September 2019

Strategies to bring your international business plan to life.

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Fukuoka
Applying Historical Lessons to become
Asia’s Leading Regional City
Real Estate in Fukuoka

Ichigo Uchikanda Bldg. 8F, 3-2-8 Uchikanda, Chiyoda-ku, Tokyo 101-0047 Japan
phone: 03-5297-6131

Fukuoka REIT

Robust Occupancy Driven by Solid Foundation and
Population Growth
Accommodating Changes
for an Even Brighter
Future Outlook

J-REITs Active in the
Fukuoka City
Residential Market
Strong Occupancy due toStrong Population Inflow

Infrastructure Funds
Current Situation and
OutlookPublisher’s Note
Article title here

Fukuoka continues to be one of the more exciting global cities. It has a rich performing arts culture thatmeshes with a deep history of nearly 2,000 years that local residents are proud to boast about—and they should
be proud of it. They are citizens of one of the few, if not the only Japanese city, that functions well despite orwithout Tokyo. The definitive “like” argument among land investors has always been that the airport is only 10
minutes or less by car or train from the city center.
Second, is its problem solving capacity of the city government. A few years ago a road collapsed on a cornernear the central station and snickering such as “Too big for their britches in the end a small town on the fringe,”“constructed in a manner suited to a developing country,” etc. Then a week went by and no one could find thesinkhole as it had been completely repaired and the road reopened. Talk switched to “in Tokyo they would
still be talking about protocol and which bureaus should handle it,” “the central government would still bearranging for a fact-finding tour.” This quick action and commitment to excellence were highly appraised.
Third, the city is in very close proximity to the growth centers of Asia including South Korea, Taipei and major
cities of China. Add to this that the proximity between Fukuoka and the top three megalopolises of Japan makes
it an ideal business continuity plan (BCP) destination. Of course, the cherry on top is the phenomenal cuisine in
the area. All is clear evidence that the city should be on your watch and investment list.
Real Estate in Fukuoka
Robust Occupancy Driven by Population Growth

J. Michael Owen
CEO & Chairman
Transpacific Enterprises

Contents

September 2019

Real Estate in Fukuoka
Robust Occupancy Driven by Population Growth

September 2019

Volume 16

Publisher:

J. Michael Owen

Chief Editor:

Rey DeBoer

COVER STORY

Production Director:

Fumihiro Yasutake

Fukuoka

Production Assistant:Toshiya Oshimi

Writing/Editing:

Bradley Loewen
Rey DeBoer

Translation Coordinator:

Masashi Akiba

Design:Aya Konishi
Mahito Ozaki

Published:

September 2019

Applying Historical Lessons to become Asia’s Leading Regional CityFEATUREFukuoka REIT
Solid Foundation and Accommodating Changes for an Even Brighter Future Outlook

J-REITs Active in the Fukuoka City Residential Market
Strong Occupancy due to Strong Population Inflow

Infrastructure Funds
Current Situation and Outlook

Published by Transpacific Enterprises
Ichigo Uchikanda Building 8F
3-2-8 Uchikanda, Chiyoda-ku, Tokyo
101-0047 Japan
Inquiries
e-mail: info@linkingjapan.com
Fax: +81-3-5297-6133

Copyright:	This information has been prepared by Transpacific Enterprises for general informational purposes only. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means
without the express written permission of Transpacific Enterprises.
Disclaimer:	The information provided herein does not constitute legal, tax, investment or other advice, and is presented without any representation or warranty whatsoever as to the accuracy or completeness of the information or whether it
reflects the most current developments. Parties seeking advice should consult with counsel familiar with their particular circumstances.

Even among the many regional urban centers in Japan,
Fukuoka City has been a frontrunner on various fronts. On thepolicy front, Fukuoka City has been selected as a Special Zone
for Global Startups; Fukuoka City is also among the top cities
in Japan in terms of the number of international conferences
hosted or the number of times luxury cruises touch at its port.
British life-style magazine Monocle has ranked Fukuoka Cityin the Top 25 Livable Cities of the world on multiple occasions.
During the fund bubble, foreign capital originating from thelikes of the U.S., Singapore, and Australia directly purchased
real estate in Fukuoka City. In fact, it is widely known thatby KENJI YAMASAKI
Kyushu Branch President
Japan Real Estate Institute.
Graduated from the Department of Law, Faculty ofLaw, Keio University in 1985, joined Japan Real Estate
Institute in 1987, and after serving as a Fukuoka Prefecture Land Price Publication Representative Manager
he became the Chairman of the Fukuoka Association of Real Estate Appraisers in 2017. He is also a real estate appraiser.

GIC once owned the Sea Hawk Hotel, Yahoo! Dome, andHawks Town, commonly referred to as Fukuoka City’s threetreasures. Presently, Fukuoka City is in the midst of a major
project known as Tenjin Big Bang, a strategic reconstruction of
the district’s aged properties.

1. The Price of Land in Fukuoka City
1.1 Hakata Station-front area
The price of land in the Hakata Station-front area that wasaround 3.01 million yen per square meter in 2008 during thefund bubble period, has now reached 5.93 million yen per
square meter, rising by almost two-fold. However, in 1991,
during what was known as the Heisei bubble, it was 9.6 million
yen per square meter. As such, we can see that the current pricehas not reached the level it was at during the Heisei bubble.

1.2 Tenjin area
The Tenjin area is similar to the Hakata Station-front area inthat the price of land has surpassed the fund bubble’s price of

September 20191

Real Estate in Fukuoka

land, but it is still far from the Heisei bubble’s price of land.
One thing to note is that the difference in the price of land
between Tenjin and Hakata Station-front has rapidly shrunk,
given that the price of land in Hakata Station-front has risen
more remarkably in the past few years, compared to the priceof land in Tenjin. Recently, there has been an increase in tenants who wish to move near Hakata Station-front if they are to
move. Moreover, Fukuoka is approaching a period where thecity center may relocate to Hakata Station-front from Tenjin
similar to what was observed in Sapporo City and Nagoya
City. The Tenjin Big Bang was proposed as a project that could
help the long-established Tenjin area to recover from thisincreased presence of Hakata Station-front. Tenjin Big Bang is
an urban redevelopment project led by Fukuoka City that aims
to further revitalize Tenjin by renewing deteriorating buildings
and facilities in Fukuoka Prefecture’s business and commercial
core, the Tenjin area. The restrictions on building heights
within the city will be eased, and 30 private buildings will bereconstructed by 2024. The project hopes to multiply floor areaby 1.7-fold and employment by 2.4-fold.

2. Characteristics of Fukuoka City’s OfficeMarket2.1 The current state of Fukuoka City’s officemarketTo begin with, it is important to note that ever since the JRJP
Hakata Building was completed in April 2016, Fukuoka City’s
office rents have been increasing. That is to say, the JRJP
Hakata Building has unmistakably pulled the favorable officemarket to where it currently stands. In addition to expanding
space within buildings, companies are newly setting up new
offices in Fukuoka City. However, when setting up new offices
they often start by renting 20 or 30 tsubos and there are far
fewer new companies that rent 100 or 200 tsubos.
It is commonly said that when the vacancy rate falls below
5%, rents can be raised. Simply put, there is a 5% barrier forvacancy rates. Currently, vacancy rates have easily toppled this
5% barrier, and have reached the 1% level. For this reason, weare seeing an unprecedented powerful force everywhere that isleading to increased rents.
Moreover, there is a trend where tenants are choosing
Hakata Station over Tenjin as an office area. This trend is seen
to be connected to a lack of newly constructed buildings inTenjin. However, the S Class buildings due to be built in the
Tenjin Big Bang will lead to Tenjin's resurgence.

2

Next, it is possible to charge expensive rents for vacancies of
100 tsubos or more because they are rare both near Tenjin or
Hakata Station. As such, for floors with 100 tsubos or more,
one can charge rents that are 1.5 to 2.0 times higher than just a
few years ago, even in the case of older buildings. Here, I
would like to raise the example of a call center that requires
floor space of 100 tsubos or more. Conventionally, call centers
have been thought of as an industry that cannot afford expensive rents. However, women are easy to hire in central Tenjin,
and in some cases, supply remains even when pay is lowered
below market value, and thus, call centers are able to lease
office space at high rents. The majority of call centers’ costs
come from labor, and because they are able to save on laborcosts in Tenjin, call centers have a desire to set up offices inTenjin, despite slightly higher rents. In fact, it is said that thepreferred destinations for call centers are Hokkaido and Okinawa, followed by Fukuoka City.
Finally, office rents are decided by the balance of supply anddemand. In a time when demand and supply is likely to remaintight, given little supply (construction of new buildings) relative
to office demand, office rents will likely remain strong. The
highest rent found in Fukuoka City is currently 26,000 yen pertsubo in ACROS Fukuoka. Whether or not the first building
being constructed within the Tenjin Big Bang project, the tentatively named Tenjin Business Center, exceeds this value will
determine Tenjin’s true market value.

