005 2007 2009 201100

2001 2003 2005 2007 2009 2011

F h i t th t t l fl f ll t d th fl tRetail Property Market


52/93

For shopping centers, the total floor area for all stores and the floor area per store

are both on the rise.

Overallfloorareaandperstorefloorareaforshoppingcenters

(in1

million

m2) Old

SC

standard New

SC

standard (in

1000m2/store)

44.245.711.8 11.6

12.112.4 12.8

13.2 13.614.1 14.2 14.5

14.8

14

16

50

60

er

30.6 30.4 31.533.1 34.6

36.538.0

42.1 .

8

10

12

30

40

ershoppin

gcent

llfloorarea

2

4

6

10

20

Floorareap

Over

NB: In the old SC standard, only shopping malls with more than 10 retail tenants were considered.

00

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.


53/93

The outlook held by consumers continues to recover and exceeds levels prior to theRetail Property Market


54/93

The outlook held by consumers continues to recover and exceeds levels prior to the

2011 Tohoku disaster

60

, ,

recovered to levels reported prior to the disaster

Consumeroutlookindexchart

40

50

March2011Tohokuearthquake

20

30

0

10

201220112010200920082007

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, Job environment and Determining when to purchase consumer

durables using a 5-scale index.


Source: NRI based on from Cabinet 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, from which 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 provincialRetail Property Market


55/93

The disparity in rental rates between the Tokyo Metropolitan Area and the provincial

areas is closing.

60,000

(Yen/Average Month)

1st floorrentrankingin13principalbusinessareas(yen/month/tsubo)

(yen/month/tsubo)

50,000

Tokyo

Ginza

Ikebukuro

Omotesando

(TokyoMetropolitanArea)

30,000

40,000

*

n u u

Shibuya

Yokohama*

Shinsaibashi

(TokyoMetropolitanArea)

20,000

Provincial

Areas

o or apporo

Sannomiya(Kobe)

Sendai

Tenjin(Fukuoka)

(ProvincialAreas)

(ProvincialAreas)

0

10,000

S ijoKawaramac i

Sakae(Nagoya)


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

Source: NRI based on the Japan 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 settledRetail Property Market


56/93

The cap rate which had been constantly rising since the latter part of 2008 settled

down in 2010.

Commercialestablishmentcaprates(expectedyield)

7.0%

8.0%

Suburban

shoppingcenters

Metropolitan

high

class

specialty

4.0%

5.0%

.

Suburbs

Metropolitanhighclass

specialtystore:Ginzaarea


s ecialt stores

1.0%

2.0%

3.0%

NagoyaSuburban

shoppingcenters


s ecialt stores

NB:

Metropolitan high-class specialty stores:

- - -

0.0%

sa a

Suburban

shoppingcenters

- - -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 Omotesando in Omotesandos Shibuya district.

Suburban shopping centers:

Sales floor area: around 20,000m2


Source: NRI based on the Japan 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 railwayRetail Property Market


57/93

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 TokyoSkytreeStationDeveloper EastJapanRailwayCompany

InvestmentDetails:

Hotelandcommercialestablishmentonaroughly

68,000m2 plot;officebuildingmaintenance;total

investment worth10billionyen

Opening: 20172018

Developer TobuRailwayCompany

InvestmentDetails

MaintenanceofSoraMachi(SkyTown),anareaofretailestablishmentswithroughly50,000m2 offloor

spacealongtheSkytreestructure

Opening May,2012

Station ShibuyaStation

Developer TokyuRailway

Corporation

InvestmentDetails

MaintenanceofTokyuTokosenShibuyaStation

22,000m2commercialareacalledHikarie,

S tation OsakaStationDeveloper West

Japan

Railway

CompanyInvestment

Details

Northentrancebuildingandstationbuilding

renovation;establishmentof130,000m2 retailarea

fordepartmentspecialtystores;officebuildinges a s e ur ng e rans ero e o yu o osen

ShibuyaStation

Opening April,2012

maintenance

Opening May,2011

S tation OsakaStationDeveloper HankyuHanshinHoldings Station YokohamaStation

InvestmentDetails

Renovationofcommercialestablishments/Hankyu

Umeda mainoffice.Investmentworth60billionyen;

companyisalsonegotiating developmentof

commercial/officeestablishmentnorthoftheOsaka

stationwitha12companyconsortium.Thegroups

investment amountisroughly51billionyen.

