Japan Real Estate Third Quarter 2012 - RREEF Real Estate

RESEARCH REPORT
Japan Real Estate
Third Quarter 2012
July 2012
RREEF Real Estate
www.rreef.com

Prepared By:
Koichiro (Ko) Obu
Director
Head of Research, Japan & Korea
+81 (0) 3 5156 6522
koichiro.obu@rreef.com
Mark Roberts
Global Head of Research
+1(212) 454-0974
mark-g.roberts@rreef.com
Table of Contents
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Executive Summary ............................................................................ 1
Macro Economy .................................................................................. 2
Capital Market & Pricing ...................................................................... 4
J-REITs ............................................................................................... 8
Market Fundamentals ........................................................................ 10
Office ............................................................................ 10
Retail ............................................................................ 12
Residential .................................................................... 13
Industrial ....................................................................... 15
Past Issues ........................................................................................ 16
Important Notes ................................................................................ 17
Global Research Team ..................................................................... 18

Executive Summary
The outlook for Japan’s economic growth in 2012 has improved. Deutsche Bank
economists now expect GDP growth of 3.1 percent this year instead of the 2.8 percent
forecast from just three months ago. With consumer confidence recovering, private
consumption has surprised on the upside. Although most near-term leading indicators
appear encouraging, economic growth is expected to peak in mid 2012. Waning external
demand from Europe, the United States, and China is likely to contribute to a slowdown in
2013. A planned consumption tax could also hold back growth to some extent in 2014.
Japan’s property markets provided mixed signals in the first half of 2012. On the upside,
J-REITs enjoyed buoyant performance earlier in the year, paving the way for two new
IPOs in the second quarter with more planned for later this year. The volume of asset
purchases by J-REITs reached JPY462.9 billion in the first half of 2012, an increase of
49.5 percent from the same period in 2011. Limited construction of new logistics space
helped pull the industrial vacancy rate below 2.0 percent in Tokyo and close to full
occupancy in Osaka. Both domestic and foreign buyers have responded to Japan’s
industrial market fundamentals, sending transaction volumes up in this sector. Asking
rents in the residential sector held stable across Tokyo’s 23 wards in the second quarter,
with positive upward movement in the five centrally located wards. In the retail sector,
improving consumer sentiment helped pull sales up for shopping centres.
The downside of the property market centres heavily on the office sector. New supply in
Tokyo drove the vacancy rate to an all-time high of 9.4 percent in June, and transaction
volumes in the sector have been limited. Osaka may face a similar disruption to office
fundamentals over the coming year as a wave of new supply is expected to complete in
that market as well. The high-end segment of the residential rental market in Tokyo
softened between the first and second quarters, a general reflection of the outlook for
financial services, a key driver of luxury residential rents.
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
1

Macro Economy
Japan’s GDP growth forecast in 2012 was revised upward to 3.1 percent; an increase
from the 2.8 percent forecast by Deutsche Bank economists in the previous quarter. This
improvement reflects healthier than expected private consumption as well as the
contribution of the latest supplementary budget for reconstruction initiatives by the
government. Economic growth is expected to peak in mid 2012, however, due to waning
external demand from Europe, the United States, and China. Reconstruction-related
demand is likely to taper gradually in 2013, and the government is planning to increase
the consumption tax rate to 8 percent in April 2014 from the current 5 percent, which is
expected to drag down the growth rate.
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
Note: F = forecast. Please refer to Important Notes (page 17)
Sources: Deutsche Bank, “Japan Economics Weekly”
As of July 2012
Exhibit 1 — GDP Growth Outlook for Japan
The diffusion index (DI) of the Tankan Survey conducted by the Bank of Japan increased
by three points in the second quarter of 2012 from the previous quarter, with stable
momentum expected for the third quarter. The Business Condition Leading Index
calculated by Japan’s Cabinet Office also showed positive signals. This reflects firm
private consumption, bolstered by a receding post-quake mood of self-restraint, as well as
the revival of subsidies for eco-friendly cars.
Exhibit 2 — Diffusion Index of Business Conditions
Sources: The Bank of Japan, Japan’s Cabinet Office, RREEF Real Estate
As of July 2012
1995
1996
(2005=100) 119
106
93
80
67
Q1 Q2 Q3 Q4 annual growth
previous financial
crisis in Japan (1998)
1991
1997
1998
1999
2000
dot.com bubble burst
2001
2002
2003
2004
global financial
crisis
2005
2006
2007
2008
2009
2010
2011
DB Forecast
Great Tohoku
Earthquake aftermoth
Business Condition Leading Index (LHS) Diffusion Index of Tankan Survey (RHS)
1992
1993
previous financial crisis
in Japan (1998)
1994
1995
1996
1997
1998
1999
2000
2012F
Diffusion Index of Business Conditions:
('favourable' minus 'unfavourable', % points)
dot.com bubble
burst
2001
2002
2003
2004
2005
global financial
crisis
2006
2007
2008
2009
2010
2011
2012
2013F
0
2014F
50
25
-25
-50
2015F
2

