News Release
Survey on Private Real Estate Funds in Japan
January 2019– Results
March 15, 2019
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 27th survey
based on responses to questionnaires received from 50 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: 50 (ratio of valid responses: 46.7%)

Survey period: in the January to February 2019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 2018 to be 17.7 trillion yen. This figure
involves Japanese assets of global funds (*) that we were aware of. Assets under management (AUM) increased
approximately 860 billion yen (5.1%) from the previous survey (16.9 trillion yen as of the end of June 2018).
The pace of expansion of the market for domestic private real estate funds, which was gradually increasing inrecent years, continued to expand. In this survey, we have revised the past figures to reflect the new information
which was obtained.

The market size of private real estate funds is 17.7 trillion yen including Japanese assets of global funds
・Assets under management (AUM) as of the end of December 2018 were 17.7 trillion yen （This figure involves
Japanese assets managed by global funds）. AUM increased approximately 860 billion yen from the previous survey
as of the end of June 2018. The pace of expansion of the market for domestic private real estate funds, which was
gradually increasing in recent years, continued to expand.
・The number of asset managers whose AUM increased exceeded the number of asset managers whose AUM
decreased and there are some managers whose AUM increased more than 100 billion yen. Overall, the market size
we estimated rose approximately 5.1% from the estimate in the previous survey. The increase in assets undermanagement (AUM) of closed-ended private real estate funds, in addition to the enhancement of private REITs due
to external growth, was a significant driver in the expanding private real estate investment funds market.
・On the whole, With debt financing conditions remaining favorable, many managers seem to believe that equity
investors’ appetite for investment is continuing at a high level.
・As for the survey on acquiring or disposing of properties in the second half of 2018, less than 70% of respondents
chose “Acquired,” and less than half of respondents chose “Sold property,” both of which declined from the previous
survey. In an environment where the number of properties coming onto the market remains low, the gap in priceexpectations is widening.
(*) We define “global fund” as a fund targeting real estate investments in various countries including Japan.

1News Release March 15, 2019
Assets under management（Trillion yen）
20

Trends of Market Size of Private Funds and J-REITs

13.7

12

4

14.9

14.0

13.6

15.8
14.7

15.3

14.8

14.7

13.8

16.7

16.1

15.0

10.0

5.5

4.5

6.1

5.5 5.4

6.1 6.1

6.7 6.8

15.6 15.8

15.5

14.8

16.9

17.7

17.9

17.3

16.5

16.2

15.5
14.8
14.2
13.5 14.0
13.8
13.5
13.4
13.1
12.6

16.0

14.3

14.0

15.1

14.7

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

14.9

10.2

10

6

18.1 17.5
17.2 17.6

14.3

14

8

17.6

16.9 16.8

Private

16

17.7

17.6

Private

17.1

18

J-REIT

PrivateJ-REIT

PrivateJ-REIT

J-REIT

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-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 2018/06 2018/12

J-REITsPrivate funds that only invest in domestic real estate“ Survey on private real estate funds”

Private global funds (Domestically invested assets)

January 2019 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, 55% of respondents chose “Yes”,
45% of respondents chose “No” (Fig.1). While the percentage of respondents who chose “Yes” declined slightly
from the level of around 60% in surveys in 2015 and 2016, around 50% of the managers dealt with overseas capitalin recent years.
The reason why the percentage of the managers who managed overseas capital showed a downward trend since2016 is thought to be a sense of caution among overseas investors against rising real estate prices in Japan. However,surveys results since 2018, the downward trend seem to have ended and bottoming out. It will be necessary to keep awatch on the trend in the future.
Fig.1 Do you manage overseas capital?
100%
80%

46% 51% 51% 53% 47% 47% 45% 45%

37% 40% 42% 40% 44% 38% 31% 38% 40%
48% 52% 44% 50% 45%

54% 49% 49% 47% 53% 53% 55% 55%

63% 60% 58% 60% 56% 62% 69% 62% 60%
52% 48% 56% 50% 55%

60%
40%
20%
0%

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 18/07 19/01(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) (n=50) (n=50) (n=50) (n=49)