Developer EastJapanRailwayCompany

TokyuRailwayCorporation

InvestmentDetails

Maintenanceof130,000m2commercialcenterand

officespacetobeopenedduringrenovationofthe

stationswestentrance


Source: NRI based on publicly available materials

Opening HankyuUmeda Main:Nov,2012

Northarea:Apr,2013(estimate)

Open ng 2019


58/93


Office market

Residential market


Hotel Market




Hotel Market


59/93

The number of new/planned guest rooms across the country is on an upward trend.

trend of 2009, an upward trend starting from the latter half of 2012 can be observed.

Numberofnew/additionalplannedguestrooms

43 42 42247 254

286293308308315

297

262269255

300

40

45

2926 26

27

33

38 37 38 37

32

31

2926

215

172

136

159157

184

161176

224209

179

193200

25

30

35

guestro

oms

1000rooms)

Numbe

24

21

15

20

23 23 23

100

10

15

20

Planne

(unit:

rofplans

Plannedno.ofguest

rooms

00

5

00 01 02 03 04 05 06 07 08 09 10 11 12

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)

Hotel Market


60/93

The number of guest rooms for hotels across the country is still on an upward trend

,

although there has been no change in the current upward trend in the number of guest rooms, the

number of establishments is slowing increasing.

Numberof

existing

guest

rooms

and

establishments

681 698722

756781 798

802 814

10,000

12,000

800

900

583 596613 622

638

7,769 7,9448,110 8,220 8,363

8,5188,686

8,811

8,990 9,1809,442 9,603 9,688 9,629

9,863

8,000

500

600

Number

uestroom

s

00rooms

)

4,000

,

300

400

festablishmen

ts

Plannedg

(unit:10

0

2,000

0

100

No.ofhotelguestrooms

No.ofhotel

establishments


Source: NRI based on data from the Ministry of Health, Labor and Welfares Health Administration ReportsNote: These are year-end values

Hotel Market


61/93

There is a healthy domestic demand for lodging.

the previous years, indicating that domestic demand is on an uptrend. Tourist arrivals have also

recovered to their pre-Tohoku levels.Numberofdomesticlodgingguestsinrecentyears

100

120

sts

60

80

sticlodginggu

millions)

40

umberofdom

(units:

No.oflongtermlodgingguests

No.of foreignguests

0

20

07 07 08 08 09 09 10 10 11 11 12 12

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 Japan Tourism Agencys Lodging and Travel Statistics Survey


62/93

Hotel Market


63/93

Rates for a single nights stay are on the rise.

.

Ratesforasinglenightstayforrecentyears

16,500

17,000

17,500

n)

15,000

15,500

16,000

mrate(unit:Ye

13,500

14,000

14,500

1

Pernightstay(regular days)Singlenightro

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

uestion


Source: NRI based on data from the 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.

revised)


64/93


65/93


Office market

Residential market


Hotel Market




The truck-based transport volume (in tons), which forms the bedrock of JapansLogistics Property Market


66/93

cargo industry, has continued to decline in recent years.

Truck-based automobile trans ort is the rimar trans ort method that constitutes a lar e share of Ja ans frei ht 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

3677.3%

Domesticaviation

1

0.0%

3,000

4,000

44

0.9%

0

1,000

2,000

Motorvehicles

4,582

Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved. 65Source: 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 from prior to 2009 could not be guaranteed due to the changes made to the intallying methodology in the middle of 2010.

'60'65'70'75'80'85'90'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'1091.8%

While trans ort uantit ex eriences an overall decline the ratio of frei ht handled



67/93

by the warehousing industry is on the rise.

og st cs quant ty y n ustry quant ty s ppe

(unit: 1 million tons)

Warehousing

industry

Wholesale

industry

Manufacturing

industrySteel

works

Warehousing

Industryshare

8%

10%

3 000

3,500

4,000

6%

2,000

2,500

2%

4%

1,000

1,500

0%0

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 inLogistics Property Market

h l t t b i d t d b d th b f i t


68/93

such lots appears to be in upward trend based on the number of instances.

,

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%20103.7% 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 toLogistics Property Market

b i lid ti th i l i ti biliti


69/93

businesses consolidating their logistics capabilities

The number of su lied warehouse buildin s fell to rou hl 24% of the eak level in 1991 25 000 buildin s/ ear 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 ex lains the increased need for SCM su ort for eneric enter rises and new/lar e-scale lo istics facilities for lo isticsconsolidation.

