News Release
Survey on Private Real Estate Funds in Japan
January 2018– Results
March 15, 2018
Sumitomo Mitsui Trust Research Institute Co., Ltd• Starting in 2003, Sumitomo Mitsui Trust Research Institute Co., Ltd. has conducted the “Survey on Private Real
Estate Funds” as part of its research activities concerning real estate investment markets. This is the 25th survey
based on responses to questionnaires received from 52 real estate asset managers.
 Survey subject: Real estate investment asset managers that set up and manage private real estate funds
which focused on Japanese real estateThe number of questionnaires sent: 107

The number of responses: 52 (ratio of valid responses: 48.6%)

Survey period: in the January to February 2018

Survey methodology: Questionnaire survey sent by post and e-mail• Based on the results of the survey, hearings and published information, we estimated the market size of private
real estate funds (on an invested asset basis) as of the end of December 2017 to be 16.0 trillion yen. This figure
involves Japanese assets of global funds (*) that we were aware of. Assets under management (AUM) increased
approximately 210 billion yen (1.3%) from the previous survey (15.8 trillion yen as of the end of June 2017).
The market for domestic private real estate funds continued to expand, albeit slightly.

The market size of private real estate funds is 16.0 trillion yen including Japanese assets of global funds
・Assets under management (AUM) as of the end of December 2017 were 16.0 trillion yen （This figure involves
Japanese assets managed by global funds）. Assets under management (AUM) increased approximately 210 billion
yen from the previous survey as of the end of June 2017. The market for domestic private real estate funds continued
to expand, albeit slightly.
・The number of asset managers who said that their assets under management increased was more than the number ofasset managers who said that their assets under management decreased. Overall, assets under management rose
approximately 1.3% from the estimate in the previous survey. The AUM of private REITs expanded, while the AUM ofprivate funds that only invest in domestic real estate declined.
・With debt financing conditions remaining favorable, many managers seem to believe that equity investors’ appetite
for investment is continuing at a high level. Nevertheless, no further easing of debt financing environment or increasein the appetite of equity investors are likely.
・As to the survey on their involvement to

open-ended private funds( what we call Private REITs), 16 managers

answered that they had already commenced management and some managers answered that they are preparing for it.
Although the launch of open-ended private funds shows a sense of completion, the number of launch is likely to increaseslightly. In terms of the important factors for the development of the market for open-ended private funds, the largest
number of respondents chose “Enhancement of the track record”.

(*) We define “global fund” as a fund targeting real estate investments in various countries including Japan.

1News Release March 15, 2018

Assets under management（Trillion yen）

Trends of Market Size of Private Funds and J-REITs

20

16

17.7

17.6

17.1

18

16.9

16.8

17.6

17.6 18.1

17.2

14.3

14
13.7

12

16.7

15.8

14.9

14.0

13.6

17.5

14.7

13.8

15.3

14.8

14.7

16.1

15.0

14.9

10.2

10

10.0

8

6.1

5.5

6
4

4.5

5.5 5.4

6.1 6.1

6.7 6.8

16.0

15.8

15.6

15.5

14.8

16.5

16.2
15.5
14.8
14.5 14.8
14.0
13.5
13.9
13.4 13.5 13.2
12.6

14.4

9.0

8.7

8.3

8.0

7.8

7.8

7.6

7.5

7.4

7.4

15.1 15.1

14.4

11.9

11.2

10.4

15.5

J-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT

PrivateJ-REIT0

Private2

2006/06 2006/12 2007/06 2007/12 2008/06 2008/12 2009/06 2009/12 2010/06 2010/12 2011/06 2011/12 2012/06 2012/12 2013/06 2013/12 2014/06 2014/12 2015/06 2015/12 2016/06 2016/12 2017/06 2017/12

J-REITsPrivate global funds (Domestically invested assets)

Private funds that only invest in domestic real estate“ Survey on private real estate funds”

January 2018 Survey Results(Note) [n] shown in the figures throughout this document indicates the number of effective responses.

1. Current Status of Real Estate Fund Management Business
1) Management of Overseas Capital
In response to the question as to whether they have managed overseas capital in their private real estate funds, 56%
of respondents chose “Yes”. While the percentage of respondents who chose “Yes” increased from the previous
survey, it still remained at a level of the downward trend since the January 2016 survey, which seems to continue. Oneof the causes is thought to be a sense of caution among overseas investors against rising real estate prices in Japan(Fig.1). However, there is also the possibility that overseas capital flowed in during the second half of fiscal 2017.

Fig.1 Do you manage overseas capital?
100%
80%

46%

51%

51%

53%

47%

47%

45%

45%

54%

49%

49%

47%

53%

53%

55%

55%

37%

40%

42%

40%

44%

38%

63%

60%

58%

60%

56%

62%

31%

38%

40%

62%

60%

48%

60%
40%
20%
0%

69%

52%

08/07 09/01 09/07 10/01 10/07 11/01 11/07 12/01 12/07 13/01 13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01(n=54) (n=47) (n=63) (n=53) (n=60) (n=57) (n=62) (n=64) (n=62) (n=50) (n=60) (n=55) (n=52) (n=52) (n=55) (n=52) (n=52) (n=52)

Yes

No

2) Status of the Funds under Management – Results of the funds currently operating and agree to disclose
their data
The response from the currently operating funds regarding the detail of their funds showed that “Fixed property
type” by fund type and “Core” by management style continued to have a majority (Fig.2 and Fig.3). However, thepercentage of respondents who answered “Core” declined for the third consecutive period, suggesting the possibility
that the launch of “Value-added” and others are increasing.