Yes

No

2) Status of the Funds under Management – Results of the funds currently operating and agree to disclose their data
The results of the content of currently operating funds showed that “Fixed property type” by fund type and “Core” bymanagement style continued to have a majority (Fig.2 and Fig.3). “Open-ended funds” by fund type is around 20%,
which is the second largest share following “Fixed property type”. For management style, “Development” accounts formore than 10%, suggesting the possibility that the launch of “Development” is continuing.
In a survey on target property types, “Office” was chosen by the largest percentage of the respondents(21%), followedby “Residential”(19%),“Retail ”and “Industrial” (18% each), “Hotel” (14%)(Fig.4). Answer proportion of each
property type, no significant change was observed from the previous survey. In a survey on target areas, the percentages

2

News Release March 15, 2019of investments in the target areas have remained almost the same since the January 2015 survey, suggesting thatinvestments in diversified areas have been taken root (Fig.5).
Fig. 2 Fund types
100%
90%

23%

12%

Fig. 3 Management Style

20% 17%

32%

60%

37%

25% 28%

36%

8%

5%

30% 23% 18% 22%

32%

80%
70%

5%

8%

16%

6% 11%

8%

12% 17%
21% 12%

11%
12%

14%

3%

50%

100%
18% 16% 22% 17% 21% 19%
17%13%
8% 22%

11%80%

19% 12% 13%
10%

11% 15%60%

3% 6% 7%
3% 5%
4% 5%
12% 11%
12% 10% 9%
13% 9% 10% 11%
10% 11% 13% 13%
15% 13%
25% 21%
9%12% 12%
15% 18%
26%
8%
15%
13%
17%
10%
16% 11%
9%
9%
23%
18%
14%
13%
11% 24% 24%
12%
16%
11%
17%
18%
29%

11%

40%

40%
30%

56% 56% 56%

20%

41%

50% 51%

63% 61% 67% 62%

54% 58% 54%

63%
45%

62%

53% 56% 54%

20%

64%

63% 58%55% 54%

45%

63%

55%

71%
57%

78% 74%

51%

70%

62% 62%

71%

10%
0%

0%

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 18/07 19/01(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) (n=57) (n=54)

Fixed property type

Additional acquisition type

Discretionary investment type06/12 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 18/07 19/01(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) (n=53) (n=53)

Core

Open-ended funds

Fig. 4 Target Property Types

Fig. 5 Target Areas

100%

100%

3%
3%
3% 3%
4% 6% 5% 3% 6% 4% 8% 5% 3%
4% 5%
5% 4%
12% 11% 10% 11%
11% 9% 12% 11%
10% 10%14%
10% 12% 13%
14%
16% 14%
12% 15% 11%19%18%
18% 21% 17% 21%23%22%
23% 22% 20%
24%
19% 16% 18%
18% 20% 18%
7%

17% 9%

90%
80%
70%
60%
50%

36%

40%

25%

26%

9%

18%
25% 25%
25%
25%

30%
20%

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

10%0%

11% 22%

25% 21% 22% 20% 20%

90%
80%
70%
60%

19% 18% 18%

50%

17% 20%23% 19% 17% 18% 19% 18%
16% 18% 19%

40%

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

20%

30%
10%

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 18/07 19/01(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) (n=137) (n=125)

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 center0%

Others・In 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.

3%4%7% 4% 4%
10% 15% 16% 16% 17% 15% 18% 16% 16% 16%
17% 20% 18% 15%
14% 19%13%14%
12% 11%
15% 15% 14% 17% 17% 20% 17% 16% 15%
12%
14%
17%
15%
17%
15% 16%14%27%
20% 21% 21%
22% 23%
16% 22%
17%22% 24% 23% 24%
19%
20%
24%
19%
27% 22% 20%
23% 23% 23%
21% 20%20%20%
21% 19% 20% 18%
37%
28% 17%24%

31%

25% 26% 27%

33%

36%

25%

8%

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

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 18/07 19/01(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)(n=144)(n=143)

23 wards of Tokyo

Tokyo metropolitan area

Kinki area

Nagoya area

Local areas

Others・In the December 2006 survey, the Nagoya area was included in Local areas.
・"Others" was deleted from the July 2017 survey.