Japan’s consumer price index (CPI) increased to 0.4 percent in the first quarter of 2012,
the highest figure since 2008. A correction in oil and other commodity prices could lead
Japan’s CPI back into negative territory in 2013, but prices are set to rise sharply to 2.4
percent in April 2014 due to a planned consumption tax increase. The Bank of Japan is
expected to maintain a passive monetary policy stance as political pressure wanes for
further easing.
(%)
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
2
1
0
-1
-2
-3
2000
Note: F = forecast
Exhibit 3 — Forecast of Short-Term Interest Rate and CPI
Sources: The Bank of Japan, Japan’s Cabinet Office, RREEF Real Estate
As of July 2012
2001
2002
2003
Call Rate (overnight) CPI
2004
2005
2006
2007
2008
2009
2010
2011
2012F
Consumption Tax
hike in April 2014
DB Forecast
2013F
2014F
2015F
3

Capital Market & Pricing
Interest rates remain low, with favourable credit conditions for borrowers expected to
persist. The Bank of Japan’s DI for the lending attitudes of banks to the real estate
industry (red line in Exhibit 4) has been positive for five consecutive quarters, and
accordingly, lending to new real estate projects posted positive growth for the past two
consecutive quarters. Concerns are growing, however, in the real estate leasing market
since the office vacancy rate hit an all-time high in June 2012 due to a supply increase
(see page 10).
20%
-20%
-40%
Sources: Bank of Japan, RREEF Real Estate
As of July 2012
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
0%
Exhibit 4 — Real Estate Lending by Japanese Banks
Despite favourable refinancing terms offered by lenders, transaction volume has been in
the doldrums and has fallen below the JPY 2 trillion per year level in recent quarters. The
deal flow is limited especially in the office sector, while domestic and foreign investors
remained active in other sectors.
(JPY tn)
6
5
4
3
2
1
0
Exhibit 5 — Real Estate Transaction Volume and Lending Attitude DI
Sources: Urban Research Institute, Bank of Japan, Real Capital Analytics, RREEF Real Estate
As of July 2012
2008.03
2008.06
2008.09
2008.12
growth of lending to new projects (yoy, LHS)
lending attitude DI to all industries (RHS)
lending attitude DI to real estate industries (RHS)
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
transaction volume (12 months, LHS) lending attitude DI (6 months prior, RHS)
2000.09
2001.03
2001.09
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
2008.09
2009.03
2009.09
2010.03
2010.09
2011.03
2011.09
2012.03
2012.09
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
0
20
0
-20
-40
36
24
12
-12
-24
-36
Diffusion Index (DI)
Diffusion Index (DI)
4

Cap rates for assets in Tokyo and Osaka held by J-REITs started to recover in the second
half of 2011 and preliminary numbers point towards continued improvement. The average
cap rate on completed transactions is around 6 percent, the highest level in five years.
This reflects increased activity in high-yielding sectors such as industrial and the decline in
office transactions in Tokyo.
The average yield spread — the difference between the average cap rate of all reported
commercial real estate transactions and government bond yields — held above 500 basis
points in the first quarter of 2012. Japan continues to provide one of the most attractive
spreads among major real estate markets.
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Exhibit 6 — Cap Rate (appraisal) and Yield Spread (transacted)
Sources: Real Capital Analytics, Bloomberg, RREEF Real Estate
As of July 2012
Average Appraisal Cap Rate
for Assets held by J-REITs
Tokyo Office Osaka Office
Tokyo Residential Osaka Residential
Japan (transacted)
preliminary
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2007 2008 2009 2010 2011 2012
(bps)
600
500
400
300
200
100
Exhibit 7 shows major real estate transactions either completed or announced since the
beginning of the second quarter of 2012. Foreign investors and J-REITs remained active.
At least two office deals arose from CMBS defaults during the period, including a sale of
the former headquarter building of Shinsei Bank. While the cumulative amount of
technically defaulted CMBS is estimated to be about JPY1 trillion (US$12 billion) as of the
end of 2011 in Japan, most has been retained by debt investors, so distressed sales have
been limited to date.
0
Average Yield Spread for Transactions in
Selected Markets
Japan United States
United Kingdom Australia
Singapore Hong Kong
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2007 2008 2009 2010 2011 2012
5