2

News Release March 15, 2018

In a survey on target property types, while the percentage of respondents who answered “Residential” declined 4
percentage points from the previous survey (20%), the percentage of those who answered “Hotel” rose 4 percentage
points from the previous survey (10%), to 14%. This suggests that the presence of “Hotel” as a target property typehas increased. In a survey on target areas, the percentages of investments in the target areas have remained generally
the same since the January 2015 survey, suggesting that investments in diversified areas have been taking root (Fig.4
and Fig.5).
Fig. 2 Fund types
100%
90%

20% 23%Fig. 3 Management Style12%

20% 17%

60%

32%

28%

37%

25% 28%

36%

8%

5%

6%

11%

8%

21% 12%

11%

12%

16%

17%

14%

8%

19%

22%

11%

60%

10%
11%

40%

40%
20%

5%
4% 5%
6% 7%
9% 10%
12% 10% 9%
11%
18% 13%
10% 11% 13% 13%
15% 13%
25% 21%
12% 12%
15%
26%
18%
8%
13%
17%
10%
16% 11%
12%
9%
23%
18%
14%
13%
11% 24% 24%
16%
11%
17%
18%
29%
24%

80%

13%

50%
30%

100%

12% 17%
18% 16% 22% 17%

30% 23% 18% 22%

32%

80%
70%

5%

8%

52%

56% 56% 56%
41%

63% 61% 67% 62%

50% 51%

54% 58% 54%

63%

62%

53%

45%

45%

20%

64%

63% 58%55% 54%

55%

45%

63%

71%
57%

78% 74%
70%

51%

62%

10%
0%

0%

05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=50) (n=44) (n=85) (n=61) (n=72) (n=62) (n=59) (n=54) (n=44) (n=39) (n=55) (n=57) (n=59) (n=65) (n=63) (n=55) (n=58)

Fixed property type

Additional acquisition type

Discretionary investment type05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=49) (n=45) (n=106) (n=78) (n=88) (n=65) (n=56) (n=58) (n=42) (n=40) (n=54) (n=57) (n=60) (n=64) (n=60) (n=53) (n=54)

Core

Open-ended funds

Fig. 4 Target Property Types

Fig. 5 Target Areas

100%

6% 4% 8% 5%
4% 6% 5%9% 7% 9%5%
12% 11% 10% 11%
19% 17%
11% 9% 12% 11%
10% 10%14%
10% 12% 13%
14%
12% 15% 11%
19%
12% 18%21%18%
17% 21%
23%
22%
23% 22% 20%
24%
19%
18% 20% 18%
25%21%
22% 20% 20%
18%
36%
22%
11%
19%
25%
36%
25% 25%25%26%
25%
17% 20%23% 19% 17% 18% 19% 18%
16%

100%

33% 29% 30% 34% 31% 30% 28% 31%

26% 22% 21%
20% 24% 20% 25% 24% 24%

20%05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=81) (n=77) (n=164) (n=111) (n=122) (n=151) (n=123) (n=110) (n=74) (n=70) (n=98) (n=118) (n=121) (n=141) (n=121) (n=121) (n=128)

0%

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

RetailIndustrial

Hotel

Value-added

Opportunity

Development

Debt

・“Debt ” was added to management investment style from the January 2013 survey.

・“Open-ended funds” was added from the January 2011 survey.

Facilities for the elderly and Health-care facilities

Data center

4%
7% 4% 4%
17% 17% 20% 18% 15% 14% 19% 10%
31% 28%13%14%
12% 11%
12%
14%
17%
15%
17%
15% 16%14%
22% 27%
16% 22%
17%
19%
20%
24%
19%
27% 22% 20%
20%
20%
32%
37%

90%
80%
70%
60%
50%
40%
30%
10%

Others・In the December 2005 survey through the December 2006 survey, Industrial and Hotel types were included in “Other types.”・“Facilities for the elderly” and “Health-care facilities” was added from the January 2013 survey.
・From the December 2017 survey, “Facilities for the elderly” and “Health-care facilities” have been changed to “Facilities for the elderly andhealth-care facilities,” and the past values are added together.
・“Data center” was added from the December2017 survey.

14%

24%

31%

25% 26% 27%

33%

25%

36%

8%

15% 16% 16% 17% 15% 18% 16%
15% 15% 14% 17% 17% 20% 17%
20% 21% 21%

22% 24% 23% 24%

23% 23% 23%

21% 19% 20% 18%

24% 24% 24% 21% 22% 20% 24%

05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=99) (n=83) (n=231) (n=155) (n=189) (n=169) (n=157) (n=105) (n=75) (n=70) (n=104) (n=153) (n=141) (n=174) (n=144) (n=158) (n=148)

23 wards of Tokyo

Tokyo metropolitan area

Kinki area

Nagoya area

Local areas

Others・In the December 2005 survey through the December 2006 survey, the Nagoya area was included in Local areas.