As to the survey in terms of the average target investment period, it was 7.8 years for funds currently undermanagement and 9.1 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” and “Ten years or more”（30% each）. The percentage of respondents who chose “At least seven years but
less than 10 years” was 23%, and respondents who chose long-term funds for seven years or more accounted for the
majority, the percentage of “Less than three years” decreased to 3% from 18% in the previous survey (Fig.7). With the
backdrop of the prospect that the monetary easing policy of the Bank of Japan will be maintained and the competitive
acquisition over properties is intensifying, the trend whereby funds with an investment period of five years or morecomprise the majority is expected to continue. In fact, the average target investment period of funds to be launchedwithin a year has lengthened 9.1 years. This is significantly affected by the answer that the target investment period isthirty years, which multiple respondents provided. It does not signify a general trend in which the target investment
period of funds to be launched has become much longer. Also, the survey of the investment period does not include
open-ended funds （private REITs）, whose investment period is indefinite.
Fig. 7 Breakdown of Average Target Investment Period

Fig. 6 Average Target Investment Period
10
9
8
7
6
5
4
3
2
1
0

（Years）
8.2
7.7
6.4
4.4

4.6

5.3

4.8
3.5

6.7

6.5

5.3
5.3

6.9
6.1
5.0

5.2

7.3

7.4

6.4 6.1

5.9

5.9

7.5
6.4

7.2
6.9

6.6
6.4

100%

9.1

80%

6.7
6.0
5.8

7.8
6.1

60%

6.1

40%

4.2

20%
0%

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 18/07 19/01

Funds currently under management

5% 3% 3% 5% 7% 4%
10% 10%3% 14%
16% 19% 21%
17%23% 28% 20% 17%
19% 22%30%
32%
23% 29%31%
43% 20%
20%
46%
30%
25%
18%
24%
34% 27%
21% 32%
23%
29%
44%
46%

32%

36% 59%

47%

48%

32%

23%

3

29%

52% 35% 39%

26%

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 18/07 19/01(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)(n=34)(n=30)

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

51% 33% 34%

30%
12%
10% 3%
13%8%9% 9% 14%
11% 17%
18% 13%
15% 14% 19%
8%
6% 4%
5% 8%
4% 10% 10% 3% 5%
3%
3% 5% 5%34%

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

News Release March 15, 2019

The average LTV of funds under management was 56.7%, and that of funds to be launched within a year was
66.7%.(Fig.8). Looking at the breakdown of LTV ranges, for funds currently under management, “at least 50% but lessthan 60% ” accounted for the largest share(29%), followed by “at least 40% but less than 50%”(24%). The total shareof “Less than 60%” is 59%, the largest share ever gained in all of the surveys (Fig.9). The average Loan to Value (LTV)of funds under management remained low. Looking at the breakdown of LTV ranges, the percentage of “Less than 60%”
continues to show an increasing trend. It seems to reflect investors’ orientation toward low risk and low leverage funds
that is still strong and reflected in funds under management. This survey item includes responses from open-ended
funds, and the impact of the increase in the number of these respondents is also large. For funds to be launched within ayear, the percentage of “at least 70% but less than 80%” was 42%, and the percentage of “at least 60% but less than70%” was 33%. As a result, 75% of respondents chose “60% or more” in total (Fig.11).
While the average LTV of funds under management remain stable at a low level, that of funds to be launched within ayear rises for three consecutive surveys, we need to pay attention to whether this upward trendwill continue or not.
With respect to the average target IRR of the funds currently under management, the average target IRR of all types
slightly dropped to 10.1% from the previous survey(11.8%)(Fig.10).
Fig. 9 Range of LTV level (Funds currently under management)

Fig. 8 Average LTV Ratio
（％）

75
70

72.1

100%
90%

72.3
70.9

71.3
67.6

70.2

66.7

66.4 66.0

66.2

64.9

67.4

65

63.5

65.3

63.8

59.4

50

65.3
62.5
61.7

50%

62%

60%
66%

22%

59.1

58.1

48%

40%

20%

58.4
56.7

10%
0%

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 18/07 19/01

Funds scheduled to be launched within a year

7% 11%
9% 7% 6% 12% 11% 12%
15% 16% 20%
23% 23%
16% 20% 23%
15%20% 22%
48%
26% 28%45%14%
15%
29% 21%
27% 25% 20%
59%
20% 11%
30%

21%
3%

28%

10%
7%

3%

90%

16.7

60%

10.1

50%

10.0

40%

8.9

30%

7.0

20%
10%

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 18/07 19/01(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)(n=16)(n=17)

Fixed property type

Discretionary investment typeOpen-ended funds

22%

27% 31% 27%

31%

29%

14%
9%
20% 9%
12% 19% 24%
14% 22%
18% 14% 14% 11%
20% 20%3% 12%
4% 9%
10% 6% 6%7%
5% 7% 4%3% 3% 3% 4% 4%
14%

22%

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%

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 18/07 19/01(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) (n=36) (n=34)