Nationwidenumberofsuppliedwarehouses

includingwarehousesfortransportandtransportindustryshare

(units:buildings,%)

Floorspaceperwarehousebuilding

(unit:m2)

Transport Otherthan Transport Entire Otherthan TransportBuildings

20%

25%

50,000

60,000

1,500

2,000

n ustry transport n ustrys are n ustry transport n ustry

10%

15%

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 LehmanLogistics Property Market

shock is now back in full swing


70/93

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


71/93



72/93

Vacancy rate has recovered, allowing rental rates to recover in the future

Vacanc rate for rented lar e-scale lo istics facilities has recovered to 2.0%.

Rent levels which crashed after 2008 are expected to make an eventual recovery.

Monthlyrentaloffersandvacancyratesoflogisticsrealestatein Monthlyrentaloffersandvacancyratesoflogisticsrealestatein

(units:yen/tsubo;%)

(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

6%

8%

10%

3,400

3,600

3,800

4,000

6%

8%

10%

3,400

3,600

3,800

4,000

0%

2%

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%

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 from Ichigo 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


73/93

2010.

The cap rate in Tokyo is now on a downward trend beginning in 2012.

Lo istics real estate ca rate ex ected ield(unit: %)

Singletenant Multitenant

Tokyo(bay) Tokyo

inlandChiba Tokyo(bay) Tokyo

inland

Chiba

inland

7.0%

7.5%

7.0%

7.5%

6.0%

6.5%

6.0%

6.5%

5.0%

5.5%

Oct05 Apr06 Oct06 Apr0 7 O ct07 Apr0 8 O ct08 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 Japan Real Estate Institutes Real Estate Investors Survey

M f d t l f J


74/93


Office market

Residential market


Hotel Market





An overall perspective of the Japanese real estate market


75/93

An overall perspective of the Japanese real estate market

-

18.3

20(tn)

,

the available selections in the Japanese real estate investment market.

Market scale and overview of the real estate investment market in Japan

14.6

12

16

9.1

8

0.31.3

0

REIT REIT RMBS CMBSListedREIT Private fund UnlistedREIT

Equitytype

Listed Unlisted

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 June 2012, unlisted REIT is an estimated figure, RMBS/CMBS figure is updated as of end of Sept 2012

Source: NRI based on the Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association

The J-REIT market capitalization which started in Sept 2001 has recovered toReal Estate Investment Market

approximately 7 trillion yen.


76/93

approximately 7 trillion yen.

The J-REIT market began trading on the stock market in Sept 2001 with 2 companies traded and a

(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

407,000

,

25

30

5,000

6,000

15

20

3,000

4,000

5

10

1,000

2,000


00

20 03 /0 9/3 0 2 00 4/0 9/3 0 2 00 5/0 9/30 2 00 6/0 9/3 0 2 00 7/0 9/30 2 00 8/09 /3 0 2 00 9/09 /3 0 2 01 0/0 9/3 0 20 11 /09 /3 0 2 012 /0 9/3 0

MarketCapitalization No.

of

JREITs

75Source: Bloomberg

More than 70% of J-REIT assets are located in the Tokyo Metropolitan Area, andReal Estate Investment Market

approximately 55% of J-REIT assets are office properties.


77/93

pp y % p p

Over 70% of real estate owned b J-REIT is in the Tok o Metro olitan Area, and more than half of

Asset Mix of J-REITs by Area and Asset Class

these are office properties.

Others9.3%

Other Areas7.5%

Retail18.8%

5 CentralWards ofTok o

Chubu Area

Kinki Area12.1%

Office53.6%

43.6%

Kanto Area16.0%

.

Approximately9.1 trillion yen

Approximately9.1 trillion yen

Residential18.3%

23 Wards ofTok o


16.8%

76

rea er o yo rea76.4%

* As of the end of November of 2012

Source: NRI based on ARES


The Tokyo Stock Exchange (TSE) REIT Indices have recovered from 2013.


78/93

y g ( )

3,500

(Index:Feb10=1,000)

, .

TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index

2,500

3,000

1,500

2,000

1,000

0


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 toReal Estate Investment Market

around 3%.