2.2 Relative evaluation of Fukuoka City’s officemarketAs shown in the graph, if Fukuoka City’s office volume is set at100, Tokyo’s would be 1,000, Osaka’s 300, Nagoya’s 140, Sapporo’s 70, and Sendai’s 70. While it is a pleasant surprise that
Fukuoka City is not far from Nagoya City, which boasts the
Meieki area where there are multiple super high-rise buildingsof 30 floors or more, it is a humbling reminder that Fukuoka
City’s economy is only 10 percent of Tokyo’s. Next, Fukuoka
City has the smallest gross floor area per building among major
cities at 1,734 tsubos. One characteristic and problem of
Fukuoka City is that there are many small-scale buildings
because the Fukuoka Airport is nearby which prevents theconstruction of high rise buildings. With its abundance ofgreen and its open environment, Fukuoka City should aim for
combining land use and increasing high-rises to cultivate creative ideas, concentration for work, employee motivation andsatisfaction levels.

3. Perspective Needed for Tenjin Big Bang
3.1 Buildings planned under Tenjin Big Bang
Reconstruction plans that have been published are as follows.

Office Buildings Planned under Tenjin Big Bang
Property
name

Former site
Tenjin Busi- of Daimyo
ness Center Elementary
SchoolNishitetsu
Fukuoka
Building,
etc.

IMS

THE GATE
HOTEL

Developer

Fukuoka
Jisho

SekisuiHouse, etc.

NishiNippon
Railroad

Mitsubishi
Estate

Hulic

Location

Tenjin1-chomeDaimyo2-chomeTenjin1-chomeTenjin1-chomeTenjin2-chomeSite

3,917m2

9,932m2

6,200m2

4,639m2

1,450m2

Gross floor
area

61,117m2

79,392m2

100,000m2

TBD

FAR up to
1,300%

Floors

19

24

19

TBD

TBD

Height

89m

110m

96m

TBD

up to 115m

Completion

September
2021

December
2022

Spring 2024

Targeting2024

December
2024

Specialnotes

Construction design
Shohei
Shigematsu/OMA

The RitzCarlton
Hotel will
open ahotel

Largestscale inFukuokacity

Easingheightrestrictionis the key

Rendition of exterior of Tenjin Business Center (tentative name)

3.2 A need for office buildings for temporary tenant relocation
While this is currently a topic of debate by the public, since
Fukuoka’s vacancy rate is particularly low at 2%, there is a
shortage of appropriate relocation sites for tenants that need tomove out due to the reconstruction of buildings. While a portion of the tenants will return after the reconstruction, theirrents will increase. For this reason, one pressing issue is figuring out how to secure new locations for tenants who do notwish to move back into the reconstructed buildings.

3.3 Big Bang to reconstruct 30 buildings by 2024
If all of the buildings are suddenly made into large-scale buildings, large-scale vacancies will also occur, risking a decline inrents. Not only does this risk lie with the newer buildings, italso lies with older buildings which will have secondary vacancies when tenants move out. As such, it is thought that steps
should be taken to create a healthy office market by supplying
a limited number of new buildings for a few years.

Rendition of interior of Tenjin Business Center (tentative name)standards. All of Japan is focusing on the results of this initiative. While they are facing some difficult problems such as rising construction costs and expensive compensation for eviction
demands, rising office rents have pushed the Tenjin Big Bangforward. Fukuoka City is now facing a dramatic transition
period that comes around once every 50 years.

Despite this, Fukuoka City’s solicitation policy is an unprecedented and novel method where they have cut the reconstruction period short while offering incentives to reconstruct deteriorating buildings built under the old earthquake safety

September 20193

COVER STORY

Fukuoka
Applying Historical Lessons
to become Asia’s Leading
Regional City
Interview of Soichiro Takashima, Mayor of Fukuoka City,
and Etsuo Matsuyuki, CEO & Representative Director of
Fukuoka Realty Co., Ltd.

LJ: For Fukuoka, what would you say is vital as a leading
regional city in Asia from the perspectives of the governmentand business?
Takashima: I believe it’s time for Fukuoka city to propose anew paradigm for society and the economy rather than justtransforming itself. The countries we have come to know as‘developing countries’ through our education—in other words
countries with underdeveloped social infrastructures andindustrial bases—have been able to take in and apply new technologies, thereby transforming themselves into countries thatare only a lap behind developed countries and surging. Meanwhile, countries considered as being developed are tightly
bound by regulations that make it difficult to accept new technologies. The resulting outcome is a possible dramatic change
in the ranks of countries in the coming future.
Today, there is continuous talk of emerging financial technology, crypt assets and a cashless society. There is excitement
as to how these things will help create a new world order. To
date, we have tried to compete with Tokyo in productivity, but
it is evident that we cannot compete at the level of Tokyo andother mega cities under this metric. What will it take then for
Fukuoka with a population of 1.5 to 1.6 million people to project itself as a “city” with a strong presence? It is imperative thatthe city clearly spells out its own unique sense of values and4grows to become a city with distinct characteristics.
The idea of “many high-rise buildings and unique-shapedbuildings are what make a great city” is from the old days. We
are now in a time of pursuing new ideas. This is reflected inbeing Asia’s leading regional city, where the people, the environment and the vitality of the city are well-balanced. In termsof “people,” it is a city where people help each other whenneeded, and people work together in preparation for traditional festivals by taking on more roles rather than focusing on
their individual work. In terms of the “environment,” it isnature and an environment where people can eat fish from theclear sea and ingredients grown in the rich nature. Fukuoka
City is already a world class city both in terms of its “people”
and “environment.”
However, it would not work without the vitality of the city
despite having a great environment and vibrant festivals, inother words, business. It is inadequate as a town if the smartest
children and those that can be successful in the global market,
decide to move to Tokyo, Shanghai, or New York for
self-realization.
In this sense, it is important to be highly-balanced in terms of
the “people,” “environment” and “vitality of the city.” I am
convinced that if Fukuoka can enhance the “vitality of thecity,” it can boost its presence in synergy with the characteristics of its “people” and the “environment.” “Asia’s leading

regional city” represents the city we aim to become and whatgrowing Asian cities want to be.

were quite impressed. The properly functioning transportation
infrastructure is a major indicator of the city’s vitality.

LJ: On the business side, what are the strengths of Fukuoka
and the characteristics that are needed?

Takashima: The ability to recover, or resiliency that we witnessed in the wake of the Kumamoto Earthquake and the sinkhole accident in front of JR Hakata Station has become an
important keyword in the world today. Although Fukuoka has
relatively lower probabilities of having major earthquakes ortsunami compared to other areas in Japan, preparing a resilient
environment for business has become even more important in
the context where natural disasters are becoming more intense.
One example of this is arranging various projects for the
future of Fukuoka including Tenjin Big Bang, Hakata Connected, Waterfront Next, and FUKUOKA Smart EAST. Tenjin Big Bang is a project to replace old buildings with safer
buildings as early as possible through various measures such as
national strategic special zones (Note). The first building being
constructed within the Tenjin Big Bang project is the Tenjin
Business Center being developed by Fukuoka Jisho.

Matsuyuki: It is the last part of what the mayor said—the vitality of the city—that is key. People cannot visit Fukuoka even if
they want to if there is not an adequate transportation infrastructure in place to handle that volume of people. We regularly inform overseas investors that Fukuoka has an advanced
transportation infrastructure covering land, sea, and air. Its
strength is represented in the airport, the extension of the subway Nanakuma Line, the Chuo Futo wharf, and other aspects.
Overseas investors value this point highly. The fact that a newstation on the Nanakuma Line is being built right next toCanal City Hakata, our core asset, is especially great for
Fukuoka REIT as this station will improve access between
Tenjin, Hakata Station and Canal City Hakata.
We were shocked by the accident during the subway construction that caused the road in front of the station to collapse
suddenly. Initially I felt that this could be fatal for Hakata andFukuoka, but rather it became an example of the strength andpride of Fukuoka in that the submerged road was repaired in
one week. People who saw this on the news as well as investors(Note) Special zones designated to verify the effects of deregulations and system reforms within a
restricted area to revitalize the Japanese economy. More drastic deregulations and tax system reforms can be expected as the national government leads the decisions on themes
and areas for special zones.

