11 June 2020

DAIWA REAL ESTATE APPRAISAL REPORT

Economic Impact of COVID-19 on Japan’s Real Estate Market
Vol.4(Author) Kazumasa Takeuchi-Signs of bottoming out-Chief Research Analyst
Kazumasa.takeuchi@daiwakantei.co.jp
Research & Marketing Office

Japan’s sluggish economy due to the pandemic of COVID-19 has begun to move slowly after the stateof emergency was lifted on 24th May 2020. We consider the significant increase in the number of new
inquiries about our appraisal services as a leading indicator of investment volumes, demonstrating
improvement of the property market in Japan. Here, we share the analysis of the property market preand post-COVID-19 and the latest view on the impact of on transactions.
1. Increase in the Number of New Inquiries
・ The increase/decrease of inquiries is considered as a leading market indicator, as a healthy market
pushes the number of inquiries up.
・ Despite the number of inquiries decreasing by around 60% compared to pre-COVID-19 after themiddle of March, it recovered sharply by 30% after the week of 24th May when the state ofemergency was lifted. We expect continued expansion of the real estate business going forward.
・ The lift of inter-prefectural travel restrictions on 19th June is further expected to potentially aid in
the recovery of the property market and to stimulate the appetite of investors.
Number of New Inquiries（Every 2 Weeks）

Government Policy on Lifting COVID-19
Restrictions*The Average of new inquiries in every 2weeks from 1st half of January to 2nd half of March 2020 = 100

Source: Daiwa Real Estate Appraisal

Note: The Statement of Emergency was lifted on 25th May, 2020
Source: Cabinet Secretariat. The above table was created basedon the Mainichi Shimbun.

| Copyright ©2020 Daiwa Real Estate Appraisal All rights reserved1|

・A composition of inquiries by segments during the pre-pandemic from 5th January to 14thMarch saw a rise in the ratio of logistics and residential/dormitories despite a steep drop in
the ratio of office and hotel, compared to the post-pandemic from 15th March.
・ The breakdown by regions shows that there was a sharp decline of inquiries in the ratio ofoffice and hotel in the Tokyo central 5 wards despite a growth ratio of logistics, office andretail properties in the other areas.
・According to the results of a Daiwa questionnaire for investors on investment attitudes,“Continue Investing” was the approach for 35% of investors, outweighing 15% with a “Wait& See” approach. especially 67% of investors specializing in logistics properties show astrong appetite.
Composition of Inquiries by Segment

Source: Daiwa Real Estate Appraisal

Composition Ratio of Inquiries By Segment

Source: Daiwa Real Estate Appraisal

Composition of Inquiries by Region

Source: Daiwa Real Estate Appraisal

Change Of Ratio By Region

Source: Daiwa Real Estate Appraisal

Result of Daiwa questionnaire-Investors’ Attitude toward Investment-Source: Daiwa Real Estate Appraisal*Interviewed between 13th and 26th May 2020
*The questionnaire target are investors specializing in each asset group.

| Copyright ©2020 Daiwa Real Estate Appraisal All rights reserved

2|2. Sharp Recovery of Stock Market
・The global economy has seen a sharp recovery in stock prices since the second half of March,and the Japanese economy saw a rise to 96% of the year’s highest price in Nikkei Average
to date, to 94% in Dow-Jones Average, and to 78% in Tokyo REIT Index, respectively.
・The J-REIT specializing in logistics properties saw a quick uptick in the investment unit
price of J-REITs compared to the hotel sector. The expected dividend yield of the J-REIT is4.1%, which is much higher than 1.8% of Nikkei Average. Therefore, this dividend yield isrevalued amid the deterioration of corporate earnings.
Stock Market Indices in Japan and the US

Change of The Investment Unit Price Y-O-Y（Weekly）& Dividend Yield

Source: Quick

Source: Quick

3. Bottoming Out of Economic Confidence
・Economic confidence of workers has bottomed out in April and halted the deterioration.
・ According to the Economy Watchers Survey, despite the DI for current economic
conditions in May still remaining at its lowest level ever, the DI for future economic
conditions in May (seasonally adjusted) went up by 19.9 points compared to the previousmonth, to 36.5.
・ Interestingly, the household activity-related DI went up higher than the corporate
activity-related DI and the employment-related DI increased. In addition, department
stores have begun to observe an improvement of consumer sentiment.
Economy Watchers survey of the DI for current economic conditions and future economic conditions