100%

（％）

25

10

28%

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

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

15

44%

30% 31%

30%
58.1

57.6

Funds currently under management

0

3%

16%

70%
60%

63.8
58.8 59.1

63.0

60
55

64.2

66.8
64.9 64.4

60.2

10%

80%

68.9
71.0

15%

0%

Additional acquisition type4

19% 33%

5%
32%

45%

11% 7% 12% 7% 13% 8% 8%

36% 22% 27% 18% 29%

46%

20% 29%43%

50% 33%

38%
45%
25%

9% 5% 5%13% 25%
42%

26%

61%
67% 78%

23%

45%

36%

36%

25%

44%

29% 50%
50%

40%

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

33%

7%
41% 14%14%25%

17% 17%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 18/07 19/01(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) (n=20) (n=23)

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News Release March 15, 20193) Debt FinanceRegarding debt financing circumstances, the largest number of the respondents chose “3 (neutral)”, exceeded that ofrespondents who chose “4 ( easy)”(Fig.12-1). Many asset managers seem to feel that there is no particular change in thecircumstances where debt financing is relatively easy. However, the number of respondents who chose “3” exceededthat of respondents who chose “4,” suggesting the possibility that the accommodative debt financing environment haschanged slightly (Fig.12-2).
Fig.12-2 Trends in Debt Financing

Fig.12-1 Current Circumstances of Debt Financing
1（Very difficult）⇔5（Very easy）

Easy

1

5
4
3

23

Difficult

1

27

0%

0

5

10

15

19/01
(n=50)

20

25

30

33%

13%

57%
60%

3%

32% 32%

25% 23% 25%

48%
67%

30% 29%33%

19% 25%

17%

8%

4%

6%

47% 50% 49%

53%

20%

0
0

1

19%

63% 60%

56%

40%

2

6%

31%

60%

26

4%

10%

80%

3
20

2

100%

32%

11%
3%

5%

8%

17%

55% 53%

13% 13%

59%

55%

40%

55%
58%

26%
14% 21% 15%

43% 46% 43%

54%

4%

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 18/07 19/01(n=63) (n=62) (n=67) (n=62) (n=63) (n=52) (n=62) (n=53) (n=53) (n=53) (n=56) (n=53) (n=52) (n=53) (n=49) (n=52) (n=53) (n=50)

18/07(n=53)

1（Very difficult）

2（Difficult）

3（Neutral）

4（Easy）

5（Very easy）

4) Equity Raisinga. Appetite of Equity Investors
In terms of a question on the appetite of equity investors, the great majority of respondents chose “No change”.
The percentage of respondents who chose “Rising” decreased 8% points to 12% from the previous survey (Fig13).
Given that the difficult situation for investing continues for a long time even if the investors have an appetite, many
asset managers seem to think that there is no particular change in the appetite of equity investors.
In regards to the investment appetite of domestic and foreign investors by property types, the percentage of
respondents who chose “No change” had a majority in all property types for both domestic and foreign investors. It was“Hotel” that got the largest number of responses of “Increase” for both domestic and foreign investors, unchanged fromthe previous survey, suggesting that both investors have a strong appetite for investment in hotels sector. In addition, thepercentage of respondents who chose “Industrial” increased from the previous survey for both domestic and foreign
investors. Respondents who answered “Declining significantly” were domestic investors who chose “Facilities for theelderly and Health-care Facilities” and foreign investors who chose “Retail.” (Fig.14-1,14-2).
Fig.13 Appetite of Equity Investors
100%
18%

80%

20%
45%

40%

07/12
(n=37)

4%

52%

61%
73%

45%

20%

06/12
(n=34)

4%

28%

57%

75%

46%

9%

18%

72%

75%

74%

24%

26%

28%

17/01
(n=51)

17/07(n=46)

18/01(n=50)

76%

61%

74%

24%

19%

64%

54%

0%

4%

5%
25%

54%

62%

83%

59%

10%

34%

41%

60%
40%

7%

16%

13%
08/07
(n=54)

15%

20%

09/01
(n=48)

09/07(n=64)

44%

31%

10/01
(n=55)

82%

11/01(n=61)

72%

11/07(n=66)

Rising26%

12/01(n=58)

44%

39%

38%
20%

10/07
(n=67)

81%

60%

24%
12/07
(n=65)

13/01(n=50)

13/07(n=60)

No change

5

14/01(n=54)

14/07(n=51)

86%

15/01(n=53)

Declining

15/07(n=54)