The first building being constructed within the Tenjin Big
Bang project is the Tenjin Business Center being developed by

September 20195

COVER STORY: FukuokaN

Ka ishVegefru Stadium(Fresh produce market) Fukuoka Urban izuk itet

Redevelopment Projects
in Fukuoka City

a s
Expressway Route 6 Lin ue(Island city Line)

Fukuoka Sangyo
University

JR U
mino
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Lineakamichimaintenance

Hakozaki Port

Hakata Bay
NokonoshimaIsland Park

Chuo PortC

Fukuoka Urban Expressway
Kanjo Line

Seaside Momochi
Beach Park

SubwayFUKUOKAYAHUOKU!DOME Kuko Line

Marina Town

Ohori Park Ruins of
Fukuoka
CastleJR Chikuhi LineTenjinA

Nishi Kyushu
Expressway

ine

Fukuoka
University
Hospital

Fukuoka
University

Fukuoka Urban Expressway
Kanjo LineDa UrbaKasuyan E xpresswayLine

Fukuoka IC

Kyushu University
Hakozaki Campus
Site

n
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San

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an ortUrb Airp

HakataStationFukuoka
Airport

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LEVEL-5
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Lin resesway: P lease refer to page 14 for details on
the numbers in the map.

ii
sh
Ka
JR

Uminonakamichi
Seaside Park

A The Tenjin Big Bang Project

B Hakata Connected

The Tenjin Big Bang Project aims to encourage, through special Fukuoka City government
measures, rebuilding by the private sector to generate fresh employment opportunities
and create urban new spaces, taking advantage of relaxed regulations in the Tenjin area
as part of a National Strategic Special Zone initiative. The Fukuoka City government hasreceived special permission to relax Civil Aeronautics Act-related building height regulations and has also relaxed regulations on floor-space ratios, etc. Work on the first buildingof the project, Tenjin Business Center (provisional name), started in January 2019.

Urban functions in the Hakata Station area will be enhanced through redevelopment
including construction of highly earthquake-resistant buildings and expansion of the
network of pedestrian routes, along with enhancement of transport infrastructure such as
extension of the Nanakuma subway line to Hakata Station and redevelopment of Hakata
Ekimae Street.
Target area: 500-meter radius around the Hakata Station (about 80 hectares).

C Waterfront District
Both bustling and relaxing spaces that take advantage of the seafront location will becreated by encouraging the relocation of private facilities to the district and leveraging
the area's unique characteristics and charms, all the while working to strengthen MICE
(Meetings, Incentives, Conferencing, and Exhibitions) and cruise-related functions withthe aim of building them into drivers of growth for Fukuoka City.
Canvassing of the private sector commenced in March 2019 in preparation for subsequent
public solicitation of interested business operators.

Fukuoka Jisho. This building will be equipped with a leading
quake-absorbing structure. The building can be used to proactively promote the launching of Japanese operations among
business people from overseas who want to conduct business inJapan as they will see the building as being irrefutably safe during an earthquake. I am convinced that these types of structures must be in place to attract high value-added businesses toJapan and in particular to Fukuoka. This project is one way ofaccomplishing that.
Matsuyuki: Until now, nearly all the buildings in Tenjin, thecenter of Fukuoka, were aged 40 years or older. This is not an
appealing characteristic for attracting people to the area. The

6

D FUKUOKA Smart EAST
The smart city project is an initiative where industry, academia and government havejoined forces to transform a former campus of Kyusyu University in Hakozaki (about 52
hectares), which is located eastern part of Fukuoka city, into the largest smart city inJapan. In order to achieve sustainable development while addressing various challenges
associated with town planning such as an aging society with fewer children, the city will
implement state-of-the-art technology brought about by innovation to create a comfortable and high quality lifestyle along with urban space, and thereby realizing a model city
our citizens can be proud of in future. To pioneer this development, the city will start toimplement verification tests in Hakozaki.

construction of new, safer buildings equipped with BCP functions via the Tenjin Big Bang project will bring to Fukuoka
people who would not have come previously. I believe theimpact of this to be very significant.
Takashima: One might ask, why is Fukuoka able to accomplish
all this now? This is occurring because of the present alignmentof national deregulation, motivation of local governments, andthe private sector. One example is the deregulation of height
restrictions under the Civil Aeronautics Act. Previously, nomatter how motivated the local populace was, nothing could beaccomplished because items that fall under the Civil Aeronautics Act are considered national matters and the issue was givenno attention. However, the relationship between the government of Fukuoka and the national government today is verystrong. The strength of our relationship has been beneficial inthat when Fukuoka became ready to challenge itself to achieve
many things, it was able to cooperate firmly with the national
government.
One such example is the height restrictions of buildings.
Fukuoka Airport is one of the most easily accessible airports inthe world, however this proximity to the city center also
becomes the bottleneck as the construction of buildings surpassing 67 meters is not allowed under the Act. But designation
as a national strategic special zone eventually enabled us toembark on the Tenjin Big Bang Project in which the construction of buildings are permitted under eased limits.
Our relationship combined with the present timing has
resulted in several great opportunities. A number of motivatedprivate corporations came out of the woodwork when
Fukuoka created the Tenjin Big Bang project by combining
national deregulation with deregulation and measures adopted
by Fukuoka. Rarely do various participants align themselves
like they are now, and we look to make the most of this opportunity for Fukuoka.
LJ: What are Fukuoka’s strengths versus mega cities and inwhat areas would you come out ahead as the top regional city
not only in Japan but also in Asia? Moreover, why is Fukuoka
so appealing among other cities and how do you maintain thisstrength?
Takashima: First of all, I believe the aspect that best represents
Fukuoka’s individuality is its livability, which is highly evaluated internationally. As for business, our support for startups
is a significant strength. Fukuoka has many students. It ranks
second nationwide for number of students following Kyoto. In
particular there are many engineering students in the city.
Furthermore, the cost of living in Fukuoka is very inexpensive, which is one of the important elements of livability. This
makes it possible for the city to create an excellent environment
where people can experience failure but bounce back quickly to
pursue their next challenge. Support programs we have been
taking are startup visas for foreign entrepreneurs under the
special zone scheme, the Startup Corporate Tax Cut and thelaunch of Fukuoka Growth Next, which is one of Japan’s largest public-private collaborative start-up support facilities
located inside a former elementary school building.
On top of this strong base of students, Fukuoka has established a distinctly large number of incentive programs for startups that make it stand out ahead of others in this area.
Admittedly, Tokyo is the center of Japan, but Fukuoka canSoichiro Takashima
Mayor of Fukuoka City

be recognized as the center of the area comprised of Japan,
China, South Korea, and Taiwan.
Why is the location of Fukuoka attracting so much attention
now? Clearly the location itself has not changed but the potential of Asia within the world has. I travelled to Shanghai via an
ocean cruise last week. Shanghai is in fact the same distancefrom Fukuoka as Tokyo, and is an enormous mega city. In
Asia, including China, South Korea and Taiwan, there is aneed to conduct business globally and market opportunities are
growing. Consequently, the significance of the location of
Fukuoka is also growing. Fukuoka must set out to reinforce
the gateway function of the city while preventing bottlenecks
from growing. It is with this in mind we are building anotherrunway at the airport to make it easier for international flights
to arrive in Fukuoka. The city also receives more ocean liners
than any other port in Japan and we are presently extending
the terminal by implementing port concessions for the first timein Japan. This will follow the airport concessions that havealready been sold. I am convinced that these new pursuits will
enable dynamic growth of Fukuoka’s potential.
Matsuyuki: There are two elements we describe when Fukuoka
REIT explains the strengths of Fukuoka to investors. We firsttalk about the population and how it is both growing and very
young. These are overwhelming strengths that the city latently
possesses. This is noteworthy when you consider the fact thatthe overall population of Japan is aging. The second element is
our inbound traffic, that is, the overwhelming growth in number of inbound tourists. For example, in the case of Canal City

September 20197

COVER STORY: Fukuoka

Hakata, there is clear evidence that there has been an increasein the number of customers from overseas. Therefore, it would
be an utter waste if the commercial facility welcoming thesecustomers was not able to do so in both aspects of structure
and appeal. This led us to taking measures necessary for handling inbound traffic at Canal City Hakata at an early stage,
whereby from around 2008 Union Pay cards were accepted, aduty-free goods counter was opened and specific services targeting inbound visitors were devised. We think it is importantto take advantage of our geographical advantage and haverecently taken steps to accept WeChat Pay and Alipay alongwith credit cards from China and South Korea.