Source: Economy Watchers Survey in May (seasonally adjusted)| Copyright ©2020 Daiwa Real Estate Appraisal All rights reserved

3|4. Signs of Recovery in Retail Sales
・Domestic retail sales slow downed significantly due to the COVID-19 pandemic. A Current
Survey of Commerce in April pointed out “a plummet of retail sales volumes” on the back of
the decline by 13.7% YOY compared to 4.6% of the previous month.
・However, large differences in sales conditions were examined by analyzing each retailsegment. Increased sales of neighborhood stores located in the residential area continued,
while department stores and luxury brand shops struggled due to the stay-at-home requestof the government.
・According to the monthly report on the Current Survey of Commerce, supermarkets andhypermarkets’ sales continued to increase after March, and during the special holiday’s
week of 4th May, large-scale retailers for home electric appliances’ sales turned upward. The
last week of May marked the first increase in drugstore sales in 7 weeks, while convenience
stores hit bottom.
・Despite major department stores sales falling significantly, Takashimaya’s change rate ofsales YOY in May increased by over 10pt compared to the previous month as it re-opened
ahead of schedule on 18th May. Department store sales are expected to go upward steadily
after June thanks to shifting back to normal operation from 13th June.
Change Rate of Retail Sales Index (YOY)

Change Rate of Major Department Stores Sales YOY

Source: METI POS Retail sales index

Source: Announcements of companies

Change Rate of Major Department Stores Revenue

YOYSource: Announcements of companies| Copyright ©2020 Daiwa Real Estate Appraisal All rights reserved

4|5. Insights on the Hotel Market・Domestic hotels saw a plummet to 16.6% in occupancy rate (OCC) in April 2020 compared to64.7% in the previous year. The fall by 48.1% M-O-M was due to immigration restrictions
and stay-home-request. Especially city hotel segments experienced a sharp fall to 11.8% in
OCC compared to 71.0% of the previous year as the majority of over-night-guests areinternational arrivals. Budget hotel OCC was 25.2%, dropped by 53.7% M-O-M, and resort
hotel OCC 5.9%, a fall of 51.6%.
・However, the OCC index of DATASALAD pointed out a slight upward trend following thebottom in the first half of April.
・In tandem with lifted restrictions on inter-prefectural travel on 19th June, easing ofimmigration restrictions for work visa holders has started in June with four countries:
Thailand, Vietnam, Australia, and New Zealand. Further consultations with over 40
countries are in progress, according to news reports. These developments are expected topush the hotel market up in the near future.
OCC of Domestic Hotels

Source: Announcements of companies

OCC Index by Location

Source: Kyushu Economic Survey Association, DATASALAD| Copyright ©2020 Daiwa Real Estate Appraisal All rights reserved

5|6. COVID-19 Cases in Japan・Total Coronavirus cases in Japan were 17,012 at 12:00pm on 10th June. Deaths: 919,
Recovered: 15120, Active Cases: 965.
・More than 500 cases per day in the middle of April contracted to less than 100 cases by 14thMay when the emergency state for 39 prefectures was lifted. Numbers continued todecrease to less than 20 cases when nationwide restriction were eased on 25th May.
・Following this, as the uncertainties surrounding COVID-19 have muted, economic activity
in Japan expanded and consumer confidence for future conditions steadily climbs.
・Meanwhile, global coronavirus cases have climbed to 7 million, with a death toll of over
400,000. Russia, India, Latin America, Middle East and Africa are still experiencing anincrease in cases.
・The global spread has not been contained yet with a vaccine still under development andJapan is also experiencing a second wave of coronavirus. However, economic activity
continues with repeated cycles of re-regulation and deregulation.
Domestic Cases

Global Cases

Source: Ministry of Health, Labor and Welfare

Source: Johns Hopkins University, The Nikkei| Copyright ©2020 Daiwa Real Estate Appraisal All rights reserved6|