As to the survey in terms of the average target investment period, it was 6.1 years for funds currently undermanagement and 6.7 years for funds to be launched within a year (Fig.6). Looking at the breakdown of the investment
period of funds currently under management, the largest share of respondents chose “At least five years but less thanseven years”（39%）.“At least seven years but less than ten years” comprised 25%, and “Ten years or more”
accounted for 19%. The percentage of respondents who answered with a long-term investment period of five years ormore totaled 83% (Fig.7). Chiefly against the backdrop of the prospect that quantitative and qualitative monetaryeasing by the Bank of Japan will be maintained, the trend whereby funds with an investment period of five years ormore comprise the majority is expected to continue.
The survey of the investment period does not include open-ended funds （private REITs）, whose investment period isindefinite.
Fig. 7 Breakdown of Average Target Investment Period

Fig. 6 Average Target Investment Period
9100%（Years）
7.7

8
7
6
5

6.4

6.0
4.7

4.3

4.4

4
3
2

6.7

3.8

4.6

5.3 5.3

4.2

4.8 5.3

6.5

6.1
5.0

5.2

6.4

5.9

6.1

6.9
5.9

7.3

6.4

7.4
7.5

7.2

6.9

6.6
6.4

6.0

6.7

5.8

6.1

60%

3.5

20%
0%

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01

Funds currently under management

19%

5%

14% 19%

31%

5%

37%

46%

4%

17%

43% 20%

34%

32%

32%
23%

15% 14% 19%

6%

36% 59%3

32%

23% 28% 20% 17%
18%

47%

48%
29%

10%
11% 17%8%
4% 10% 10%
4%20%
21% 32%

51% 33% 34%
5%

13% 9%
5% 5%

16% 19%30% 25%

52% 35% 39%

9%

14% 8%
5% 8%

05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=43) (n=39) (n=76) (n=63) (n=64) (n=56) (n=47) (n=54) (n=30) (n=31) (n=38) (n=39) (n=39) (n=44) (n=46) (n=37) (n=36)

Less than three years
At least five years but less than seven years
Ten years or moreFunds scheduled to be launched within a year

10% 10%23% 29%

29%

44%
46%

35%

7%

22%

34% 27%

40%

1
0

80%

7%

At least three years but less than five years
At least seven years but less than ten years

News Release March 15, 2018

The average LTV of funds under management stood at 59.1%, and that of funds to be launched within a year was
63.8%. While the average LTV is currently turning upward, it remains at around 60% (Fig.8). While there are some
respondents who answered that LTV was “80% or more,” an increase in the number of private REITs making stablelong-term investments has become a factor to push down the LTV level.
Looking at the breakdown of LTV ranges, for funds currently under management, the percentage of “less than 40% ”
and “80% or more” increased from the previous survey, while that of “at least 40% but less than 50%” and “at least
70% but less than 80%”, decreased(Fig.9). This survey item includes responses from private REITs.
For funds to be launched within a year, the percentage of “less than 40%” , “at least 40% but less than 50%” and “atleast 70% but less than 80%”, decreased, while that of “at least 50% but less than 60%”, “at least 60% but less than70%” and “80% or more” increased(Fig.11).
With respect to the average target IRR of the funds currently under management, the average target IRR of all types
excluding “Fixed property type” of funds declined from the previous survey, total average target IRR was 10.7%(Fig.10).
Looking at trends of average target IRR of all funds, it has been moderately declining after peaking out in the January
2011 survey. A fall in the level of expectation regarding yield among investors due to rising real estate prices appears to
be reflected.
Fig. 9 Range of LTV level (Funds currently under management)

Fig. 8 Average LTV Ratio
（％）

100%

75

72.1

70.7

70.9

72.3

71.0 70.2

65

67.4

67.6
66.2

64.9

60
57.6

55

50

66.8

60.2

66.4
63.8

64.4

65.3

64.2

60%

62.5
63.8

61.7

64.9

58.1

59.4

59.1

67%

60%
62%

50%

22%

66%

48%

10%
0%
05/1206/1207/1209/0110/0111/0112/0113/0114/0114/0715/0115/0716/0116/0717/0117/0718/01
Funds scheduled to be launched within a year

7% 11%
9% 7% 6% 12%
15% 16%
20% 23% 23%
16% 20% 23%
20%
48%
26% 28%45%
14%
29% 21%
27% 25% 20%
59%
20%
30%

21%

21%

28%

90%

12.6

10.7
10.0
9.9

7.5

03/12 04/12 05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=17)(n=35)(n=33)(n=32)(n=47)(n=61)(n=38)(n=26)(n=29)(n=33)(n=20)(n=26)(n=29)(n=34)(n=34)(n=33)(n=32)(n=18)(n=23)

Fixed property type

Discretionary investment typeOpen-ended funds

22%

27% 31% 27%

14%

14%

9%
22%
20% 9%
12%
14% 22%
10%
18% 14% 14% 11%
20% 20%3% 12%
4% 9%
7% 7%
10%
7%
5%
4%
4% 4%

At least 40% but less than 50%

At least 50% but less than 60%

At least 60% but less than 70%

At least 70% but less than 80%

80% or more

19%

11% 7%

13% 9%
38% 8% 17%

70%

Total

30%

Less than 40%

80%

20

5

31%

05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=33) (n=39) (n=72) (n=61) (n=51) (n=51) (n=48) (n=53) (n=37) (n=36) (n=47) (n=61) (n=63) (n=62) (n=62) (n=51) (n=41)

100%

（％）

10

28%

Fig. 11 Range of LTV level (Funds scheduled to be launched within a year)

25

15

44%

30% 31%

30%
20%

58.8

Fig.10 Average Target IRR(Funds currently under management)