Etsuo Matsuyuki
CEO & Representative Director of
Fukuoka Realty Co., Ltd.

LJ: It is often mentioned that Tokyo is lacking in entertainment. Does Fukuoka provide a rich entertainment life?
Takashima: The greatest form of night entertainment we provide are the yatai—food stalls. There is no place in Japan
where you can eat outside and enjoy the breeze at night. This isbecause of the regulation under the Road Traffic Act designating roads as only for transporting people. The sole exception tothis is Fukuoka. Fukuoka is ensuring the continuation of its
yatai by being the first municipality in Japan to enact the Basic
Ordinance on Yatai. Yatai must follow the letter of the ordinance, but they are true night entertainment. The city is evenpromoting the use of cashless payment among the yatai also toprevent trouble concerning payment, and we are assisting withthe provision of menus in multiple languages.
Another form of night entertainment with a rather contrarian approach is the shopping arcade. Until now, shopping
arcades have been losing much of their previous vitality aslarge retail facilities like Aeon and Yumetown have changed
the flow of pedestrians and caused people to no longer visit thearcades. We have been adopting measures to draw people backto the arcades but in that process realized that the arcades are
attractive to inbound visitors as well.
The path down the middle of the shopping arcade is designated as a road in the ordinance, thus it is illegal to place popup store carts in the middle and to eat outside on the “road.”
However, after much thought, we took advantage of thenational strategic special zones policy and used the arcades for
hospitality events related to international conventions, postconvention events and pre-convention events. At the sametime, we asked the arcades to hold night markets. We offer
support to arcades that are willing to try new things, for example, provide open stores where people could shop late at night
after they had eaten dinner. Young store owners have beenvery motivated to help us in these areas and many are now voluntarily taking actions. If we diligently expand these efforts to8

the point where there are arcades open at night every week, we
can list them in guide books. Shopping arcades will be revitalized and inbound customers will become more satisfied if a
steady flow of people can be created where people go out after
they eat dinner.
Matsuyuki: Canal City Hakata has also been very proactive
concerning nighttime events and began providing aqua panorama and projection mapping shows two years ago. Theseshows are enjoyed both by Japanese and inbound customers.
Our area has become one symbol of Hakata/Fukuoka in that
our customers not only shop and dine at Canal City Hakata butthey also shop at the neighboring Kawabata Shopping Arcade.
LJ: How do you want Fukuoka to transform in the future andwhat kind of leader do you want it to be?
Takashima: I want Fukuoka to become a leading city in Asia
through harmony between people, the environment, and city
vitality. The city is pursuing a number of changes to the urban
landscape and policies to achieve these goals. For example,
Fukuoka as a city has the second largest number of shrines inJapan following Kyoto. While Kyoto’s shrines and temples
flow throughout the town’s streetscapes, those in Fukuoka are
merely present and go unnoticed. They have not been appealed
as a visitor worthy destination. We are working on a project tochange the roads in the old district of Hakata to cobblestone sothat even if people come from overseas or are without historical reference, they still feel something. By reconstructing thestreetscape, we intend to build a city with distinct interesting
and contrasting areas.
These are the measures we will implement with a medium- tolong-term perspective. We also aim to create a place or a society where those who are willing to take on challenges can play
active roles. Amid the aging society with low child birthrate, weneed a willingness to risk doing something, otherwise there's noinnovation or new business models. We must create a society
where risk-takers are respected so that more and more young
people can take risks without the fear of failure.
We intend to cultivate the attitude of challenging theaccepted relentlessly. This attitude of questioning the acceptedis the prerequisite really for someone launching a startup. We
have created corners in the libraries of all of Fukuoka’s elementary schools to further this attitude in an attempt to nurture this spirit among children in their education. We have initiated measures for our city’s futures in a variety of dimensions
from education to reformulating the structure of our city. As I
said at the outset, Fukuoka Growth Next is a part of these
efforts. In line with this, we opened an “engineer café” inAugust. It is a café where engineers, who play an integral rolein technological development in this age of AI and IoT, cangather and interact with other engineers. Fukuoka will create astage for people who want to challenge the accepted and create
something new. Fukuoka will be a place where everyone can be
successful. This is what we need to update and polish evenmore from now on.
Some people point out that it is an exaggeration that
Fukuoka is a leading city in Asia. Historically, however,Fukuoka was a leader in Asia dating back to 2,000 years ago.
The Azumi Clan resided in the city and knew how to read thewinds and ocean currents. Accordingly, Fukuoka became a

Vacancy Rate and Rent in Fukuoka City
Rent

(JPY/Tsubo)
12,00011,500Vacancy rate

5.15

11,378(%)
6.0

11,5355.0

11,00010,606
10,50010,5673.65

10,00010,363

4.0

10,526

3.0

2.58

9,500

1.45

9,000

2.0

1.62
1.32

1.0
8,500
0

2014

2015

Source: Sanko Estate Co., Ltd.

2016

2017

2018

2019/70.0

hub for transporting products and people throughout Asia.
About 1,300 years ago Kourokan (hospitality facilities) served
as exchange gateways to Asia by providing hospitality to overseas guests, and of the three that were in Japan at the time,
only the location of the one located in Fukuoka is known
today. From long ago, Fukuoka has grown and developed
through interaction with Asia, and has a strong presence inAsia. In the past, various interactions occurred centering on
temples, but today international interaction and networking isdone centering on the business district. Wind-propelled boats
have become cruise liners, and airplanes have become low-costcarriers, and the increase and frequency of their arrivals anddepartures facilitates active interaction. As times change andthe ways of interaction change, I believe it is vital that we once
again become a hub for interaction in the current day and age
by proactively upgrading city functions.
Matsuyuki: Fukuoka REIT listed on the stock exchange as aregional REIT in 2005, and we are also convinced that we must
adapt ourselves to the era and achieve steady, reliable growth
going into the future. As for achieving steady growth, Fukuoka
REIT has a strong portfolio with many high-occupancy properties. This is in part due to the robust office environment inFukuoka where the average vacancy rate as of July 2019 was
1.3%. Our properties are overflowing with new businesses likecall centers, online/mail-order companies, content companies
and game companies. Furthermore, overseas investors seem tobe heavily interested in ESG and we intend to also focus further on this area in the future.
Fukuoka Realty, the asset manager for Fukuoka REIT, wascertified by the city last year as a company promoting workstyle reform and nearly half of our staff—46.3%—are women.
We would like to continue utilizing these strengths as an operator while also contributing to the regional growth of Fukuoka
to create an even more attractive city.
Takashima: We are implementing rapid changes to the city as
we speak. I am often asked if the skyline is really being changed
in line with these changes as people will miss the old skyline.
They are in a mood for nostalgia. The fact is, however, that theshape will not last forever and must undergo change at somepoint. The decision on what to change and what not to change
is not driven by the simple desire for change. When looking
back on the 2,000 years of history of Fukuoka and the path it
has traveled based on its DNA, it is important that such decisions are in line with that. As for urban creation, if what we dois on this path created over time, there is no problem. We areresolved in our determination to work on the various challenges going forward.

September 20199

FEATURE: Fukuoka REITFEATUREFukuoka REIT

Q

Solid Foundation and Accommodating Changes
for an Even Brighter Future Outlook

Fukuoka REIT Corporation (“FRC”) is Japan’s first REIT specializing in regional properties with the intention of attracting inflow of capital to the region by introducing excellent properties in the Fukuoka
and Kyushu area to investors around the world. As of February 28, 2019, its assets under management had increased by 2.6 times since listing and the investment target which was centered on retailfacilities has become more diverse.
We interviewed Keishi Tamura, General Manager of Finance Department of Fukuoka Realty Co., Ltd.
(the “Asset Manager”) on the current status and measures taken by FRC.

Q

The Asset Manager has Fukuoka Jisho Co., Ltd., Kyushu
Electric Power Co., Inc., and other leaders of the Kyushu
business world as its sponsors. Fukuoka Jisho Co., Ltd., thelargest developer in Kyushu, has concluded an agreement concerning pipeline support, etc. with FRC and the Asset Manager, and provides information on properties, etc. and makes
offers of property transactions, etc. to both companies. With
regard to external growth, FRC mainly acquires properties

5%

5%

5%

THE BANK OFFUKUOKA, LTD.