Exhibit 7 — Major Transactions in the First Quarter 2012 and Potential Deals
Month Type Asset
Jan-12 retail Zara Fukuoka Tenjin
Notes: est.: estimated, bk: book value, coll: collateral value. Non-office deals, assets outside Tokyo, and acquisitions by foreign managers are highlighted in
yellow. This table is prepared solely for information purposes and not intended to recommend or endorse any specific company's shares or other products.
Sources: Real Capital Analytics, Nikkei Real Estate Market Report, RREEF Real Estate
As of July 2012
Tokyo’s volume of commercial real estate transactions in the last 12 months was US$22.6
billion. Tokyo maintained the third position in the global market and the first position in the
Asia Pacific region although the volume of office transactions slipped to fourth place from
the second place in the same period last year.
Exhibit 8.1 — Real Estate Transaction Volume by City (12 months to June 2012)
Notes: Commercial real estate transactions exclude non-income producing assets, such as development site transactions
Sources: Real Capital Analytics, RREEF Real Estate
As of July 2012
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Price
(JPY
billio n)
1.5
(mortgage)
Unit
price
(JP Y m
/sum)
Cap
rates
Prefecture
Acquired by
- - Fukuoka Credit Suisse's fund
Investor
origin
Switzerland
Feb-12 retail 3 shopping malls 13.2 - - Tokyo, Osaka CapitaMalls Asia Singapore
Mar-12 hotel Niseko Kogen Hotel - - - Hokkaido Symphony International Hlds UK
Mar-12 office Ginza 4-chome Tower - - - Tokyo MGPA Hong Kong
Apr-12 residential
KDX Daikanyama and Sakaisuji
Honmachi etc. (20 properties)
30 - - diversified
Kenedix Residential REIT (REIT
IPO)
Apr-12 office Meguro Place Tower 3.7 0.8 - Tokyo JV of Aviva and Secured UK/Japan
Apr-12 office Senri Life Science Center Bldg. 8.1 0.2 8.9% Osaka
Lasalle Investment and Kenedix
Realty (REIT)
US/Japan
Apr-12 industrial GREEN CUBE est.5.1 - - Osaka Blackstone US
Apr-12 residential Takanawa MOF Lodging 10.0 0.5 Tokyo
Metropolitan Government of
Tokyo
May-12 office Atago Green Hills (20%) 25.6 1.2 4.7% Tokyo Mori Hills REIT Japan
May-12 office
Roppongi First Bldg (46%) and one
other office bldg.
25.6 1 3.0% Tokyo Mori Building Japan
May-12 retail Ginza Theatre Bldg 17.9 0.9 - Tokyo a Japanese company Japan
Jun-12 office/retail
Tokyu Plaza Omotesando, Tokyu
Plaza Akasaka etc. (18 properties)
170 - - diversified
Activia Property REIT sponsored
by Tokyu Land (REIT IPO)
Jun-12 office TIXTOWER UENO 22 0.9 4.8% Tokyo Japan Real Estate (REIT) Japan
Jun-12 dev. site Chiba retail site (56,208�) 32 - - Chiba Costco group US
Jun-12 dev. site Oiso residential site (9,000�) - - - Kanagawa IPC Corporation Singapore
Jun-12 office etc. 8 properties (CMBS default) est.12 - - Tokyo MGPA's fund Hong Kong
Jun-12 office
Former Shinsei Bank HQ Office
(CMBS default)
est.51 - - Tokyo Kenedix Japan
Jun-12 retail Aoyama Bell Commons est.10> - - Tokyo Angelo Gordon, Simplex US/Japan
Jul-12 office NBF Commodio Shiodome 29 1.4 4.8% Tokyo Nippon Building Fund (REIT) Japan
Jul-12 office Yakuin Business Garden 11.0 0.5 5.6% Fukuoka Japan Prime Realty (REIT) Japan
NYC Metro
London Metro
Tokyo
Paris
DC Metro
LA Metro
SF Metro
Hong Kong
Seoul
Chicago
Singapore
Moscow
Toronto
Houston
Dallas
Sydney
Shanghai
Beijing
Guangzhou
Osaka
Office Retail Apartment Industrial Hotel
($bn)
0 5 10 15 20 25 30 35
Japan
Japan
Japan
6