0

16%

40%

58.1

63.0

59.1

Funds currently under management

10%

70%
66.0

68.6
63.5

15%

80%

68.9

70

6%

90%

71.3

50%

67% 78%

46%

30%
20%
10%
0%

Additional acquisition type

5%

5%
32%

45%

50% 33%
45%

25%

5%

11% 7% 12% 7% 13%

13%36% 22% 27% 18% 29%
20% 29%

43%

38%

40%

9%

19% 33%
26%

61%

60%

23%

45%
36%

25%

36%

44%
40%

30%
21%
29%
18% 18% 17%
5%
22%
9%
4%
4%
10% 11%
6%5% 5% 5% 6% 7%
4% 4% 4%

29% 50%7%

41% 14%14%

25%

05/12 06/12 07/12 09/01 10/01 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=21) (n=18) (n=28) (n=26) (n=24) (n=35) (n=47) (n=44) (n=31) (n=34) (n=30) (n=29) (n=26) (n=18) (n=23) (n=25) (n=25)

Less than 40%

At least 40% but less than 50%

At least 50% but less than 60%

At least 60% but less than 70%

At least 70% but less than 80%

80% or more

3) Debt FinanceRegarding debt financing circumstances, the percentage of respondents who selected “5 (very easy)” slightly
decreased, while “3 (neutral)” and “4 (easy)” slightly increased (Fig.12). Debt financing circumstances can be said toremain favorable, but attention is increasingly focused on what may trigger changes in those circumstances.

4

News Release March 15, 2018

Fig.12 Circumstances of Debt Financing
100%

4%

10%

6%

19%

31%

80%

63%

56%

60%

20%

33%

0%

11/01
(n=62)

57%

60%

30%

29%

3%

5%

11%
3%

8%

11/07
(n=67)

12/01(n=62)

12/07(n=63)

13/01(n=52)

1（Very difficult）

25%

48%

67%

13%

10/07
(n=63)

33%

60%

53%

40%

19%

32%

17%
2%

13/07
(n=62)

14/01(n=53)

2（Difficult）

32%

32%

59%

53%

55%

14%
2%

13%
2%

13%
14/07
(n=53)

25%

15/01(n=53)

15/07(n=56)

3（Neutral）

23%

55%

26%

15%
2%

16/01
(n=53)

16/07(n=52)

4（Easy）

4%

47%

50%

43%

46%

55%

58%

21%
2%

8%

17%

25%

2%

2%

17/01
(n=53)

17/07(n=49)

0%

18/01(n=52)

5（Very easy）

4) Equity Raisinga. Appetite of Equity Investors
In terms of a question on the appetite of equity investors, the number of respondents who chose “No change”
accounted for a large percentage, and the percentage of respondents who chose “Rising” also increased slightly. On theother hand, no respondents chose “Declining” in the survey this time, or in the previous survey, suggesting that many
asset managers believe that the appetite of investors remains high (Fig13).
In regards to the target property types likely to be tapped by equity investors, the percentage of respondents who chose“No change” have a majority in all property types for both domestic and foreign investors. As for “Hotel” nearly halfof respondents, both domestic and foreign investors, chose “Increase significantly” or “Increase”(Fig.14-1, Fig.14-2).
It shows that both domestic and overseas investors have a strong appetite for investment in hotels sector.
Fig.13 Appetite of Equity Investors
100%
18%

80%

74%

20%
54%

54%
9%

24%

13%

15%

20%

18%

19%

28%

20%

52%

61%
73%

60%

75%

82%

81%

75%

74%

72%

24%

26%

28%

72%
44%

39%

38%

26%

4%

4%

64%

44%

31%

25%

57%
61%

45%

46%

5%

10%

40%

45%
62%

83%

59%

20%
0%

34%

41%

60%
40%

7%

16%

24%

06/12 07/12 08/07 09/01 09/07 10/01 10/07 11/01 11/07 12/01 12/07 13/01 13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=34) (n=37) (n=54) (n=48) (n=64) (n=55) (n=67) (n=61) (n=66) (n=58) (n=65) (n=50) (n=60) (n=54) (n=51) (n=53) (n=54) (n=51) (n=52) (n=51) (n=46) (n=50)

Rising

No change

Fig. 14-1 Domestic Investors’ Appetite by Type of Target Property

Declining

Fig. 14-2 Foreign Investors’ Appetite by Type of Target Property

オフィス(n=40)

28%

73%

オフィス
(n=32)

住宅(n=38)

26%

74%

商業
(n=41)

24%

物流(n=41)

71%

50%

45%

高齢者施設
(n=35)

0%
Increase significantly

5%

80%

11%
20%
Increase

40%
Remain unchanged

72%

住宅(n=33)

21%

76%

商業
(n=37)

19%

物流(n=34)

68%

29%

ホテル
(n=42)

5%

25%

9%
60%
Decrease

80%

0%

100%

Decrease significantly

29%

ホテル
(n=32)

6%

高齢者施設(n=28)

7%
0%

Increase significantly

5

62%

14%
65%

38%

53%
82%

20%
Increase

40%
Remain unchanged

4% 7%
60%
Decrease

80%

100%

Decrease significantlyNews Release March 15, 2018b. Sources of Overseas Capital (or Foreign Funds) by Country or Region
With respect to the survey(targeted to the managers which handle overseas capital), the highest response rate
regarding their capital sources was for investors from “Europe”and“Asia (excl. China /M.East)”at 26%. The
percentage of “North America”, “Europe” and “Middle East” increased from the previous survey(Fig.15).
Fig. 15 Sources of Overseas Capital by Country or Region
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