16/01(n=51)

16/07(n=52)

20%
18/07(n=50)

12%
19/01(n=49)

News Release March 15, 2019
Fig. 14-1 Domestic Investors’ Appetite by Type of Target Property
Office(n=40)

83%

3%

Office(n=32) 3%

20%

76%

5%

Residential
3%(n=33)

Residential(n=41)
Retail(n=40)

8%

Industrial(n=42)

29%
34%
6%

64%

7%

Industrial(n=31)

56%

10%

79%

0%
Increase significantly

13%

Retail(n=32)

80%

Hotel(n=41)
Facilities for the elderly
and Health-care facilities(n=33)

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

15%

20%
Increase

40%
Remain unchanged

12%60%
Decrease80%

Decrease significantly

33%

61%

0%

3%

61%

3%

53%

13%

70%

17%
20%
Increase

40%
Remain unchanged

3%

6%

44%

Increase significantly

3%

75%
35%

Facilities for the elderly
and Health-care facilities(n=23)

100%

69%

16%

Hotel
(n=32)

3%

28%

60%

80%

Decrease

Decrease significantly

100%

b. Sources of Overseas Capital (or Foreign Funds) by Country or Region
With respect to the capital sources from overseas (targeted to the managers which handle overseas capital), thehighest response rate was for investors from “Asia (excl. China /M.East)”at 35%, followed by “North
America”(28%), “Europe”(22%),“China including Hong Kong”(15%). It seems that the investors (which couductinvestment by funds) from “Asia (excl. China /M.East)” has increased its presence among the foreign investors who
invest in domestic real estate funds (Fig.15).
Fig. 15 Sources of Overseas Capital by Country or Region
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

17% 19% 17% 20% 17% 20%
25% 22% 28%
27% 23% 27% 24% 21% 21%
35% 33% 30% 31%
24%
24% 27%
25%
31%
25%
10%
8% 6%
8% 10% 11% 6% 7% 9%
25% 27%
33% 30% 28% 24%
3%

6%

7%

7%

22% 27% 26% 27% 25% 30% 24%
26%
24% 24% 29%
10% 9% 9% 6% 6% 6%
17% 6%
10% 12% 10%
12% 13%
12% 11% 11%
13%
17%
8%
14%
12%
22% 25% 28% 33% 30%
28%30%
17% 27%
24%
26%
7% 8%
4%
8%
5% 3% 5% 3% 6% 4% 4%22%North America
Europe22%4%
13% 15%

Middle East
China including Hong Kong
Asia including Australia

38% 35%08/07 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 18/07 19/01(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) (n=45) (n=46)

Asia (excl. China / M. East)
Australia
Othersc. 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”, “Politically and economically stable” (Fig.16). These choices have been the major reasons indicatedin every survey in the past, This shows that these choices support inbound investments in Japan.
As for the reasons for not investing in Japan, the largest number of the respondents chose “Rising in real estate
prices”, followed by “Lack of growth potential in GDP, consumption, population, etc.”. The percentage of respondents
who chose “Rising in real estate prices” was 25%, the largest percentage in past surveys. This suggests that many asset
managers think the concern over the overheating of the real estate investment market is also spreading among foreign
investors (Fig.17).

6

News Release March 15, 2019
Fig.16 Reasons for Foreign Investors Investing in Japan(Multiple answers allowed)

Fig.17 Reasons for Foreign Investors Not Investingin the Japanese Real Estate Market (Multiple answers allowed) n=63(Respondents25)

n=99(Respondents27)
22

Relatively attractive due to the yield gap

16

Rising in real estate prices

19

Highly stable income

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

17

Allocation as part of the global portfolio

13
10

Earthquake risk

15

The size of the real estate market is large

Low growth potential in income

7

Lack of attractive investment opportunities

7

10

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

74

Decrease in the supply of investable real estate3

Expected positive effects of exchange rates3

Low transparency in the real estate market

Making investments in Japan as part of investment strategies
in Asia, while avoiding other cities where there are risks of afall in prices in the future2

Rental market is in a recovery phase22Lack of attractiveness to the yield gap
Investment merits due to foreign exchange are notanticipated1