Below is the commercial real estate transaction volume by sector in Japan. The volume of
transactions declined about 26 percent in the first quarter of 2012 from the same period in
the previous year. Limited deal flow in the office sector resulted in three consecutive
quarters of overall decline. Meanwhile, volume increased in the industrial sector during the
period.
Exhibit 8.2 — Quarterly Real Estate Transaction Volumes by Sector in Japan
Notes: Commercial real estate transactions exclude non-income producing assets, such as development site transactions
Sources: Real Capital Analytics, RREEF Real Estate
As of July 2012
Based on the monthly indicator tracked by Investment Property Databank (IPD), the
average annual total return for direct real estate investment on an unlevered basis in
Japan improved marginally to 3.7 percent per annum as of February 2012 (the latest
preliminary number available), compared to 3.5 percent in the previous quarter. The
residential sector produced the highest total returns due to the recent cap rate
compression in the sector (see Exhibit 6) as well as the generally stable nature of the
residential rental market (relative to the office sector).
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
(bn)
20
16
12
8
4
-
-4
-8
15%
10%
5%
0%
-5%
-10%
-15%
Exhibit 9 — Real Estate Total Returns in Japan (unlevered)
Notes: There is a time lag because of raw data being collected through semi-annual reports. Past performance is not indicative of future results
Sources: IPD Japan Monthly Indicator, RREEF Real Estate
As of July 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
'07 '08 '09 '10 '11 '12
Total Return Income Return
Capital Growth
(annual total return, all asset classes)
2003
2005
2007
preliminary
2008.06
2008.12
2009.06
2009.12
2010.06
2010.12
2011.06
2011.12
2012.02
15%
10%
5%
0%
-5%
-10%
-15%
300%
240%
180%
120%
60%
0%
-60%
-120%
office
retail
residential
industrial
hotel
land/other
growth % (yoy)
Office Retail Residential
2003
2005
2007
(annual total return)
2008.06
2008.12
2009.06
2009.12
2010.06
2010.12
preliminary
2011.06
2011.12
2012.02
7

J-REITs
Backed by the Bank of Japan’s additional monetary easing in February, the J-REIT index
was buoyant in early 2012. The index is still exposed to capital market volatility, however,
so it declined along with other equities as the euro crisis deepened in May. Over the
longer time horizon, the recovery of the J-REIT index is substantially lagging compared to
the U.S. and Singaporean REIT markets.
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Exhibit 10 — Short Term J-REIT Index and Long Term Global Comparison
J-REIT
Index
1,100 (LHS)
1,000
900
800
2010.09
2010.11
Notes: Past performance is not indicative of future results. Tokyo Stock Exchange REIT Index (J-REIT), FTSE NAREIT All Equity REITS Index (US-REIT),
S&P/ASX 200 A-REIT Index (A-REIT), FTSE ST REIT Index (S-REIT)
Sources: Bloomberg, RREEF Real Estate
As of July 2012
On average, the expected J-REIT dividend yield is 5.6 percent overall (and 4.7 percent for
office REITs), providing 460 basis point spreads over the government bond yield. This is
compared with about 200 basis point spreads for U.S.-REITs and UK-REITs.
8%
6%
4%
2%
0%
Exhibit 11 — J-REIT Expected Dividend Yield
Sources: Sumitomo Mitsui Trust Research Institute, Bloomberg, RREEF Real Estate
As of July 2012
Great Tohoku
Earthquake
2011.01
2011.03
2011.05
2011.07
2011.09
2011.11
Nikkei 225
(RHS)
2012.01
2012.03
2012.05
2012.07
(JPY)
11,000
10,000
9,000
8,000
Following the J-REIT index’s buoyant performance in early 2012, two new IPOs moved
forward during the second quarter of this year: Kenedix Residential REIT in April and
Activia Properties in June. These were the first J-REIT IPOs in four and half years in
400
350
300
250
200
150
100
50
2003.03
J-REIT US-REIT
A-REIT (Australia) S-REIT (Singapore)
2003.12
2004.09
2005.06
2006.03
(Mar-09 = 100)
J-REIT Office REIT 10Y JGB
2001.09
2001.12
2002.03
2002.06
2002.09
2002.12
2003.03
2003.06
2003.09
2003.12
2004.03
2004.06
2004.09
2004.12
2005.03
2005.06
2005.09
2005.12
2006.03
2006.06
2006.09
2006.12
2007.03
2007.06
2007.09
2007.12
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.06
2006.12
2007.09
2008.06
2009.03
2009.12
2010.09
2011.06
2012.03
8