35%

33%

25%

25%

8%

10%

33%

30%

30%

31%

27%

31%

24%

27%

11%
28%

23%
24%

27%

24%

21%

24%

24%

29%

6%
7%

10%
9%

24%

25%

27%

17%

6%

7%

7%

8%

8%
6%

10%

12%

12%

8%

10%
14%

27%

17%

21%

19%

17%

20%

17%

20%

22%

27%

26%

27%

25%

30%

24%

10%

9%

9%

12%

11%

11%

6%
12%

6%
13%

6%
13%

17%

22%

25%

28%

24%

7%
5%

8%

5%

33%

30%

30%

6%

4%

25%

North America
Europe26%

Middle East

6%

China including Hong Kong

17%

Asia including Australia

28%

Asia (excl. China / M. East)

26%

4%
4%

Australia
Others08/07 09/01 09/07 10/01 10/07 11/01 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=52) (n=40) (n=61) (n=49) (n=67) (n=70) (n=59) (n=49) (n=42) (n=58) (n=64) (n=57) (n=66) (n=64) (n=47) (n=46) (n=53)

・Since the January 2010 survey, Asia-Pacific has been broken down into China, Middle East, Asia (excl. China / M East), and Australia.
・Since the January 2012 survey, China has been changed to China including Hong Kong.

c. Reasons for Foreign Investors Investing / Not Investing in Japan (Multiple answers allowed)
As for the reasons for investors investing in Japan, majority of the respondents chose “Relatively attractive due tothe yield gap”,” Highly stable income”, “Allocation as part of the global portfolio” , “The size of the real estatemarket is large” , and “Politically and economically stable” (Fig.16). These choices have been the major reasonsindicated in every survey in the past, and have been established as the reasons for foreign investors investing inJapan.
As the reasons for not investing in Japan, the largest number of the respondents chose “Lack of growth potential inGDP, consumption, population, etc.”, followed by “Rising in real estate prices”. The results did not change
significantly from the previous survey. Concern over rising real estate prices seems to remain strong (Fig.17).
Fig.16 Reasons for Foreign Investors Investing in Japan(Multiple answers allowed)

n=109(Respondents29)

22

Relatively attractive due to the yield gap

Fig.17 Reasons for Foreign Investors Not Investingin the Japanese Real Estate Market (Multiple answers allowed)

n=74(Respondents29)

Lack of growth potential in GDP, consumption,
population, etc.

1820Highly stable income

15

Rising in real estate prices

18

Allocation as part of the global portfolio

11

Lack of attractive investment opportunities

17

The size of the real estate market is large

9

Low growth potential in income

14

Politically and economically stable
Making investments in Japan, a mature market, while
expanding investments in Asia

Low transparency in the real estate market

5

Earthquake risk

5

8
4Highly transparent real estate market

Cannot embark on investment given uncertainty in therental market outlook

3

Expected positive effects of exchange rates
Making investments in Japan, a mature market, while
expanding investments in Asia

3

Large risk of the decline in real estate prices

2

Decrease in the supply of investable real estate2

Investment merits due to foreign exchange are notanticipated2

2
1

Income with growth potential

Rental market is in a recovery phase1

Lack of attractiveness to the yield gap
More deal opportunities
Lack of policy consistency due to government instability

Increase in investment opportunities due to undervalued realestate prices

1

OthersOthers

0

5

10

15

20

25

6

0

5

10

15

20

News Release March 15, 2018d. Acquisition and Disposition of Properties during July to December 2017
As to a survey on the acquisition of properties during July to December 2017, the percentage of respondents who
answered "Acquired" accounted 63% (Fig.18). The main reasons that the managers did not acquire any properties
were “Can’t agree on prices” and “Severe competition in bids”, the total share of those reason accounted for
75%(Fig.19). The results indicate that the environment for the acquisition of properties remained challenging.
As to a survey on the acquisition of properties during July to December 2017, the percentage of respondents who
answered “Sold property” was 37%, the lowest since the July 2013 survey (Fig.20). The great majority of reasonsfor “Didn’t sell property” was “Did not plan to sell from the onset,” but some managers answered “Can’t agree on
prices” and “No inquiries despite sales activities,” neither of which were chosen in the previous survey (Fig.21).
Fig.19 Reason for not acquiring property

Fig.18 Circumstances for Acquisition

100%

100%
80%

42% 44% 38%

49% 51%

29%

39% 33% 40% 33% 37%

60%

60%

40%
20%

Can't agree on prices

80%

58% 56%

51% 49%62%71%

61% 67% 60% 67% 63%

13/01 13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=49) (n=61) (n=52) (n=54) (n=53) (n=55) (n=54) (n=54) (n=53) (n=49) (n=52)

Acquired

100%
40%

29%

38% 36%

32%
24%

20%

32% 23%

33% 37%

4% 16% 13%
10% 6%
4%
6%
10%
11%
7% 6%
5% 7%

70%

60%

71%

8%

18%

4%

7%
8%
4% 12% 8% 13% 7%7%11%
4% 8% 8% 9%

OthersDid not plan to sell from the outset

80%
70%

71%

44% 50% 49% 42%
37%

13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=60) (n=50) (n=52) (n=52) (n=56) (n=54) (n=54) (n=53) (n=48) (n=52)