THE NISHI-NIPPONCITY BANK, LTD.

Development Bank of Japan Inc.

SAIBU GAS CO., LTD.

After

Before60 - 80

Retail%40 - 70

50%

%

40

50

60

20 - 40

OfficeBuildings%

20 - 50

0 - 20%* Hotel, Residence, Logistics and Other facilities

30

40

0 - 30

50

%

0

10

20

13.9%

Total leasable floor space
Office Buildings
26.9%

Others13.9%

580,665.27 m2
Occupancy rate at end of period

Investment area (based on acquisition price)
Other Kyushu areas
22.8%

Fukuoka Realty Co., Ltd.

Outsidedirector

10%
Kyushu Electric Power Co., Inc.

(Asset Manager)

%

20

26.9%

Others *Director

FUKUOKA JISHO
CO., LTD.*

70

59.2%

Investment type (based on acquisition price)

Fukuoka metropolitan area 77.2%

5%

Investment Ratios by Investment TypePortfolio
Retail 59.2%

utilizing the sponsor and local networks. Through sponsor
pipelines, Fukuoka Jisho Co., Ltd. not only owns office buildings, hotels, etc. in the Fukuoka metropolitan area, it is alsopressing ahead with development of office buildings, hotels,
and logistics facilities for the future. FRC believes it may
acquire properties from among these developments going
forward.

Sponsors

What are the reasons behind the investment policy change, including the investment
asset types?

FRC changed the investment ratio of its investment assets, which had remained unchanged sincelisting, in order to allow the asset managementcompany to more flexibly consider investment inexcellent properties of investment types other thanretail facilities, namely office buildings and others(including hotels, residential properties, logistics
facilities, and public facilities). This was done tosecure stable earnings over the medium to longterm as well as stable growth of investment assets.
The investment policy after the change sets investment in retail facilities as accounting for 40 to 70
percent of the portfolio, office buildings for 20 to50 percent, and other types for 0 to 30 percent.

Can you tell us about the relationship with and the respective strengths of the current 10
sponsor companies including Fukuoka Jisho Co., Ltd., the main sponsor?
Additionally, what are the benefits of concluding a pipeline support agreement with Fukuoka
Jisho Co., Ltd.?

99.7 %

30

5%

5%

5%

5%

Kyudenko Corporation

Nishi-Nippon Railroad Co., Ltd.

Kyushu Railway Company

ROYAL HOLDINGS Co., Ltd.

* Concluded MOU with Fukuoka REIT Corporation and Fukuoka Realty Co., Ltd. concerning pipeline support.

Q

The asset size, which was 73.5 billion yen at the time of listing in June 2005, has grown to
195.9 billion yen, and the number of assets in the portfolio increased from 5 to 29 properties.
FRC acquired a hotel property, Tissage Hotel Naha, in the 29th fiscal period, and amended theinvestment policy in March this year. Can you explain the outlook and view on future acquisition and portfolio composition?

As of July 2019, there are 63 J-REITs listed and the market has
grown to over around 14 trillion yen in terms of market capitalization. Under such an environment, FRC believes that, asof the end of February 2019, it needs to continue expanding its
asset size.
FRC acquired Tissage Hotel Naha (acquisition price: 2,835* Figures are based on properties owned as of February 28, 2019.

10

September 201911

FEATURE: Fukuoka REIT

FRC More than Doubled Asset Size and Diversified Investment Types Since Listing(mm yen)200,000

99.8

99.0

99.4

99.4

99.7

98.8

99.4

99.2

98.8

99.1

99.0

98.6

99.6

99.3

98.8

98.1

99.6

99.3

99.5

99.6

99.5

99.8

99.4

97.0
22,081

Office buildings (total acquisition price, left axis)
Others (total acquisition price, left axis)

150,000

3,171

3,171

Number of investment properties (right axis)

7,251

7,251

11,581

11,581

2,060

2,060

3,171

3,171

3,171

37,20037,200100,000

37,20025,80030,20037,20050,0005

755,07337,20014
11

11

62,77367,443

8
55,07337,20071,07315

74,62315

74,623

3,171

3,171

3,171

43,10043,10043,10043,100

16

16

16

16

74,62374,62374,623

43,10043,10045,70043,10017

103,323

103,323

48,50023

2348,50048,50027

2748,50048,50048,50027

25

24

24,331

19,281

48,50026

48,50025

24,331

27,16640 10024,331

48,50052,73028

52,730
29

30 90

26

20

19
17

48,50022,081

13,931

12,831

Occupancy Rate (right axis)

3,171

22,08199.7 (properties) (%)

99.6

98.1

Retail (total acquisition price, left axis)

99.6

103,323

20

103,323

103,323

103,323

103,323

103,323

109,163

109,163

109,163

105,223

105,223

105,223

116,083

116,083
10

74,62354,333

0

2nd
3rd
4th
5th
6th
7th
8th
9th
10th
11th
12th
13th
14th
15th
(Aug. 2005) (Feb. 2006) (Aug. 2006) (Feb. 2007) (Aug. 2007) (Feb. 2008) (Aug. 2008) (Feb. 2009) (Aug. 2009) (Feb. 2010) (Aug. 2010) (Feb. 2011) (Aug. 2011) (Feb. 2012)

million yen) last year. It is a newly constructed hotel completed
in February 2018 located in Naha, a central city of Okinawa
drawing many tourists not only from within Japan but also
from abroad in recent years and where strong growth isQ

Can you tell us about the future outlook?

0

Dividend Performance
29th fiscal period end

29th fiscal period days

29th fiscal period dividend

29th fiscal period end

February 28, 2019

181 days

3,687 yen per unit

4.4 %(semiannual periods ending every Februaryand August)

It is our mission to maintain and enhance stable dividends andto maximize unitholder interests. FRC owns excellent properties that represent the Fukuoka and Kyushu area, and keeps
them operated at a high occupancy rate. Through these, FRC
generates stable cash flows and maintains a high dividend level.
As for external growth, FRC carefully selects properties toacquire so that stable cash flows will be continuously createdover the long term. As for internal growth, FRC is steadily
implementing upward rent revisions, etc. for existing officebuildings amid the strong office market trends in Fukuoka. On
the financial front, while continuing with the reduction of

12

expected. Okinawa’s proximity to Asian cities and the scheduled start of operations of a second runway at Naha Airport inMarch 2020 are likely to bring in more inbound tourists, raising expectations for Okinawa becoming an attractive market.

22nd
16th
17th
18th
19th
20th
21st
23rd
24th
25th
26th
27th
28th
29th
(Aug. 2012) (Feb. 2013) (Aug. 2013) (Feb. 2014) (Aug. 2014) (Feb. 2015) (Aug. 2015) (Feb. 2016) (Aug. 2016) (Feb. 2017) (Aug. 2017) (Feb. 2018) (Aug. 2018) (Feb. 2019){(Dividend / Days × 365) / Unit price(as of February 28, 2019)}(yen)

4,000 3,802

interest costs, extension of borrowing terms and diversificationof debt maturities, FRC has established a stable financial basethrough conservative control of its interest-bearing debt ratio.
With the support and cooperation of influential sponsor
companies leading the Kyushu business world, FRC will strive
to secure growth of the portfolio over the medium to long term
as well as stable earnings through sound asset management,
while exerting its strength as a region-specific REIT andpromptly accommodating changes in the market. FRC appreciates your continued support.

3,687 3,726

3,468

3,672 3,699 3,674 3,609

3,475 3,479

3,356 3,293 3,384 3,324

3,238 3,257 3,291 3,243 3,278

3,435

3,563 3,574 3,479

3,398 3,422

3,512 3,593

3,687 3,680 3,700

3,000

2,000

1,000

0

2nd

3rd

4th

5th

6th

7th

8th

9th

10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st

(Forecast) (Forecast)* FRC implemented a 5-for-1 split of its investment units with March 1, 2014 as the effective date. Dividend per unit indicates the value after the 5-for-1 split.
Figures in parentheses indicate the value before the 5-for-1 split.