Japan, and Activia was the second largest IPO in J-REIT history. There are a couple of
other REITs planning IPOs later this year.
JPY tn
1.0
0.5
0.0
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Exhibit 12 — Capital Raising and Transaction by REITs in Japan
Notes: This table is prepared solely for information purposes and not intended to recommend or endorse any specific company's shares or other products. All
figures provided are based on publicly available documents not DB estimates.
Sources: ARES, Nikkei, RREEF Real Estate
As of July 2012
Exhibit 13 shows the share of the acquisition volume by J-REITs out of all the commercial
real estate transactions in Japan. The J-REIT’s transactions accounted for 38 percent of
the market in the six months leading to March 2012, almost the same level as the
previous period and higher than the historical average of 30 percent. The ratio is expected
to increase even more in the next quarter. The volume of asset purchases by J-REITs
was JPY462.9 billion in the first half of the year, including JPY200.7 billion purchased in
conjunction with the new two IPOs. This represented a 49.5 percent increase from the
same period last year.
Exhibit 13 — Real Estate Transactions in Japan and J-REIT share
Sources: ARES, Urban Research Institute, Real Capital Analytics, RREEF Real Estate
As of July 2012
2001.09
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
2008.09
2009.03
2009.09
2010.03
2010.09
2011.03
2011.09
2012.03
2012.06
(JPY tn)
3
2
1
0
-1
Bond
3rd Party Allotment
Public Offering
IPO
2000.09
2001.03
2001.09
acquisition by others
acquisition by J-REITs
disposition by J-REITs
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
net acquisition
by J-REITs
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
Recent Public Offerings (JPY bn)
Name of REIT Month Amount
Kenedix Rresidential Apr-12 13.6
Activia Properties Jun-12 95.4
Total
109.0
Scheduled J-REIT IPOs (JPY bn)
Sponsor (asset type) Month Amount
Aeon (retail) mid 2012 100.0>
GLP (logistic) mid 2012 125.0
Daiwa House (logistic) late 2012 90.0
2008.09
2009.03
2009.09
J-REIT share (%) of
all transactions (RHS)
2010.03
2010.09
2011.03
2011.09
2012.03
2012.06
45%
30%
15%
0%
-15%
9

Market Fundamentals
Office
There were 37 newly completed office buildings in Central Tokyo 1 within the last twelve
months, according to Miki Shoji, and the continuous new supply pushed up the vacancy
rate to all-time high of 9.4 percent in June 2012. The vacancy rate for newly developed
buildings was especially high, at close to 40 percent. A mild recovery in the vacancy rate
is expected in the second half of the year as the supply level moderates.
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Exhibit 14 — Office Vacancy Rate in Central Tokyo (5 wards)
Sources: Miki Shoji, RREEF Real Estate
As of July 2012
Because of the increase in new supply, the vacancy rate for larger assets rose from 5.8
percent to 6.6 percent in June 2012. This remains a much lower vacancy rate than for
smaller buildings, as demand is stronger for larger, newer, and higher quality spaces.
Exhibit 15 — Office Vacancy Rate in Central Tokyo by Building Floor Plate Size
12%
8%
4%
0%
Vacancy rate for all buildings
Sources: Sanko Estate, RREEF Real Estate
As of July 2012
20 %
15 %
10 %
5 %
0 %
2002
2003
all buildings (LHS) new buildings (RHS)
2004
1 Central Tokyo is defined as the central five wards of Chiyoda, Chuo, Minato, Shinjuku, and Shibuya.
2005
2006
2007
2008
2009
2010
2011
2012
Forecast
40 %
30 %
20 %
10 %
floor plate : 165 sqm - 330sqm floor plate : 330 sqm - 660 sqm
floor plate > 660 sqm
1996.03
1996.09
1997.03
1997.09
1998.03
1998.09
1999.03
1999.09
2000.03
2000.09
2001.03
2001.09
2002.03
2002.09
2003.03
2003.09
2004.03
2004.09
2005.03
2005.09
2006.03
2006.09
2007.03
2007.09
2008.03
2008.09
2009.03
2009.09
2010.03
2010.09
2011.03
2011.09
2012.03
2012.09
0 %
newly developed buildings
10