Didn’t sell property

No inquiries despite sales activities

86%

100%

90% 95% 90% 96%

85%

96%

81%
Can’t agree on prices

40%
30%
20%
10%

Sold property

Did not consider, due to a limited
supply of properties in the market

13/01 13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=45) (n=37) (n=30) (n=31) (n=30) (n=18) (n=27) (n=25) (n=24) (n=23) (n=28)

50%
62% 64%

Severe competition in bids
Did not plan to acquire from theoutset29% 26%

90%
56% 50% 51% 58%
63%

60%

20%
0%

57%

100%
30%

60%
40%

46% 48%Fig. 21 Reason for not Selling Property

Fig. 20 Circumstances for Disposition

80%

0%

Didn't acquire

40%

80%

40%
20%

0%

51% 57% 55% 57% 50% 48%

0%6%
24% 5%
9%

10% 5%

7%

11%4% 4% 4%

6%
9%

Continued to hold properties
through refinancing, following
favorable loan terms
Others

13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=17) (n=22) (n=12) (n=20) (n=20) (n=29) (n=27) (n=27) (n=26) (n=32)

2. Plans and Investment Strategies of Asset Managers
1). Plans of Launch of New Funds and Acquisition /Disposition of Properties within a year
Regarding the funds scheduled to be launched within a year, 71% of respondents answered that they “Plan tolaunch” (Fig.22). The percentage of “Plan to launch” had declined slightly in the previous survey but moved up
in the survey this time.
As to plans of acquiring or disposing properties within a year, the percentage of respondents that they plan toacquire properties accounted for 90% in this survey (Fig.23). On the other hand, that of those who plan to sellproperties within a year accounted for 56% (Fig.24). While almost all managers are eager to acquire properties, it islikely that the low supply of investment-grade properties will continue throughout the entire market, which willcause decline in the number of transactions and further rise in real estate prices.

7

News Release March 15, 2018
Fig.23 Plans of acquiringproperties

Fig.22 Plans of Launch of New Funds
100%

16% 20%80%

28%

19% 23%

31% 27% 37% 29%

84% 80%72%

81% 77%

No planto sell
44%

Plan toacquire90%

69% 73% 63% 71%

20%
0%

n=50

No planto acquire
10%

60%
40%

Fig.24 Plans of selling properties

n=51

Plan tosell
56%

14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=51) (n=51) (n=53) (n=52) (n=52) (n=52) (n=51) (n=46) (n=49)

Plan to launch

No plan to launch2). Investment Strategies of Asset Managers
a. Target Property Types (Multiple answers allowed)
In terms of the target property types, “Office” was chosen by the largest percentage of the respondents, followedby “Residential”, and “Hotel” (Fig.25).
We have added “Data center” to the target property types in the survey this time. As a result, we have grasped thesituation whereby 5% (9 cases) of respondents considered “Data center” as a target property type. We can see thatthe property types on which the asset managers wish to focus are diverse.
Fig. 25 Target Property Types (Multiple answers allowed)
100%
90%
80%
70%
60%

13%
10%
20%

11%

14%

7%
10%
20%

15%
22%

5%
11%
8%
30%

50%
40%

26%

20%

4%
8%
16%

31%

4%
11%
21%

4%
9%
15%

29%
27%

6%
10%
17%

28%

13%

8%
13%
18%

4%
9%
10%

10%
0%

9%

30%

33%

36%

40%

36%

41%

38%

33%

6%

6%

4%

4%

15%

14%

18%

16%

18%

19%

13%

14%

13%

16%

16%

15%

19%

23%

21%

19%

20%

20%

18%

17%

15%

18%

17%

16%

16%

24%

23%

23%

23%

22%

21%

16%

19%
18%

44%

6%

11%
20%

27%

8%

9%

15%
23%

30%
20%

9%

33%

26%

16%

24%

05/12 06/12 07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01(n=69) (n=61) (n=96) (n=87) (n=123) (n=119) (n=140) (n=138) (n=158) (n=160) (n=157) (n=162) (n=175) (n=174) (n=185) (n=172) (n=176) (n=160)

OfficeResidential

RetailIndustrial

Hotel

Facilities for the elderly and Health-care facilities

data center・From the December 2017 survey, “Facilities for the elderly” and “Health-care facilities” have been changed to “Facilities for the elderly andhealth-care facilities,” and the past values are added together.
・“Data center” was added from the December2017 survey.

Othersb. Target Areas (Multiple answers allowed)
In terms of the target area, the percentages of “Central 5 Wards of Tokyo” , “23 Wards of Tokyo (excluding Central 5
wards)” , “Tokyo metropolitan area” and “Kinki area” were all 20% (Fig.26). Given intensifying competition in theacquisition of properties in central Tokyo, target areas have been diversified primarily into “Kinki area” and “Nagoya
area” to a certain degree.