Income with growth potential

1

Highly transparent real estate market
More deal opportunities

0

Increase in investment opportunities due to undervalued
real estate prices

0

Others

0

0

5

10

15

20

1

Cannot embark on investment given uncertainty in therental market outlook

0

Large risk of the decline in real estate prices0

Lack of policy consistency due to government instability

0

Others

0

0

25

5

10

15

20

d. Acquisition and Disposition of Properties during July to December 2018
As to a survey on the acquisition of properties during July to December 2018, the percentage of respondents who
answered "Acquired" accounted 67%, More than 60% of responding companies are in the process of acquiringproperties (Fig.18). In terms of reasons for not acquiring any properties, respondents who chose “Can’t agree on
prices” accounted for 65%, the largest percentage since the commencement of the survey. The percentage of
respondents who chose “Severe competition in bids” has been on a declining trend since 2017, but rose to 24%,
increasing again in this survey.
About 90% of the asset managers who did not acquire properties cited the gap in price expectations and theacquisition competition as the reasons (Fig.19), suggesting that the difficult situation for acquiring properties
continues against the backdrop of rising prices for real estate.
Regarding the survey on the disposition of properties from July to December 2018, the percentage of respondents
who chose “Sold property” was 45%, falling below 50% (Fig.20). As for the reasons for not selling any properties,
respondents who chose “Did not plan to sell from the onset” accounted for 89% (Fig.21). Given that opportunities
to sell properties are decreasing due to the prolongation of the investment period and that properties held by
open-ended funds are increasing, the case in which the manager of private funds becomes an entity to sell properties
is expected to continue declining.

7

News Release March 15, 2019

Fig.19 Reason for not acquiring property

Fig.18 Circumstances for Acquisition

100%

100%
80%

49% 51%

42% 44% 38%

29%

39% 33% 40% 33% 37%

28% 33%

60%

60%

40%
20%
0%

51% 49%58% 56% 62%

71%

61% 67% 60% 67% 63%

72% 67%13/01 13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01 18/07 19/01(n=49)(n=61)(n=52)(n=54)(n=53)(n=55)(n=54)(n=54)(n=53)(n=49)(n=52)(n=53)(n=49)

40%

38% 36%

56% 50% 51% 58%

60%
40%

70%

60%

71%

62% 64%20%
0%44% 50% 49% 42%

63%

37%

49% 55%

51% 45%

13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01 18/07 19/01(n=60) (n=50) (n=52) (n=52) (n=56) (n=54) (n=54) (n=53) (n=48) (n=52) (n=53) (n=49)

Sold property

40%

46% 48%

57% 57%

65%

80%
32%
24%

20%

32% 23%

33% 37%

Severe competition in bids
Did not plan to acquire fromthe outset

29% 26%

18% 17%8%
4% 7% 4% 24%
8%
4% 16% 13%
10% 6% 4% 12% 8% 13% 7% 13%
4%6%
3% 10% 3% 6% 7%
11% 3% 7%
11% 9% 6%5%3% 7% 6% 4% 8% 8% 9%

Did not consider, due to alimited supply of properties
in the market
Others13/01 13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01 18/07 19/01(n=45) (n=37) (n=30) (n=31) (n=30) (n=18) (n=27) (n=25) (n=24) (n=23) (n=28) (n=23) (n=17)

Fig. 21 Reason for not Selling Property

100%
29%

0%

Didn't acquireFig. 20 Circumstances for Disposition
30%

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

40%
20%

Acquired80%

Can't agree on prices

80%

Didn’t sell property

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

Did not plan to sell fromthe outset

71%

86%

100%

90% 95% 90% 96% 85% 96%

81%

91% 89%No inquiries despite sales
activities
Can’t agree on prices

6%
24% 5%
9%

10% 5%

3%
7%

4%

11%
4% 4%

6%
9% 4%
3% 4%

4%
4%
4%

13/07 14/01 14/07 15/01 15/07 16/01 16/07 17/01 17/07 18/01 18/07 19/01(n=17) (n=22) (n=12) (n=20) (n=20) (n=29) (n=27) (n=27) (n=26) (n=32) (n=23) (n=27)

Continued to holdproperties throughrefinancing, following
favorable loan terms

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, 67% of respondents answered that they “Plan tolaunch” (Fig.22). Around 70% of respondents plan to launch of new funds as in the previous survey.
As to plans of acquiring or disposing properties within a year, the percentage of respondents who plan to acquire
properties accounted for 85%, that of those who plan to dispose properties accounted for 57% (Fig.23,24).
A large majority of managers have the intention of acquiring properties. However, it is likely that the low supply ofinvestment-grade properties will continue throughout the entire market