79/93

12.0

(%)

. .

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

Yield

Spread J

REITs

Dividend

Yield JGB

10

Year

Yield

78Source: NRI based on Bloomberg


The leveraged performance of core funds recovered to positive in the capital return.


80/93

,

the leveraged property index (ARES Japan Fund Index) recovered to positive in the capital return.

ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI)

20%

25%

AJPI:TotalReturn

AJFI:TotalReturn

20%

25%

AJPI:IncomeReturn

AJFI:IncomeReturn

5%

10%

5%

10%

AJPI:CapitalReturn

AJFI:Capital Return

10%

5%

0%

10%

5%

0%

25%

20%

15%

25%

20%

15%

Copyright (C) 2013 Nomura Research Institute, Ltd. All rights reserved. 79Source: NRI based on data from The Association for Real Estate Securitization

2 00 2/1 2 2 00 4/3 2 00 5/6 2 00 6/9 2 00 7/1 2 2 00 9/3 2 01 0/6 2 01 1/92 00 2/1 2 2 00 4/3 2 00 5/6 2 00 6/9 2 00 7/1 2 2 00 9/3 2 01 0/6 2 01 1/9

Source: NRI based on The Association for Real Estate Securitization (ARES) ARES Japan Property Index and ARES Japan Fund Index

CMBS issuance has decreased drastically since 2008, and at present only RMBS isReal Estate Investment Market

issued at a constant pace.


81/93

Most recently, about 80% of residential mortgage-backed securities were originated by the Japan

60,000

(100m)

ous ng nance gency.

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 71.6%

79.7%

65.9%

85.1%88.4%

87.6%

93.7%

2007FY2H

2008FY1H

2008FY2H

2009FY1H

2009FY2H

2010FY1H

2010FY2H

32,31130,2601,994

6,937

7,679

8,755 10,338

563

20,000

89.8%

94.8%

83.0%

2011FY1H

2011FY2H

2012FY1H

OthersNonbankRegionalBanks

Metropolitan

Bank/TrustBank

Housingfinance

agencies

9,702

14,815 16,935

20,955

16,276 16,352

12,143

7,53711,113

8,491 8,34111,132

15,064

10,742 11,148

3,5112,038

1,701

980

341 138

413 1,288 14010,000


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

80Source: NRI based on Japan Securities Dealers Association

Lease ConsumerLoan Shoppingcredit Accountsreceivable/

Commercial

Bills

Others


82/93

Since the fixed purchase price system had started, over 90% of equipment that hasRenewable Energy Asset Market

been operating are solar generators.


83/93

, ,

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

Ca acit of newl

approved

equipment727,000 2,535,000 34,300 0 2,000 40,000 100

Course: NRI based on data from the Agency of Natural Resources and Energy


Renewable Energy Asset Market

The non-home market is focusing on mega solar projects


84/93

,

approximately 2,500MW. The authorized capacity for so-called mega-solar devices that generate

more than 1MW was at approximately 1,400MW, or about 56% of the total authorized capacity.

Current

state

of

authorization

for

non

home

solar

devices

as

of

end

of

Nov

2012

1,423,763

1,400,000

1,600,000

(kW)

AuthorizedSolarpowerHomeoperation

1,111,393

1,000,000

1,200,000

started

,

400,000

600,000

800,000

,

279,505

89,9630

200,000

10kW 10kW 1000kWLessthan10kW Morethan10kWbut Morethan1000kW


1000kW

83

lessthan1000kW

Course: NRI based on data from the Agency of Natural Resources and Energy

Mega-solar equipment is abundant in Hokkaido and other locations with good solarRenewable Energy Asset Market

exposure such as Kyushu, Pacific Ocean coastlines, and along the Seto Inland Sea


85/93

Currentstateofauthorizationfornonhomesolardevices

4.20

4.40

400,000

450,000

500,000

m(kW)

Megasolar

Nonmegasolar

Solarradiation

3.60

3.80

4.00

200,000

250,000

300,000

350,000

3.20

3.40

50,000

100,000

150,000

.