8

News Release March 15, 2018

Fig. 26 Target Areas (Multiple answers allowed)
100%
90%
80%

8%
25%

70%
60%
50%
40%
30%
20%
10%
0%

18%
4%

9%
11%

4%

7%
6%

4%

7%

13%

11%

10%

5%
14%

17%

12%
24%

18%
15%

11%

7%
5%

6%

10%

9%
14%

4%
8%

5%
8%

6%

12%

15%

15%

14%
29%

28%

29%

30%

20%
32%

23%

28%

23%

11%

12%

19%

19%
21%

20%

20%

21%

25%

24%

21%

19%

25%

8%

5%

7%

20%

25%

14%

9%

50%

48%

46%

47%

33%

40%

41%

43%

11%

34%

26%

26%

24%

22%

4%

5%

5%

8%

12%

12%

15%

15%

19%

19%

20%

19%

20%

19%

7%
13%
18%

21%

22%

22%

20%

19%

20%

20%

19%

22%

24%

21%

20%

20%

4%

05/12 06/12 07/12 09/01 09/07 10/01 10/07 11/01 11/07 12/01 13/01 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01(n=51) (n=55) (n=98) (n=89) (n=107) (n=98) (n=131)(n=121)(n=148)(n=127)(n=122)(n=151)(n=157)(n=166)(n=183)(n=165)(n=170)(n=167)(n=169)(n=196)

Central 5 wards of Tokyo
Kinki area
Nationwide

23 wards of Tokyo (excluding Central 5 wards)
Nagoya area
OthersTokyo metropolitan area
Local cities

・“Nagaya area” was included in “Local cities” or “Others” until the December 2006 survey.
・The Kinki area was called the Osaka area until the January 2009 survey. The constituent prefectures remain the same.

3. Business Environment of Private Real Estate Investment Management
1）Involvement in Open-Ended Private Funds (so-called Private REITs)
In response to a question about involvement in private REITs, the largest percentage of respondents answered“Seek to develop a better understanding and gather information, but not working on a detailed study”. The second
largest percentage of respondents answered “Have already launched” (Fig.27).
Four asset managers said that they were preparing to launch a private REIT. Open-ended private funds may
increase slightly.
As for important factors for development in the private REITs market, the largest number of respondents chose“Enhancement of the track record” which indicates that the continuation of stable management, including responses
to a downturn in the real estate market, is attracting attention (Fig.28).
About eight years have passed since the establishment of the first open-ended private fund, and more than 20
private REITs are now managed. We believe that “Enhancement of the track record,” which was chosen as animportant factor, is being satisfied to a certain degree.
Fig.27 Managers’ involvement with private REITs

Fig.28 Important Factors for Development in theprivate REITs Market(choosing up to three options)n=50(Respondents 49)

Seek to develop a better understanding and gather
information, but not working on a detailed study

19n=130(Respondents 47)

30

Enhancement of the track record

21

Expansion of the categories of investors to invest in funds

16

Have already launched

16

Support of the sponsor

15

Expansion of the number of private REITs and the asset size

Decided not to launch after consideration, and unlikely
to reconsider in the future

6

Improvement in liquidity (increase in frequency, easing ofrefund restrictions, etc.)

4

Preparing for a launch after consideration

8

Improvement in frequency of disclosure

88Standardization of items to be disclosed

3

Have heard of the name but not considered involvement

14

Increase in visibility among investors

5

Review of laws and financial accouting systems

Decided not to launch after consideration but may
consider again

22Enhancement of compliance1

Reduction of minimum investment unit

Have neither heard of the name nor considered
involvement

2

Others

0

5

10

15

20

9

0

5

10

15

20

25

30

35

News Release March 15, 2018

2) Outlook of asset size in the Closed-ended private real estate funds market
With regard to the outlook on asset size in the closed-ended private real estate funds market, the number of
respondents who expect an increase accounted for about 60% of the total (Fig.29).
As for the reasons responding “Increase,” the largest number of respondents chose “Increase of domestic investors’money” (Fig.30). We believe that many asset managers expect continued inflows of funds into real estate investments
due to the continuation of quantitative and qualitative monetary easing with yield curve control by the Bank of Japan.
The main reasons for “Decrease” were “Rise in real estate prices” and “Limited supply of existing
investment-grade real estate”.
“Others” includes a shift from closed-ended private funds to open-ended private funds, which was pointed out by
several respondents.

Fig.29 Assets under managementof closed-ended funds
Decrease8%n=105(Respondents 51)(Multiple answers allowed)

n=51

23

Increase of domestic investors’ money

Increase
12%
Slightly
decrease
31%

Fig.30 Reasons for Changing of Assets under management

19

Increase of foreign investors’ money

12

Rise in real estate prices

10

Limited supply of existing investment-grade real estate

Slightly
increase
49%

Expansion of the scope (area, type, etc.) of lenders’consideration of lending

8

Limited supply of new investment-grade real estate(development projects)

7

Increase in supply of new investment-grade real estate(development projects)

54Easing of lending terms (LTV level, up-front fee, covenants, etc.)
Decrease of the scope (area, type, etc.) of lenders’consideration of lending3

Tightening of lending terms (LTV level, up-front fee, covenants,
etc.)

3

Decrease of domestic investors’ money

3
2

Increase in supply of existing investment-grade real estate
Decrease of foreign investors’ money

1

Decline in real estate prices

1
4

Others

0

10

5

10

15

20

25

News Release March 15, 20183) Manager’s Requirements for Future Growth and Sustainability of their Businesses (Multiple answers allowed)
Among requirements for sustainability and growth of the asset managers, the majority of managers chose“Strengthen property-acquisition capability”, “Enhancement of AM capabilities” (Fig.31). Acquiring properties is
becoming more challenging given rising real estate prices. In this environment, asset managers are required toenhance their ability to achieve the internal growth of properties they own.
There were also eight respondents who answered “Expansion of target property types.” It is necessary to findinvestment opportunities by expanding target properties to operational assets such as industrial properties and hotels.