Fig.22 Plans of Launch of New Funds
100%

16% 20%80%

28%

19% 23%

84% 80%72%

81% 77%

69% 73% 63% 71% 70% 67%

No plantoacquire15%

Fig.24 Plans of selling
properties

No planto sell
43%
Plan toacquire
85%

20%
0%

Plan to launch

n=47

n=47

31% 27% 37% 29% 30% 33%

60%
40%

Fig.23 Plans of acquiringproperties

No plan to launch

8

Plan tosell
57%

News Release March 15, 20192). Investment Strategies of Asset Managers
a. Target Property Types (Multiple answers allowed)
In terms of the target property types, the percentage of “Office” and “Hotel” accounted for about 20% respectively,
followed by “Residential”, ”Retail” and “Industrial”(around 15% each)(Fig.25). Since the January 2017 survey, thepercentage of “Hotel” has been around 20% and established almost the same position as “Office” as a property typein which asset managers show an intention to focus.
The percentage of “Data center,” which we added to the target property types in the January 2018 survey, also
stayed at 8%. We will pay attention to whether it will become established as a target property type in the future.
Fig. 25 Target Property Types (Multiple answers allowed)
100%

11% 14%

90%

7%

80%

11%

15%

10%

4%
8%

5%

16%

8%

70%
20%

60%

22%

30%

50%
20%

40%

4%
9%

4%
11%

31%

21%

6%

8%

10%

15%

13%

17%
18%

29%
27%

6%
9%
10%

11%
9%

27%

13%

11%

23%

30%
20%

33%

10%
0%

36%

40%

36%

41%

38%

33%

19%

10%

9%

15%

14%

13%

14%

23%

21%

9%

33%

26%

8%

7%

7%

4%

5%
4%

18%

16%

18%

19%

20%

13%

16%

16%

15%

15%

18%

17%

16%

20%

18%

24%

23%

23%

19%

19%
18%

44%

16%

15%
20%

28%

12%

20%

20%

17%

15%

18%

17%

16%

16%

24%

23%

23%

23%

22%

21%

20%
13%
15%

8%

8%

19%

19%

15%

16%

15%

14%

16%

17%

21%

19%

4%

4%

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 18/07 19/01(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)(n=155)(n=177)(n=185)(n=180)

Residential

OfficeRetailIndustrial

Hotel

Facilities for the elderly and Health-care facilities

data center

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 around 20%, there is little change in recent surveys(Fig.26). Because it is expected that challenging market condition for acquisitions of properties will continue, we
believe that many asset managers will continue to target a wide range of areas including not only in Tokyo but also inmajor domestic areas in Japan.
Fig. 26 Target Areas (Multiple answers allowed)
100%
90%

18%

80%

4%

70%
60%
50%
40%
30%

24%
15%

0%

11%

7%
6%

4%
3%
7%

10%

11%

4%
3%
13%

5%
14%

3%
6%
17%

12%
11%

7%
10%

3%
3%
9%
14%

14%
29%

28%

29%

30%

32%

23%

4%
8%

5%
8%

6%
9%

12%

15%

15%

20%
28%

23%

25%

20%
10%

9%

46%
33%

11%
4%

50%

47%

40%

41%

43%

12%
19%

21%

20%
20%

21%

48%

7%

34%

25%

26%

24%

26%

19%

22%

5%
11%
19%
20%

21%

24%

4%

5%

5%

12%

8%

8%

8%

12%

15%

15%

15%

14%

19%

19%

20%

19%

18%

19%

21%

22%

22%

20%

19%

20%

18%

20%

19%

20%

20%

19%

19%

20%

22%

24%

21%

20%

20%

19%

21%

7%
13%
18%

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 18/07 19/01(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) (n=206) (n=195)

Central 5 wards of Tokyo
Kinki area
Nationwide

23 wards of Tokyo (excluding Central 5 wards)
Nagoya area
Others・The Kinki area was called the Osaka area until the January 2009 survey. The constituent prefectures remain the same.

9

Tokyo metropolitan area
Local cities

News Release March 15, 2019

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 open-ended private REITs, the largest number of respondents chose“Have already launched,” followed by respondents who chose “Seek to develop a better understanding and gather
information, but not working on a detailed study,” suggesting that the launch of open-ended private REITs has cometo a halt (Fig.27). However, given that several asset managers chose “Preparing for a launch,” open-ended private
REITs could continue to increase slightly going forward.
In terms of important factors for development in the open-ended private REITs market, the largest amount ofrespondents chose “Enhancement of the track record” and “Expansion of the categories of investors to invest in
funds.” It seems that many managers feel that it is necessary to build a track record, including a response to thedownward phase of real estate market conditions, something that Japan’s real estate open-ended fund market has yet
to experience, and broaden the investor base to overcome such phase (Fig.28).
In addition, there were a certain number of responses to items such as “improvement of liquidity” and “support ofsponsors”.

