Healthier REITs Race in Japan


After landing the bid for hosting the 2020 Olympics in Tokyo, Japan is indeed rising with the sun as more REITs in the healthcare sector are looking to enter the market this year. This also goes in tandem with the rise in construction as it supports the nation’s aim to boost the Olympic games.

According to the February 2014 Real Estate Market Report by Mizuho Trust & Banking Co Ltd, Japan, the REITs market has seen Daiwa Real Estate Asset Management Co Ltd (a subsidiary of Daiwa Securities Group and in charge of managing Daiwa Office Investment Corporation) establishing Nippon Healthcare Investment Corporation to form Japan’s first REIT that specializes in the investment management of healthcare facilities. The report states that it planned to start investing in and managing healthcare facilities in March 2014 as a target, and aims to have the new REIT listed on the Tokyo Stock Exchange by the end of 2014 (with asset size of around 10 billion yen upon starting management). Multiple healthcare REITs are also looking to get listed in 2014 including Hulic Reit Inc which has paid elderly homes in its portfolio.

Hulic Reit Inc’s acquisition of Hulic Kamiyacho Building (approximately 39.9% co-ownership interest of the land and the building) located in Minato Ward, Tokyo for 83.7 billion yen from Hulic Co Ltd is among the large-scale projects transactions that have taken place recently.

Real estate transaction volume of listed companies on the other hand as announced in December 2013 totaled 380.4 billion yen (103 deals in total). The year-on-year performance of transaction values (three-month backward moving average) recorded positive, exceeding 100% for the seventh consecutive month.

Rental Apartment Market
From the perspective of the rental market, occupancy rate of rented apartments in the 23 Wards of Tokyo based on J-Reit owned properties for all types of properties remained high at around 95% for the first half of 2013 (period ended June 2013). This is an increase from the second half of 2012. All types of properties in this context refers to Studio units measuring less than 30sqm, Compact units with a dining room measuring 30sqm to around 40sqm and Family units at 60sqm to 70sqm or more.

Rental performance in November 2013 increased month-on-month for Studio units measuring 25sqm while Compact units with a dining room at 50sqm and Family units at 80sqm stayed flat compared to the previous month.

Increase in Construction Costs
Construction costs in Japan have been increasing since 2012 and getting stronger entering 2013. Prices of newly supplied properties rose with the increase in construction costs while prices of existing properties may also increase.

A comparison of construction costs for office buildings and condominiums with the same SRC (steel reinforced concrete-built) structures indicates that condominiums showed a larger increase since January 2011. By city, construction costs grew significantly in Sendai, partly due to construction demand including the earthquake disaster reconstruction projects. Capital city Tokyo also saw a large increase.

The rise in construction costs is mainly attributed to the increase in labor costs and material prices caused by the shortage of skilled workers for formwork and rising costs of imported materials as a result of the weaker yen. The heightened cost is also caused by the increasing orders for construction work as well as other factors. As for construction demand, the private sector is expected to follow the projects lined up for the infrastructures and athletic facilities of the 2020 Olympic Games. For the lack of a better way to put it, this may look like Japan’s opportunity to bounce back given the seemingly positive recovery trend so far.