Outlook Reverses, Divergence in Forecasts of Property Price Peak from 2015 to 2018～The Twelfth Japanese Property Market Survey～

Introduction

NLI Research Institute conducted the twelfth annual Property Market Survey of investment market sentiment among Japan-based property professionals¹ for fiscal year 2015. This time we sent out 202 questionnaires by email on January 7, 2016, and received 111 valid responses by January 15 (55% collection rate).

¹ The Japan-based property professionals are those engaged in various work such as development, construction, banking, insurance, brokerage, property management, fund management, advisory, consulting, research and publishing.

Results

1. Current Sentiment
Regarding the current sentiment in the property investment market, “Good” or “Somewhat good” responses accounted for nearly 90% of responses for three consecutive years (Chart-1). The sentiment looks totally opposite of that during the global financial crisis in 2008 and 2009 when “Bad” responses accounted for more than half of the responses.

2. Six-Month Outlook
Regarding the six-month property investment market outlook, “No change” responses ranked first chosen by 54.5% of respondents (Chart-2).
“Somewhat better” or “Better” responses predicting higher prices or more transactions accounted for more than half of the responses until last fiscal year. However, this time “Worse” or “Somewhat worse” responses outnumbered the sum of the optimistic responses, which was the first time since 2008 (Chart-3) as the six-month outlook had already improved even in 2009 when the sentiment was at the bottom.

Chart-2 Six-Month Market Outlook (SA)/Chart-3 Six-Month Market Outlook (DI)

3. Preferred Sectors
When asked which property sectors were the top three preferable investment targets in terms of price appreciation and market growth, a dominating 82.9% of the respondents chose “Hotel” (Chart-4). As the foreign visitor arrival number grew faster than expected by 47% y-o-y to 19.7 million already in 2015 with the government target of 20 million by 2020, hotel occupancy rates have remained at an all-time high. “Hotel” had been regarded as a niche sector for specialists; however, many companies have newly established or strengthened their hotel investment teams recently. In addition to “Hotel,” the number of respondents who chose “Resort facility” almost doubled to 13.5%.
The number of respondents who chose “Logistics facility” also increased significantly following a temporal decline last year (Chart-5). As volumes of logistics facilities were supplied in the fourth quarter of 2015 and are scheduled to continue, vacancy rates are anticipated to increase for a while. However, it is expected that the larger stock and more liquidity will enhance the attraction of the logistics investment market.
On the other hand, “Office,” which had steadily ranked as one of the top main investment targets, declined significantly to 26.1% this time. Even with improving vacancy rates and rising office rents, the demand growth has recently shown some weakness². As the office market best shows a classic price cycle among the sectors, some respondents apparently anticipated the cycle to peak out and shifted to other growing sectors.
The number of respondents who chose “Condominium development” also declined noticeably. In addition to structural concerns based on the shrinking population, the recent sales slowdown with high prices and the fabrication of structural piling data presumably affected.

Chart-4　Preferable Sectors Expected Price Appreciation and Market Expansion (MA3)/Chart-5　“Last Fiscal Year” Preferable Sectors Expected Price Appreciation and Market Expansion (MA3)

² Mamoru Masumiya, “Japanese Property Market Quarterly Review, Third Quarter 2015-Markets Steady but Some Weaknesses Creeping In-” Real Estate Analysis Report, NLI Research Institute, November 16, 2015.