Office rental growth rates correlate inversely to the vacancy rate. Historically in Tokyo,
office rents start to increase when the vacancy rate falls below 5 percent, so as vacancy
rates for buildings with floor plates of 660 square meters or over moved up to 6.6 percent
in Tokyo, the corresponding rents declined accordingly.
Exhibit 16 — Vacancy Rate and Rent Growth in Tokyo (floor plate < 660 sqm)
Sources: Sanko Estate, NLI Research Institute, RREEF Real Estate
As of July 2012
Due to the record high vacancy rate and continuous supply of new spaces, office rents in
Tokyo are still falling modestly for most building classes. Rents for average quality
benchmark buildings are not expected to stabilise until 2013.
Exhibit 17 — Office Asking Rent in Central Tokyo by Building Floor Plate Size
Notes: F = forecast. The tsubo is a traditional measure of floor area in Japan. It is equivalent to 3.3 square metres (35.6 square feet)
Sources: Miki Shoji, Sanko Estate, RREEF Real Estate
As of July 2012
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
8%
4%
0%
-4%
-8%
-12%
Actual Rent Growth (QoQ, 3Q rolling avg.) Vacancy Rate (RHS)
1994.12
1995.06
1995.12
1996.06
1996.12
1997.06
1997.12
1998.06
1998.12
1999.06
1999.12
2000.06
2000.12
2001.06
2001.12
2002.06
2002.12
2003.06
2003.12
2004.06
2004.12
2005.06
2005.12
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
(JPY/tsubo*/mon) (USD/sqf/year)
50,000
40,000
30,000
20,000
10,000
floor plate < 165 sqm
Prime
Buildings in CBD
floor plate > 660 sqm
Benchmark
floor plate > 330 sqm
Newly built buildings
floor plate > 330 sqm
floor plate > 165 sqm
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2011.03
2012.06
1%
3%
5%
7%
9%
11%
182
RREEF Forecast
2012.12F
145
109
73
11

Office vacancy rates peaked in major regional cities in Japan in 2009 and have been in a
mild recovery trend since then. Contrary to Tokyo, new office supply has been limited in
these cities. In Osaka, for example, the vacancy rate declined to 10.1 percent in June
2012, but this may be a short-lived trend. Osaka’s vacancy rate is likely to rise again
within the coming year as some large new completions are expected, including
Nakanoshima Festival Tower (completion planned in October 2012, GFA 2 146,000sqm),
Daibiru Honkan (February 2013, GFA 48,000sqm) and Grand Front Osaka A/B (March
2013, NRA 3 236,800sqm).
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Exhibit 18 — Office Vacancy Rates in Major Cities in Japan (all grades)
(%)
16
14
12
10
8
6
4
2
Sources: Miki Shoji, RREEF Real Estate
As of July 2012
Retail
The average asking retail rents for major high streets in Tokyo showed resilience in early
2012. Rents are largely stable in most sub markets for the last two quarters, if not
recovering. The number of foreign tourists to Japan fell only by 4 percent in the three-
month period ending in May, compared to the same period two years ago (before the
earthquake). High street rents are expected to remain flat throughout this year.
Exhibit 19 — Average High Street Retail Asking Rents in Tokyo and Osaka
Sources: Attractors Lab, Miki Shoji, RREEF Real Estate
As of July 2012
1997
2 GFA = gross floor area
3 NRA = net rentable area
1998
(JPY/tsubo/mon)
50,000
40,000
30,000
20,000
10,000
Sapporo Fukuoka Nagoya Osaka Tokyo
1999
2000
2001
2002
2003
2004
2005
2006
Ginza Omotesando Shinjuku
Shibuya Shinsaibashi Office (Central Tokyo)
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2007
2010.06
2008
2010.09
2009
2010.12
2010
2011.03
2011
2011.06
2012.03
2011.09
2012.06
2011.12
2012.03
12

Retail sales in the properties with large-scale formats remained firm in April and May
2012. Sales at shopping centres and department stores increased by 0.4 percent and 0.2
percent respectively in the period (on an existing store basis) over last year. Sales are
expected to stabilise towards the end of the year.
-5%
-10%
-15%
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
5%
0%
Exhibit 20 — Retail Sales Growth in Japan (year on year)
Sources: JCSC, JDSA, JCSA, RREEF Real Estate
As of July 2012
Residential
The average sales price per unit for new built-for-sale condos in Greater Tokyo has been
flat at around JPY 45 to 46 million for the last three quarters. This reflects softer demand
after the initial rush to take advantage of an extended mortgage tax break implemented in
2009. The contract rate 4 (orange line in Chart 21) stood at 78.7 percent in April/May 2012,
well above the threshold 70 percent level which is associated with healthy market
conditions. We expect a mild recovery in condo prices in the latter half of the year in
accordance with the recent recovery in consumer sentiment.
Exhibit 21 — Newly-built Condo Unit Price and Contract Rate in Greater Tokyo
Sources: REEI, RREEF Real Estate
As of July 2012
2000
2001
2002
2003
2004
2005
2006
2007
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.05
50
45
40
35
Shopping Centre Department Store Chain Store
(for existing stores for all categories)
4 The contract rate is the ratio of units contracted (sold) to the number of units delivered for sale.
Avg. unit price (LHS) Contract rate (RHS)
(JPY mn/unit) (%)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007.03
2007.06
2007.09
2007.12
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.05
80
70
60
50
13

