Real Estate Market in Japan Ryuhei MORI Head of Global Marketing, - PowerPoint PPT Presentation

Real Estate Market in Japan Ryuhei MORI – Head of Global Marketing, Xymax Corporation Japan Investment Briefing 13 November 2012 | London

Real Estate Market in Japan 2 Real Estate Market in Japan Past and Now Opportunity Unique Features of Japan

Real Estate Market in Japan 3 Real Estate Market in Japan Past and Now Opportunity Unique Features of Japan

Real Estate Market in Japan Past and Now 4 Past • Impact of global economy • Rent decreased and vacancy rate increased • Population decline • Lower fund performance than expected before

Real Estate Market in Japan Past and Now 5 Now • Proving long-term stability • Limited impact of earthquake • Rent decreases and vacancy increases have slowed down • Population of major cities still continues to grow

Real Estate Market in Japan Past and Now: Rental market 6 • Past : Rent decreased and vacancy rate increased • Now : Rent decreases and vacancy increases have slowed down Asking rent per tsubo and Vacancy rate 25,000 10% (Office, Tokyo central 5 wards, monthly) (円/坪) Japanese unit 1 Tsubo (JPY/tsubo/month) Vacancy rate 8% = 3.30578 sqm 8.9% [RHS] 22,901 JPY/tsubo (Aug. 2008) = 35.58 sqf 6% 10,000 JPY/Tsubo/month = 30.25 EUR/sqm/month 20,000 = 42.15 USD/sqf/year = 25.94 GBP/sqf/year 4% Average rent [LHS] 16,675 JPY/tsubo 2% (Sep. 2012) 17,529 JPY/tsubo (Oct. 2004) 15,000 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Miki Shoji Co., Ltd.

Real Estate Market in Japan Past and Now: Market cycle (office) 7 Cycle of Tokyo Office Market ④ ① Vacancy rises with � High 15,000 higher rent Rent declines with higher vacancy ③ ② 2009/3 3.8%, 14,400 Average asking rent [JPY / Tsubo] rent Cycle 2008/3 8-9 years 2.0%, 14,160 2003/3 14,000 2001/3 6.1%, 13,750 3.6%, 14,120 current 2011/3 2002/3 4.5%, 13,970 Low Rent rises with Vacancy declines lower vacancy with lower rent � 2004/3 � High � Low 5.9%, 13,410 Vacancy Rate 2005/3 2010/3 5.4%, 13,040 13,000 6.9%, 13,290 2007/3 2012/3 2.0%, 12,810 7.6%, 13,680 2006/3 3.2%, 12,700 12,000 0% 1% 2% 3% 4% 5% 6% 7% 8% Vacancy Rate [%] Source: CBRE Vacancy rates and average rents in Tokyo CBD March 2001 – March 2012

Real Estate Market in Japan Past and Now: Market cycle (office) 8 Rent decreases have also slowed Rent DI (properties managed by Xymax, Tokyo 23 wards) 78 78 78 78 Increased in 100 100 ほとんどの 66 66 66 66 nearly all ビルで上昇 84% 83% buildings 80 74% 80 ） 48 48 48 48 % （ 60 54% 60 合 Ratio of increased rent (%) 上昇した Decrease < Increase 割 22 22 22 22 ビルが多い Rent increased from the た 36% 40 40 し year before 25% 昇 20% All the rental contracts 20 20 -14 -14 -14 -14 上 6% 2% Decrease = Increase 上昇と下落 0 0 が同程度 -35 -35 -35 -35 -42 -42 -42 -42 6% -20 -20 17% ） 26% % （ 32% Decrease > Increase -40 -40 下落した 合 Ratio of decreased rent (%) ビルが多い 割 -82 -82 -82 -82 50% -60 -60 Rent decreased from the た 60% 62% し -96 -96 -96 -96 year before 落 -80 -80 All the rental contracts 下 Decreased in ほとんどの 88% nearly all ビルで下落 -100 -100 buildings 98% 2003年 2004年 2005年 2006年 2007年 2008年 2009年 2010年 2011年 Increase Decrease Taking Rent DI （ = increases – decreases) 上昇した割合 下落した割合 成約賃料DI Source: Xymax Real Estate Marketing Institute