Fig. 31 Requirements for Sustainability and Growth of Managers (choosing up to three options)45

Strengthen property-acquisition capability

28

Enhancement of AM capabilities

13

Enhancement of relations with investors

15

Management strategy and its explanatory ability

13

Enhancement of equity raising capabilities

7

Enhancing the ability to handle foreign investors

2

Enhancement of research capabilities

5

Entry into open-ended funds business

6Competence in special expertise1

Expansion of foreign real estate fund management business

4

Reinforcement of compliance structure1

Sufficient of information disclosure

3

Enhancement of debt financing capabilities

8

Expansion of target property types
Corporate strength (financial health, scale of operations)
Capabilities for NPL investment activity
Strengthening of earthquake/disaster response capability

2

Others0
Jan 18（n=153 Respondents52）

10

20

July 17（n=147 Respondents50）

11

30

40

Jan 17（n=156 Respondents54）

50

News Release March 15, 2018

Definitions of Terms
The definitions of terms used in this report are as follows;
Private real estate fund:A private real estate fund is a structure under which investors’ funds are managed byprofessional asset managers. In this report, commingled funds that are designed for multiple
investors, and separate accounts, investment programs for single investors are both categorized
as private real estate funds. This does not include products governed by the Act Concerning
Designated Real Estate Joint Enterprises.
Fixed property type:
Additional acquisition type:

Discretionary investment type:

Closed-ended fund:Open-ended fund:＜Management Style＞
Core:
Opportunity :Value-added:
Development:
Debt:＜Investment Area＞
Central 5 wards of Tokyo
Tokyo Metropolitan Area:
Kinki Area:
Nagoya Area:
OthersA type of fund in which properties to be invested have been identified at the launch of the fundA type of fund in which certain percentage of properties to be invested have been identified at
the launch of the fund, leaving additional investments after the launch usually at the discretionof manager subject to pre-determined investment guidelines
A type of fund in which the properties to be invested have not been identified at the launch of
the fund, and properties are acquired after the launch at the discretion of a manager subject topre-determined investment guidelines; Also called a blind pool typeThis refers to private real estate funds with stipulations on the management period. In principle,
this system does not allow reimbursement during the management period.
This refers to private real estate funds without stipulations on the management period.
The system enables additional investment, cancellation and reimbursement during themanagement period. The value of the holding is calculated based on the appraisal value at thetime. Open-ended funds currently managed in Japan take the form of a private REIT.

An investment style in which stable long-term investments are envisaged by investing in soundproperties generating steady income flows.
An investment style in which a large capital gain is aimed at by investing in unprofitableproperties and selling them after increasing value with improvements.
Some of opportunity investments invest in development projects and funds that invest incompanies.
An investment style that lies between Core and Opportunity, and aiming at both income gains
and capital gains.
An investment style that specializes in achieving development gains.
An investment style in which an investment is made in loans that pay the principal and interestsfrom income from real estate and real estate trust beneficiary rights. Compared with the equity
investment, the debt investment generally has a lower risk and a lower return.
Chiyoda Ward, Chuo Ward, Minato Ward, Shinjuku Ward, Shibuya Ward
Tokyo excluding 23 Wards, Kanagawa, Saitama, and Chiba prefectures
Osaka, Kyoto, Hyogo, Nara, Wakayama, and Shiga prefectures
Aichi, Gifu, and Mie prefectures
Other than those above

LTV (Loan To Value):

The Loan to Value (LTV) ratio is a ratio of debt against asset value. Asset value represents theappraisal value, actual acquisition price or total investment cost for acquisition.

Cash-on-cash yield:

The cash-on-cash yield is the yield of annual cash flow on the total investment amount. Thisshows the collection rate of own capital.

IRR (Gross):

The Internal Rate of Return (IRR), an indication of return on investment, is the discount rate thatmakes the present value of future cash flow of an investment equal to its original value of theinvestment.

12

News Release March 15, 2018

Contact:

Sumitomo Mitsui Trust Research Institute Co., Ltd
3F Hulic Kamiyacho Building. 4-3-13, Toranomon, Minato-ku, Tokyo
105-0001, Japan
https://www.smtri.jp/en/contact/

Disclaimer:
1. Any materials provided by Sumitomo Mitsui Trust Research Institute Co., Ltd. (hereafter, “SMTRI”),
including this document, are for informational purposes only, and are not intended to invite, solicit, mediate,
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Please use your own judgment when making final determinations on securities selection, investment decisions
or use of this document.
2. Although any materials provided by SMTRI, including this document, are prepared based on information
which SMTRI considers reliable, SMTRI cannot be held responsible for their accuracy or completeness. In
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Forecasts, projections, or estimations included in this document are neither assured nor guaranteed. The
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in whole or in part, is not permitted without the prior consent of SMTRI, irrespective of the purpose or
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4. SMTRI is not a real estate appraiser, nor provide clients with any appraisal reports on real estate properties.
SMTRI is a real estate investment advisor authorized by the related Japanese law and regulation, and conducts
advisory services for investment judgments based on the values or value analyses of investment products. In
the process of implementing advisory services, SMTRI may calculate asset values of real estate properties.
However, such calculations are for the necessity of implementing advisory services, and calculated values are
not indicated with single values, but with multiple indications, ranges or distributions.

13