September 201913

FEATURE: Fukuoka REIT

2 Retail

3 Retail

24 Others (residence)

Kyushu Area

Portfolio
Overview

Fukuoka
Metropolitan Area

4
Fukuoka

Saga

Canal City Hakata

Canal City Hakata•B

Park Place Oita

Granfore Yakuin Minami

One of the largest entertainment-type retail facilities
in Japan and comprising United Cinemas and others

One of the largest entertainment-type retail facilities
in Japan and comprising Grand Hyatt Fukuoka andothers

A leading retail facility in the Oita area, providing“park entertainment” for families

A rental condominium in the Yakuin/Hirao area thatis popular among younger generations and has
plentiful bus networks

5 Retail

6 Retail

7 Retail

27
9NagasakiOitaeii Linash
JR K

4 Retail29

28
Island City

25
3

22

7

Sa
ny
oS
hin
ka
ns
en

1 Retailsway
Kyushu Expres

Fukuoka REIT

Kumamoto3

MiyazakiFukuoka IC

25 Others (hotel)

Kagoshima

OkinawaFuku
ok a E
Route
xpress4 Kasuw
ya Linay,
e

3

6
10

Hakata Bay

26

SunLive City Kokura

Konoha Mall Hashimoto

Square Mall Kagoshima Usuki

Kumamoto Intercommunity SC

Hotel FORZA Oita

One of the largest malls in Kitakyushu and anchoredby a SunLive supermarket chosen by local consumers

A community-based retail facility with SunLive as its
anchor tenant and directly connected to Hashimoto
Station via a pedestrian bridge

A retail facility in Kagoshima, designed by John Jerde
who designed Canal City Hakata and Roppongi Hills

Located along a major arterial road and comprising
Sports Depo, Golf 5 and Starbucks coffee

A business hotel located walking distance from Oita
Station and specialized for lodging to meet businessneeds

8 Retail

9 Retail

10 Retail11 Retail

JR Sasaguri Line

Fukuoka Expressway,
Route 1 (Loop Line)

11

13
FUKUOKAYAHUOKU!DOME

20 23

202

21

15

1
12
2

17

Ohori Park

SubwayKuko Line

26 Others (hotel)

18

Hakata19

14

16

Fukuoka Airport

3

Tenjin24
SubwayNanakumaLine

202

Tissage Hotel Naha

Located east of Marinoa City Fukuoka and has stableattractiveness through synergy with the Outlet
building

A hotel in Naha City, Okinawa Prefecture located a
10-minute car ride from Naha Airport. Guestrooms areof sufficient size and quality to take in leisure demand.

12 Office Building

13 Office Building

14 Office Building

15 Office Building

27 Others (logistics)

5

e
Lin

Marinoa City Fukuoka (Marina Side Building)

Having a large floor area and tenanted by an electric
appliance store widely attracting customers fromnearby cities

ifu
za
Da

K’s Denki Kagoshima

Located on a corner of a heavy-traffic intersection
and comprising Sports Depo and Golf 5

ay
sw
res
xp
nE
ba
Ur

Kurume Higashi Kushiwara SC

Located in a new residential area and comprising
BON REPAS supermarket and Matsumoto Kiyoshi
drug store

Nish
Om itets
uta u TeLin njin
e

263

ine
aL
im
sh
go
Ka
JR

Hanahata SC

202

385
202

0

1km

Fukuoka Ex
pre
sswa
y Ro
ine)
ute 5 (Loop L

Fukuoka Metropolitan Area

8

Fukuoka REIT
Canal City Business Center Building

Gofukumachi Business Center

Sanix Hakata Building

Taihaku Street Business Center

Tosu Logistics Center

An office building expected to exert synergy with
Canal City Hakata, with showroom functions

An office building facing major arterial roads Meiji-doriStreet and Taihaku-dori Street, and directly connected
to Gofukumachi Station on the city subway

A highly-convenient, station-front office buildingthat is a two-minute walk from Hakata Station

Good location along Taihaku-dori Street, a
two-minute walk from Gion subway station andten-minute walk from Hakata Station

A logistics facility located in the Green Logistics Park
Tosu, operating around the clock and with threetemperature zones

16 Office Building

17 Office Building

18 Office Building

19 Office Building

28 Others (logistics)

External Evaluation
GRESB survey
Received the ratings of “Green Star” and “4 stars” in first time
participation in GRESB 2019.

Green Building certificate acquisition ratio [as of August 31, 2019]
Higashi Hie Business Center

Tenjin Nishi-Dori Center Building

Tenjin North Front Building

Higashi Hie Business Center II

LOGICITY Minato Kashii

Directly connected to Higashi Hie subway station, a
two-minute ride to Hakata Station and three-minuteride to Fukuoka Airport

An office building facing Tenjin Nishi-dori Street
where commercial facilities are concentrated

A relatively new office building scarce in the Tenjin
area that features Kyushu’s largest integration ofurban functions

Directly connected to Higashi Hie subway station, a
two-minute ride to Hakata Station and highly recognized
for its excellent business continuity plan (BCP)

A logistics facility among the largest in the Fukuoka
area, with a location featuring traffic convenienceand concentration of such facilities

20 Others (residence)

21 Others (residence)

22 Others (residence)

23 Others (residence)

29 Others (logistics)

Green Building certification obtained for 68.7% of entire portfolio
BELS

DBJ Green Building certification
total of9 properties

total of4 properties

Certificatedproperties

68.7%
Amex Akasakamon Tower

City House Keyaki Dori

Aqualia Chihaya

D-Wing Tower

LOGICITY Hisayama

A tower-type rental condominium near downtown
Fukuoka, with traffic convenience and environmentthat matches a wide range of generations

A high-quality rental condominium in a popular
residential area of Fukuoka, featuring traffic and living
convenience

A rental condominium comprised of units mainly forsingles and small families to match the local
characteristics

A large, high-rise (20-story) rental condominium,
approximately a seven-minute walk from Tenjin
subway station

Approximately 5 km from the Fukuoka Interchangefeaturing traffic convenience, and has good
general-purpose capabilities

14(based on total floor space)

September 201915

J-REITs Active in the Fukuoka City
Residential Market
Fukuoka City is experiencing a robust rise in momentum due toinbound tourism and urban revitalization achieved through efforts
such as being designated a National Strategic Special Zone for
Global Startups & Job Creation and a Green Asia International
Strategic Comprehensive Special Zone, as well as initiatives like theTenjin Big Bang project, a project to make Hakata Port able to handle the world's largest cruise ships, the extension of the Nanakuma
subway line and other projects. Growth is also being promoted byvarious initiatives including measures to attract businesses and promote residency. These combined have led to the increase in population inflow being ranked seventh among municipalities throughout
Japan in a 2018 survey with a net migration of 6,138 people.

J-REITs Active in Fukuoka City Residential Market

Ranking of Municipality by Net Migration (2018)
Rank

Municipality

Net migration

1

Special wards of Tokyo (Tokyo)

60,9092

Osaka City (Osaka Prefecture)

12,081

3

Saitama City (Saitama Prefecture)

9,345

4

Kawasaki City (Kanagawa Prefecture)

8,342

5

Sapporo City (Hokkaido)

8,283

6

Yokohama City (Kanagawa Prefecture)

8,187

7

Fukuoka City (Fukuoka Prefecture)

6,138

8

Nagareyama City (Chiba Prefecture)

4,381

9

Funabashi City (Chiba Prefecture)

3,499

10

Kawaguchi City (Saitama Prefecture)

3,432

Source: Ministry of Internal Affairs and Communications "Results of Internal Migration in 2018"

Average Occupancy of J-REIT Assets (residences) in Fukuoka City: 97.2%
List of Properties (residences) in Fukuoka City Owned by J-REITs
Fukuoka REIT Corporation
Property
Amex Akasakamon Tower
City House Keyaki Dori
Aqualia Chihaya
D-Wing Tower
Granfore Yakuin Minami

Occupancy (%)
98.8
95.6
99.3
95.0
98.0

Advance Residence Investment Corporation
PropertyRESIDIA Hakata
RESIDIA Tenjin-Minami
RESIDIA Hakataeki-Minami
RESIDIA Nishijin
RESIDIA Takamiya
RESIDIA Tenjin
RESIDIA Yakuin-Oodori
RESIDIA Hakata II
RESIDIA Kego

LocationHakata Ward, Fukuoka City
Chuo Ward, Fukuoka City
Hakata Ward, Fukuoka City
Sawara Ward, Fukuoka City
Minami Ward, Fukuoka City
Chuo Ward, Fukuoka City
Chuo Ward, Fukuoka City
Hakata Ward, Fukuoka City
Chuo Ward, Fukuoka City