Real Estate Market in Japan 9 Real Estate Market in Japan Past and Now Opportunity Unique Features of Japan

Real Estate Market in Japan Opportunity 10 Opportunity in 2013 by sector Sector Space Market Capital Market Concentrated on Office Bottomed out prime buildings Residential Relatively stable Dominated by REITs Wide gap between Retail Sluggish retail sales prime area and others Logistics Strong demand Severe competition Hotel Recovered Not many transactions

Real Estate Market in Japan Opportunity 11 Legal Final Maturity of CMBS (in JPY millions) 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Compiled by Sumitomo Mitsui Trust Research Institute Co., Ltd. based on data by Japan Securities Dealers Association

Real Estate Market in Japan Opportunity 12 • Significant population growth of Tokyo expected • GDP growth of Tokyo expected • Property transactions will increase as large volume of CMBS reach maturity in 2013 and beyond Investment Opportunity

Real Estate Market in Japan 13 Real Estate Market in Japan Past and Now Opportunity Unique Features of Japan

Real Estate Market in Japan Unique Features of Japan 14 Unique Features • Dominated by small and medium companies • Large volume of small and medium size buildings • Stable performance of Medium-sized office buildings

Real Estate Market in Japan Unique Features: Medium-sized office buildings 15 Office Buildings in Tokyo CBD (tsubo) 25,000 Total: 22,022 buildings 15,000,000 Total: 12,671,256 tsubo 20,000 Small and medium 10,000,000 buildings 15,000 10,000 5,000,000 Large buildings 5,000 below 50 tsubo 50-100 tsubo size of typical floor plate 0 0 100-200 tsubo Number of Buildings Net Rentable Area over 200 tsubo Compiled by Xymax Real Estate Marketing Institute based on Public statistics

Real Estate Market in Japan Unique Features: Medium-sized office buildings 16 Companies in Japan Number of Employees Number of Companies (including private business establishments) (including private business establishments) 40,130,000 employees 4,210,000 companies Large Large 12,000 12,290,000 (0.3%) (31%) Small and Medium Small and Medium 4,198,000 27,840,000 (99.7%) (69%) Definitions of small- and Medium-size companies Manufacturer: capital less than JPY 300 million, or employees less than 300 Wholesaler: capital less than JPY 100 million, or employees less than 100 Retailer: capital less than JPY 50 million, or employees less than 50 Service: capital less than JPY 50 million, or employees less than 100 Source: Statistics of business establishments and companies (2006), Ministry of Internal Affairs and Communications

Real Estate Market in Japan Unique Features of Japan 17 Unique Features more • Two-year lease contract • Earthquake protection

Real Estate Market in Japan Unique Features: Two years leases 18 Occupancy Period of Offices Managed by Xymax Distribution of 4,306 tenants as of April 2012 Average Occupancy Period (as of April each year) (year) Year 11 and up 854 7.00 Year 10 160 (years) Year 9 213 Year 8 284 6.50 Year 7 299 Year 6 313 Year 5 282 Year 4 333 6.00 491 Year 3 Year 2 560 Year 1 517 5.50 0 100 200 300 400 500 600 700 800 900 2008 2009 2010 2011 2012 Source: Xymax Real Estate Marketing Institute

Real Estate Market in Japan Unique Features: Earthquake protection 19 Tenants places greater emphasis on seismic safety Purpose of relocation (Interviews with tenants of buildings managed by Xymax, Tokyo 23 wards) 40% 2009-2010(n=47) 35% 2011-(n=54) 30% 25% 20% 15% 10% 5% 0% Decrease of workers building specifications Increase of workers る Cost reduction Consolidation of 増 減 善 合 善 減 合 了 他 capacity, better fixed-term lease Better location management よ Expiration of Better seismic 員 削 改 統 改 員 統 終 の demolition integration ト に locations Building Merger, 人 備 点 地 人 営 間 そ し ス Other 設 拠 立 経 期 コ 壊 ・ 借 り 化 定 取 強 物 震 建 耐 Source: Xymax Real Estate Marketing Institute

Real Estate Market in Japan 20 Tokyo’s office market is still attractive But it is a very unique market For your investment success, you need a good partner

Real Estate Market in Japan 21 Thank you.