Because of the limited development of new residential rental units in Tokyo in the last two
years, the vacancy rate has recovered and is now approaching its long-term average of
10 percent for all assets in the 23-ward area, and below 4 percent for assets held by J-
REITs. Asking rents show positive year-on-year growth in the central 5-ward area (blue
bar in Exhibit 22), especially in the popular locations of Shibuya and Minato, while they
remained level in the broader 23-ward area of Tokyo.
(Index)
109
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
106
103
100
97
Exhibit 22 — Residential Rent and Vacancy in Tokyo
Notes: The tsubo is a traditional measure of floor area in Japan. It is equivalent to 3.3 square metres (35.6 square feet)
Sources: TAS Corporation with data sourced from At Home Co. Ltd. (23-ward vacancy), Leasing Management Consulting (5-ward asking rent), IPD-RECRUIT
Residential Index (23-ward rent index)
As of July 2012
The high-end residential market correlates closely with the office leasing market. This
high-end segment of the market is strongly affected by business conditions of the
corporate sector, especially the financial services. The vacancy rate of high-end
apartments in Tokyo was 9.1 percent in the second quarter of 2012, while average high-
end residential rents declined by 1.6 percent from the previous quarter. The financial
sector, still weak from recession, signals the potential for a further mild decline in high-end
residential rents this year.
Exhibit 23 — High-end Residential Rent and Vacancy Rate in Tokyo
Sources: Ken Real Estate Investment Advisors Ltd., Miki Shoji, RREEF Real Estate
As of July 2012
(JPY/tsubo)
14,600
14,200
13,800
13,400
13,000
23 ward Rent Index
5 ward Asking Rent
23 ward Vacancy (RHS)
Vacancy at REIT (RHS)
2005.03
2005.06
2005.09
2005.12
2006.03
2006.06
2006.09
2006.12
2007.03
2007.06
2007.09
2007.12
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.04
2010.05
2010.06
2010.07
2010.08
2010.09
2010.10
2010.11
2010.12
2011.01
2011.02
2011.03
2011.04
2011.05
2011.06
2011.07
2011.08
2011.09
2011.10
2011.11
2011.12
2012.01
2012.02
2012.03
2012.04
2012.05
2012.06
office rent high end residential rent
(Yen/tsubo/month) (%)
office vacancy high end residential vacancy
25,000
15
22,000
19,000
16,000
13,000
10,000
7,000
1999
2000
2001
2002
2003
2004
2005
2006
Annually
2007
Quarterly
2008.03
2008.06
2008.09
2008.12
2009.03
2009.06
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.06
12
9
6
3
0
(%)
11
9
7
5
3
14

Industrial
In the last two and half years, the volume of new supply was limited to one third of the
space supplied in the peak years (2007 to 2008). As a result, vacancy rates for industrial
assets tightened to 1.9 percent in Greater Tokyo and to as low as 0.2 percent in Greater
Osaka in the first quarter of 2012. The defensive nature of these assets attracted
domestic and foreign investors (see Exhibit 8.2). The volume of new completions will be
about 50 percent above the long-term average of 600,000 square meters per annum in
Greater Tokyo in 2012 and 2013, and the vacancy rate is expected to increase mildly in
the medium term in both cities.
20%
15%
10%
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
5%
0%
Exhibit 24 — Vacancy Rate of Multi-tenant Logistics
Sources: Ichigo Real Estate Service, RREEF Real Estate
As of July 2012
Given the limited availability of space, rents for logistics assets are still holding steady in
Greater Tokyo and Greater Osaka, having moved little in the last 12 months. Despite
favourable supply fundamentals, the outlook for rental growth will be limited in the
foreseeable future as retailers and manufacturers, the main tenant industries, face their
own cost-cutting pressures.
Exhibit 25 — Logistics Rent in Greater Tokyo and Greater Osaka
Sources: Ichigo Real Estate Service, RREEF Real Estate
As of July 2012
2008.06
2008.09
(JPY/month/tsubo)
5,000
4,000
3,000
2,000
1,000
0
2008.03
2008.12
2008.06
2009.03
2008.09
Greater Tokyo Greater Osaka
2008.12
2009.06
2009.03
2009.09
2009.06
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
forecast by Ichigo
2012.03
Greater Tokyo Greater Osaka
2009.09
2009.12
2010.03
2010.06
2010.09
2010.12
2011.03
2011.06
2011.09
2011.12
2012.03
2012.12
2012.12
2013.12
forecast by Ichigo
2013.12
15