Hokkaido

Iwate

Miyagi

Akita

Yamagata

Fukushim

a

Ibaraki

Tochigi

Gunma

Saitama

Chiba

Tokyo

Kanagawa

Niigata

Toyama

Ishikawa

Fukui

Yamanash

i

Nagano

Gifu

Shizuoka

Aichi

Mie

Shiga

Kyoto

Osaka

Hyogo

Nara

Wakayama

Tottori

Shimane

Okayama

Hiroshima

Yamaguch

i

Tokushima

Kagawa

Ehime

Kochi

Fukuoka

Saga

Nagasaki

Kumamoto

Oita

Miyazaki

Kagoshima

Okinawa

Aomori


Course: NRI based on data from the Agency of Natural Resources and Energy and data from NEDO Solar Radiation Database


86/93


Plenty of home solar equipment is installed in urban areas


87/93

,

Kanagawa, Chiba, Saitama, Aichi, Osaka, Hyogo and Fukuoka

Currentstateofauthorizationforhomesolarequipment

50,000

60,000

30,000

40,000

10,000

20,000

Hokkaido

Aoyama

Iwate

Miyagi

Akita

Yamagata

Fukushima

Ibaraki

Tochigi

Gunma

Saitama

Chiba

Tokyo

Kanagawa

Niigata

Toyama

Ishikawa

Fukui

Yamanashi

Nagano

Gifu

Shizuoka

Aichi

Mie

Shiga

Kyoto

Osaka

Hyogo

Nara

Wakayama

Tottori

Shimane

Okayama

Hiroshima

Yamaguchi

Tokushima

Kagawa

Ehime

Kochi

Fukuoka

Saga

Nagasaki

Kumamoto

Oita

Miyazaki

Kagoshima

Okinawa

Aomori


Source: NRI based on data from the Agency of Natural Resources and Energy

Acquisition price is reviewed on a yearly basis but will consider the generatingRenewable Energy Asset Market

partys profits until 2015


88/93

,

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

Econom Trade and Industr shall take into consideration the rofit due to the su lier for u tothree years from the enactment of this law when determining the price of energy supplied (provision

7)

Purchaseprice/periodforsolarenergy(Jul2012toMar2013)

Suppliertype

Jul2012toMar2013 Apr2013toMar2014

Morethan10kW Lessthan10kW

Morethan10kW Lessthan10kW

Constructioncost JPY325,000/kW JPY466,000/kW JPY280,000/kW JPY427,000/kW

IRR 6%beforetax 3.2%beforetax 6%beforetax 3.2%beforetax

Purchaseprice 42

yen

(after

tax) 42

yen

(after

tax) 37.8

yen

(after

tax) 38

yen

(after

tax)

Purchaseperiod 20years 10years 20years 10years


ource: gency o atura esources an nergy

After the fixed price purchase system was enacted, the price of solar energyRenewable Energy Asset Market

systems fell


89/93

- ,

average of JPY 14,000/kW, while non home-use systems (more than 1,000kW) fell to an average of JPY 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

30

35

40

/kW

rice

(JP

Y

/kW)

15

20

1,000kWSystemp

10,0

0Homeusesystem(newequipment)

Nonhomeuse(over1,000kW)

0

5

1012 13 46 79 1012OctDec

JanMarch AprJun JulSep OctDec


2011 20122011 2012

Source: NRI based on data from the Agency of Natural Resources and Energy

There are examples available of mega-solar projects expanded using capital from


infrastructure funds


90/93

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

TokyoMarineAssetManagement

InvestmentTrustMitsui&Co

E ui ment

FundcreationDevelopment/Operation

ConsignmentDevelopment/Maintenance/

Operation

Investmentunion(JPY9billion)

TMNipponSolarEnergyFund2012

InvestmentProjectLtd

Investors

banks,insurance

companies,

ShinkinCentralBank,

domesticpensionfunds,

Megasolarplant

(approximately28MW)

nanc ng

Dividends

investment

Projectprofit

etcRentIncome Electricitysold


LocalgovernmentElectriccompanySource: NRI based on press releases from respective companies

89

Setouchi City is planning to construct the worlds largest mega-solar facility via aRenewable Energy Asset Market

securitization scheme


91/93

- -

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 Ja an.Investors

Localandnationalcitizens,pension

funds,postalsavings/pension,

financialinstitutions,etc.

Investment

Renewalenergysecuritization TrustbankRenewableenergy

generator(250MW)

DepositOwnership

OperationOperation

SupervisionPublicinstitutions

Supervision


Source: NRI based on Setouchi City press release

90


92/93


93/93

Documents

Japanreport2013 en Final