HEIWA REAL ESTATE REIT, Inc.
Property
HF HIRAO RESIDENCE
HF KYUDAIBYOINMAE RESIDENCEHF HAKATA-HIGASHI RESIDENCE

willDo Nakasu
Renaissance 21 Hakata
Granpark Tenjin

Location
Minami Ward, Fukuoka City
Hakata Ward, Fukuoka City
Hakata Ward, Fukuoka City

Acquisition price (million JPY) Leasable floor area (m2)
1,780
6,262.12426
1,525.09880
2,486.82

LocationHakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Chuo Ward, Fukuoka City

Occupancy (%)
99.4
100.0
99.3

Acquisition price (million JPY) Leasable floor area (m2)2,460
5,759.40
1,500
4,010.95
4,698
14,299.21

16

No. of units
155
56
39
173
51
88
91
124
86

Location
Minami Ward, Fukuoka City
Hakata Ward, Fukuoka City
Chuo Ward, Fukuoka City
Chuo Ward, Fukuoka City
Chuo Ward, Fukuoka City
Sawara Ward, Fukuoka City

Occupancy (%)
96.2
100.0
94.9
96.2
91.6
96.6

Acquisition price (million JPY) Leasable floor area (m2)
1,680
6,255.16680
2,602.53763
2,522.16760
2,098.68
4,606
11,855.63
1,600
4,472.72

LocationHakata Ward, Fukuoka City
Hakata Ward, Fukuoka City

Occupancy (%)
97.4
100.0

Acquisition price (million JPY) Leasable floor area (m2)
1,060
3,804.39
500
1,691.50

No. of units
200
47
78

*Occupancy indicates figures as of March 31, 2019

No. of units
175
109
341

*Occupancy indicates figures as of January 31, 2019

marimo Regional Revitalization REIT, Inc.
Property
ArtizA Hakata PREMIER
ArtizA Hakataeki-Minami

Acquisition price (million JPY) Leasable floor area (m2)
1,220
3,855.60
936
3,009.45324
1,564.59
2,380
7,187.43488
1,556.02
1,122
3,102.88
1,123
3,186.00
1,358
3,500.50
834
2,162.65

Occupancy (%)
97.9
92.6
100.0

Kenedix Residential Next Investment Corporation
PropertyKDX Shimizu Residence
KDX Residence Tenjin-higashi II
KDX Residence Nishi Koen
KDX Residence Hirao Josui-machi
KDX Residence Ohori Harbor View Tower
KDX Residence Nishijin

No. of units
66
40
104
131
97

*Occupancy indicates figures as of May 31, 2019Japan Rental Housing Investments Inc.
Property

Acquisition price (million JPY) Leasable floor area (m2)
2,060
4,821.25
1,111
2,710.86
1,280
5,619.69
2,800
7,187.59
1,100
2,496.06*Occupancy indicates figures as of January 31, 2019

Occupancy (%)
97.5
94.6
97.4
98.7
100.0
97.7
98.9
97.4
94.3

Ratio of Apartments to New Detached Housing in
Major Cities
Detached housing
Apartments
Osaka City
Special wards of Tokyo
Fukuoka City
Kawasaki City
Sapporo City
Kobe City
Chiba City
Hiroshima City
Kitakyushu City
Nagoya City
Kyoto City
Yokohama City
Sakai City
Sendai City
Saitama City
Sagamihara City
Kumamoto City
Okayama City
Shizuoka City
Hamamatsu City
Niigata City

No. of units
148
63
36
24
212
128

*Occupancy indicates figures as of June 30, 2019

No. of units
117
66

Property
Park Axis Ropponmatsu
Park Axis Hakataeki Minami
Park Axis Naka Gofukumachi
Park Axis Hakata Minoshima
Park Axis Takamiya Higashi

Location
Chuo Ward, Fukuoka City
Hakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Minami Ward, Fukuoka City

*Occupancy indicates figures as of February 28, 2019

Occupancy (%)
100.0
98.5
99.1
99.1
100.0

Acquisition price (million JPY) Leasable floor area (m2)
1,515
3,473.67
1,890
4,668.29
742
2,707.88960
3,461.85605
2,289.21

Occupancy (%)
87.7

Acquisition price (million JPY) Leasable floor area (m2)640
1,544.87

Occupancy (%)
96.9
97.2
97.3
97.7
98.0

Acquisition price (million JPY) Leasable floor area (m2)588
2,176.23
265
897.84398
1,222.34622
1,854.13604
1,740.70

LocationHakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Minami Ward, Fukuoka City
Hakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Hakata Ward, Fukuoka City

Occupancy (%)
98.9
96.1
98.8
93.9
88.8
94.4

Acquisition price (million JPY) Leasable floor area (m2)
1,170
3,706.56979
2,566.72
794
2,105.13
1,900
5,584.41
389
1,034.20
382
1,034.20

LocationHakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Hakata Ward, Fukuoka City
Sawara Ward, Fukuoka City
Higashi Ward, Fukuoka City
Chuo Ward, Fukuoka City
Higashi Ward, Fukuoka City
Minami Ward, Fukuoka City

Occupancy (%)
98.9
97.0
100.0
100.0
100.0
96.3
93.1
100.0

Acquisition price (million JPY) Leasable floor area (m2)
2,400
9,106.08821
2,261.91
2,360
9,614.80
1,940
7,514.76
1,260
6,728.20
2,430
5,213.51
2,309
10,268.74
390
1,430.60

Occupancy (%)
96.9

Acquisition price (million JPY) Leasable floor area (m2)453
1,312.29

Occupancy (%)
95.1

Acquisition price (million JPY) Leasable floor area (m2)2,700
10,287.93

NIPPON REIT Investment Corporation
Property
Ciel Yakuin

Location
Chuo Ward, Fukuoka City

LocationHakata Ward, Fukuoka City
Chuo Ward, Fukuoka City
Higashi Ward, Fukuoka City
Hakata Ward, Fukuoka City
Higashi Ward, Fukuoka City

Location
Minami Ward, Fukuoka City

Location
Higashi Ward, Fukuoka City

No. of units
NA
NA
NA
NA
NA
NA
NA
NA

*Occupancy indicates figures as of April 30, 2019

XYMAX REIT Investment Corporation
Property
Renaissance 21 Chihaya

No. of units
90
104
82
135
35
35

*Occupancy indicates figures as of April 30, 2019

Starts Proceed Investment Corporation
Property
Proceed Fukuoka Takamiya

No. of units
NA
NA
NA
NA
NA

*Occupancy indicates figures as of January 31, 2019

Sekisui House Reit, Inc.
Property
Esty Maison Hakatahigashi
Esty Maison Kamigofuku
MAST Hakata
Prime Maison Momochihama
Prime Maison Teriha
Esty Maison Yakuin
Prime Maison Central Park
MAST Ijiri

No. of units
39*Occupancy indicates figures as of February 28, 2019

Samty Residential Investment Corporation
Property
S-FORT Chikushi DoriS-FORT Fukuoka Kencho Mae
S-FORT Takamiya
S-FORT Fukuoka Higashi
S-FORT Hakata-Higashi I
S-FORT Hakata-Higashi II

No. of units
112
177
112
112
70

*Occupancy indicates figures as of June 30, 2019

Nomura Real Estate Master Fund. Inc.
Property
PRIME URBAN Hakata
PRIME URBAN Yakuin Minami
PRIME URBAN Kashii
PRIME URBAN Hakata Higashi
PRIME URBAN Chihaya

64.0 %

Source: The Large Cities Statistical Council "Comparative Statistical Table of Large Cities for 2017"

Nippon Accommodations Fund Inc.
*Occupancy indicates figures as of February 28, 2019

Location
Chuo Ward, Fukuoka City
Chuo Ward, Fukuoka City
Higashi Ward, Fukuoka City
Chuo Ward, Fukuoka City
Chuo Ward, Fukuoka City

As of August 2019, thirteen J-REITs have residential properties in Fukuoka City. The number of properties totals 48
while the value totals 75.395 billion yen when based on acquisition price, and the leasable floor area totals 237,000 square
meters.
Fukuoka City is characterized by its high ratio of apartments compared to other major cities. Its ratio of apartments
in total floor area of new dwelling construction starts is 64.0%,
which only lags behind Osaka City (70.6%) and the special
wards of Tokyo (66.7%) according to a comparative statistical
table of large cities for 2017. As the city boasts a large population inflow, J-REITs having residential properties in Fukuoka
City also boast a high average occupancy rate of 97.2%.
The residential market of Fukuoka City is expected to continue to be strong as the city government works to attract businesses and promote emigration toward the Tenjin Big Bang.