Past Issues
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Vol Year Publication Research Topic
1
Second Quarter Jun 08
Making sense of the rental market in
Japan
2 2008 Third Quarter Sep 08 Impact of the credit crunch
3 Fourth Quarter Dec 08 Revitalisation of ailing J-REITs
4
2009
First Quarter Mar 09 Tokyo office market in its global context
5 Second Quarter Jul 09 Japan residential market
6 Third Quarter Oct 09
7 Fourth Quarter Jan 10
8
2010
History repeats itself? A comparison of
the ‘Year 2003 Problem’ with 2009
Introducing unit pricing analysis in
Japan
First Quarter Apr 10 Portfolio optimisation analysis in Japan
9 Second Quarter Jul 10
10 Third Quarter Oct 10 Quarterly Report
11 Fourth Quarter Jan 11
12
First Quarter Apr 11
2011
13 Second Quarter Jul 11
14 Third Quarter Oct 11 Quarterly Report
15
16 2012 Second Quarter Apr 12 Quarterly Report
Japan’s capital market in a global
context
Cross-border investment into and out of
Japan
The Great Tohoku Earthquake and its
impact on the Japanese real estate
market
Adapting Japan’s land price index for
real estate analysis
First Quarter Jan 12 The J-REITs next 10 years
17 Third Quarter Jul 12 Quarterly Report
16

Important Notes
RREEF REAL ESTATE Japan Real Estate Third Quarter 2012 | July 2012
Copyright © 2012 Deutsche Bank AG, Frankfurt am Main. All rights reserved. RREEF is the
brand name of the real estate division for the asset management activities of Deutsche Bank AG.
In the US this relates to the asset management activities of RREEF America L.L.C.; in Germany:
RREEF Investment GmbH, RREEF Management GmbH, and RREEF Spezial Invest GmbH; in
Australia: Deutsche Asset Management (Australia) Limited (ABN 63 116 232 154) Australian
financial services license holder; in Japan: Deutsche Securities Inc.*; in Hong Kong: Deutsche
Bank Aktiengesellschaft, Hong Kong Branch (for Direct Real Estate business), and Deutsche
Asset Management Hong Kong (for Real Estate Securities Business); in Singapore: Deutsche
Asset Management (Asia) Limited (Company Reg. No. 198701485N); and in the United
Kingdom: Deutsche Alternative Asset Management (UK) Limited, Deutsche Alternative Asset
Management (Global) Limited, and Deutsche Asset Management (UK) Limited; and in Denmark,
Finland, Norway and Sweden: Deutsche Alternative Asset Management (UK) Ltd and Deutsche
Alternative Asset Management (Global) Ltd; in addition to other regional entities in the Deutsche
Bank Group. (*) For DSI, financial advisory, investment advisory, and distribution services only.
Key RREEF research personnel are voting members of various RREEF investment committees.
Members of the investment committees vote with respect to underlying investments and/or
transactions and certain other matters subjected to a vote of such investment committee.
Additionally, research personnel receive, and may in the future receive incentive compensation
based on the performance of a certain investment accounts and investment vehicles managed
by RREEF and its affiliates.
This material is intended for informational purposes only and it is not intended that it be relied on
to make any investment decision. It does not constitute investment advice or a recommendation
or an offer or solicitation and is not the basis for any contract to purchase or sell any security or
other instrument, or for Deutsche Bank AG and its affiliates to enter into or arrange any type of
transaction as a consequence of any information contained herein. Neither Deutsche Bank AG
nor any of its affiliates gives any warranty as to the accuracy, reliability or completeness of
information which is contained in this document. Except insofar as liability under any statute
cannot be excluded, no member of the Deutsche Bank Group, the Issuer or any officer,
employee or associate of them accepts any liability (whether arising in contract, in tort or
negligence or otherwise) for any error or omission in this document or for any resulting loss or
damage whether direct, indirect, consequential or otherwise suffered by the recipient of this
document or any other person.
The views expressed in this document constitute Deutsche Bank AG or its affiliates’ judgment at
the time of issue and are subject to change. This document is only for professional investors.
This document was prepared without regard to the specific objectives, financial situation or
needs of any particular person who may receive it. No further distribution is allowed without prior
written consent of the Issuer.
An investment in real estate involves a high degree of risk and is suitable only for sophisticated
investors who can bear substantial investment losses. The value of shares/units and their
derived income may fall as well as rise. Past performance or any prediction or forecast is not
indicative of future results.
The forecasts provided are based upon our opinion of the market as at this date and are subject
to change, dependent on future changes in the market. Any prediction, projection or forecast on
the economy, stock market, bond market or the economic trends of the markets is not
necessarily indicative of the future or likely performance.
17

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