Fig.27 Managers’ involvement with private REITs

n=48(Respondents 48)

n=118(Respondents 46)

27

Enhancement of the track record

17

Have already launched

Fig.28 Important Factors for Development in theprivate REITs Market(choosing up to three options)25

Expansion of the categories of investors to invest in funds

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

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

15

16
16

Support of the sponsor

6

Preparing for a launch after consideration
Decided not to launch after consideration but may
consider again

14

Expansion of the number of private REITs and the asset size

7

Increase in visibility among investors

55Standardization of items to be disclosed

Decided not to launch after consideration, and unlikely
to reconsider in the future3

Improvement in frequency of disclosure

3

2

Review of laws and financial accouting systems

Have heard of the name but not considered
involvement

2

Have neither heard of the name nor considered
involvement001Enhancement of compliance0

Reduction of minimum investment unit

2

Others

5

10

15

20

0

5

10

15

20

25

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 percentage of
respondents who expect an increase accounted for about 70% of the total (Fig.29).
As for the reasons responding “Increase,” many respondents chose “Increase of domestic investors’ money” and“Increase of foreign investors’ money” (Fig.30). We believe that many asset managers expect continuing inflows offunds into real estate investments due to the continuation of monetary easing policy by the Bank of Japan.
The main reasons for “Decrease” were “Limited supply of new investment-grade real estate” and “Rise in realestate prices,” reflecting a seller’s market.

1030

News Release March 15, 2019
Fig.29 Assets under managementof closed-ended funds
Decrease
4%

Fig.30 Reasons for Changing of Assets under managementn=92(Respondents 48)(Multiple answers allowed)

n=48

26

Increase of domestic investors’ money

24

Increase of foreign investors’ money

Slightly
decrease
23%

Increase
19%

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

7

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

6

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

5

Rise in real estate prices

5

Limited supply of existing investment-grade real estate5

Slightly
increase
54%

Decline in real estate prices

4

Decrease of domestic investors’ money3

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

2

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

1

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

1

Decrease of foreign investors’ money

10

Increase in supply of existing investment-grade real estate

2

Others

0

5

10

15

20

25

30

3) 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 largest number of managers chose“Strengthen property-acquisition capability”, greatly exceeded the second most frequent answer “Enhancement of
AM capabilities” (Fig.31). Under the current environment where the acquisition of properties is difficult due torising real estate prices, an ability to realize internal growth in properties held is expected for asset managers. Eight
respondents also chose “Expansion of target property types.” Investors are required to discover an investment
opportunity by expanding investment targets into diverse assets.
Fig. 31 Requirements for Sustainability and Growth of Managers (choosing up to three options)
42

Strengthen property-acquisition capability

27

Enhancement of AM capabilities

14

Enhancement of relations with investors

13

Enhancement of equity raising capabilities

9

Management strategy and its explanatory ability

9Competence in special expertise
Enhancing the ability to handle foreign investors

8

Expansion of target property types

8

Reinforcement of compliance structure

3

Corporate strength (financial health, scale of operations)

3

Enhancement of debt financing capabilities

3

Entry into open-ended funds business3
3

Expansion of foreign real estate fund management business

2

Enhancement of research capabilities

1

Sufficient of information disclosure0

Capabilities for NPL investment activity
Strengthening of earthquake/disaster response capability

0

Others00

Jan 19（n=148 Respondents50）

10

20

30

40

Jan 18（n=153 Respondents52）

July 18（n=155 Respondents53）

1150

News Release March 15, 2019

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.

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News Release March 15, 2019

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,
broker, or sale products including real estate and financial instruments, services, rights or other transactions.
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
addition, as this document was prepared based on the information available at the time of preparation or
research, all contents provided herein represent the judgments at the time at which the material was prepared.
Forecasts, projections, or estimations included in this document are neither assured nor guaranteed. The
contents of this document are subject to change without prior notice.
3. Rights related to this document are reserved by SMTRI. Copying, reproduction or revision of this document,
in whole or in part, is not permitted without the prior consent of SMTRI, irrespective of the purpose or
method.
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.

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