No. of units
46*Occupancy indicates figures as of February 28, 2019

No. of units
138
September 201917

Infrastructure Funds

Infrastructure Funds
Current Situation and Outlook

Figure 2: Overview of the Six Infrastructure Fund Stocks
ENEX Infrastructure Investment
Corporation

Takara Leben Infrastructure Fund

Ichigo Green Infrastructure Investment Corporation

Renewable Japan
Energy Infrastructure Fund

Canadian Solar
Infrastructure FundTokyo Infrastructure Energy Investment Corporation

72.0

29.4

68.5

108.9

20.1

37.6

Dividend yield (annualized)

5.94%

5.93%

6.74%

7.05%

7.05%

6.43%

Market cap (million JPY)

16,144

6,219

14,701

23,951

4,489

8,503

Latest stock price (JPY)116,500

60,40095,000103,600

97,50092,600Fund Name
Panel output (MW)

(Stock price as of Aug 14, 2019 market close)
Source: Company data, Bloomberg, Macquarie Researchof Research / Senior Analyst
by HIROYUKI SAKAIDA Head
Macquarie Capital Securities (Japan) Limited
Hiroyuki Sakaida joined Macquarie in 2017 and covers Japan utilities and infrastructure funds, andalso leads the equity research department in Japan.
He has 25+ years’ experience as an equity analyst and has been covering the utilities sector for 19
years since 2000. Hiroyuki also has experience in covering energy, materials, trading companies andtransportation sectors at several firms including Nomura Securities and Goldman Sachs.
Thomson Reuters StarMine Awards ranked him as one of the three top earnings estimators between
2010 and 2017 including three times at No. 1.
Hiroyuki holds a Master of Engineering in Nuclear Engineering from the University of Tokyo.

Infrastructure fund scheme
The Tokyo Stock Exchange (TSE) created an infrastructure fund market in April 2015. Infrastructure
funds have a structure similar to J-REITs and the dividends are tax deductible, which makes them effectively
exempt from corporate tax (just as J-REITs), if theymeet the conduit criterion of paying a dividend that
corresponds to more than 90% of profits available fordividends. Meanwhile, a major difference with J-REITs
is investment in infrastructure including solar power
facilities, operating rights of public facilities, roads andairports, rather than investment in real estate.
Figure 1 presents the general scheme used by infrastructure funds. The infrastructure fund and asset management firm are separate corporations, just as with
J-REITs. Infrastructure funds often purchase solar
power assets owned by a sponsor, and the sponsor andasset provider indicated in the figure are the same entity
in this scenario.

Figure 1: Structure of Infrastructure Fund

Asset
management

Feed-in Tariff (FIT) system
The Japanese government adopted the FIT program for renewable energy in 2012. Under this program, electric power companies purchase electricity generated by renewable energy
sources at a predetermined price during a fixed period. The
program supports deployment expenses for renewable energy
facilities with high electricity generation costs via society as awhole by having electric power companies purchase electricity
generated with renewable energy at high prices that make it
profitable and then broadly collecting a levy on electricity consumers to fill the difference in generation costs with electricity
generated from other sources besides renewable energy.

In the case of solar power facilities, the FIT programarranges the purchase of electricity generated by large sites thathave at least 10kW in output at a fixed price over 20 years.
While the purchase price started at a high level of ¥40/kWh(not including consumption tax) in the fiscal year ending
March 2013 when Japan initially implemented the FIT program, authorities have quickly lowered the price thereafter. In
the fiscal year ending March 2000, the purchase price for facilities with 10kW to 500kW in output is ¥14/kWh and for largescale facilities with over 500kW in output is decided through abidding process. The upper limit purchase price set at a bidding
in 2018 was lower than the purchase price for smaller facilities,
so a similar tendency is expected in 2019.
The government has recently been discussing revisions to the
FIT program itself. An interim plan outlined by a Ministry of
Economy, Trade and Industry (METI) council on August 5,
2019 cites the need for fundamental changes to the FIT program. We expect continuation of a moderate downward trend
in the electricity purchase price for new renewable facilities,
because the government wants to decrease consumer burdens
while promoting continuous investment in renewables.

Sponsor/Operator
Establishment offund

Investment(JPY/kWh)50
Infrastructure
fund

Provider of
infrastructure assets

Figure 3: FIT Purchase Prices

Instruction

Investors

Sale

Solar (>10kw)

Wind (>20kW)

40

Private investors
30
Operating assets

Lease

Photovoltaic
facilities, etc.

Lessee/Operator

Institutional
Investment investors

20

Corporate
investors
100
Source: Tokyo Stock Exchange, Macquarie Research18

Six infrastructure funds have listed on the market since thelisting of Takara Leben Infrastructure Fund as the first listed
infrastructure fund in June 2016 (Figure 2). All of these funds
invest in solar power facilities under the Feed-in Tariff (FIT)
program and are investments that offer stable high yield (6-7%
as shown in the table) to investors.

2012

2013

2014

2015

2016

2017

2018

2019

Source: METI, Macquarie Research

September 201919

Infrastructure Funds

FIT price reduction and output curtailment inKyushu are not major concerns
While authorities have been lowering the FIT purchase price as
explained above, these reductions only apply to new facilities.
For example, in the case of existing facilities that have alreadystarted operating at a ¥32/kWh purchase price, the price stays
at ¥32/kWh from the time of launching operations until 20
years later. Even unfinished projects given high purchase prices
from a few years ago can sustain the initial high purchase pricefor 20 years after beginning operations if they meet certain conditions. This scheme contributes to steady profits and distributions at infrastructure funds. We expect the stable distributions
to continue going forward.
In October 2018, Kyushu Electric Power implemented thecurtailment of solar power facility output in Kyushu mainland,
which was the first case in Japan excluding outlying islands. It
applied these output controls again in 2019, mainly during
March to May. Electric power firms typically reduce thermal
power output in the spring and fall when there is less power
demand to bring supply and demand in line with each other. If
electricity supply volume is still excessive after these thermal
adjustments, they instruct renewable energy business operators
to curtail electricity output from renewable energy sources. The
Kyushu region has 8,530MW of solar power facilities, a supply
capacity that roughly equals electricity demand at about noonin the spring and fall (7,000 – 9,000MW). Electric power firms
utilize surplus electricity in various ways, including absorption
by pumped hydro storage power facilities and transmission toother regional areas through cross-regional interconnectionlines. When supply remains too large even with these actions,electric power firms need to issue instructions for renewables operators to curtail
operations and reduce solar power
output.
According to estimates by Renova,
which operates solar power facilities,
however, the actual curtailment throughoutput controls should only average 4-5%
over 20 years even in the case of projects
that could be subject to limitless curbing.
We think the actual impact on infrastructure fund income should be even smaller
because many power generation facilities
currently owned by infrastructure funds
place a limit on the number of output curtailment times, such as 30 days a year,
and output curtailment is less likely inareas like the Greater Tokyo and Kansai

20

region (Osaka and its neighbouring area) with larger electricity
demand than in the Kyushu region. We hence do not anticipate
a major impact on infrastructure fund distributions by the output curtailment.

Key issues: improved liquidity and setting up an
index
Japan currently has six listed infrastructure funds. Liquidity,
however, is an issue in this market with even Canadian Solar
Infrastructure Fund (CSIF), the largest fund, at just ¥23.9 billion and combined value for the six funds at only ¥73.7 billion
Nevertheless, we expect steady expansion of individual stock
market caps accompanying capital increases through public
offerings and hence improvement in liquidity over time because
infrastructure funds frequently do public offerings to acquire
additional assets, similar to J-REITs. CSIF, for example, currently owns assets with 108.9MW in power generation capacity
versus pipeline assets owned by the sponsor (Canadian Solar
Projects K.K.) at 339.5MW, which is three times more than
CSIF’s existing assets. It has outlined a policy of aiming for¥100 billion in total asset value over the medium term. We estimate that CSIF could roughly double its net asset scale toabout ¥50 billion in this scenario assuming acquisition of new
assets through capital increases while maintaining the existingbalance-sheet structure.
Establishment of a stock index is an important issue, too. We
think the presence of an index would facilitate comparison withbenchmarks and also help expand the investor scope for infrastructure funds.