- Having had a fairly strong start to 2020, the COVID-19 outbreak has significantly weighed on global capital markets, and the J-REIT market was no exception.
- Over the course of a month, the TSE REIT Index experienced a decline of close to 50% as anxiety spread amongst investors. Though prices have somewhat stabilised since, many J-REITs remain at a discount to NAV.
- J-REITs, normally active deal makers, have seen their acquisition capacity weakened following the sudden drop in their value. As a result, opportunities have opened up for those with dry power at the ready.
- Consolidation within the J-REIT market may become more common, with smaller-scale entities becoming prime targets.
- Defensive sectors such as Residential and Logistics, as well as Office - all with somewhat solid fundamentals - have unsurprisingly fared better than the likes of Hospitality and Retail, and this can be seen in the respective J-REIT indices.
- Within each sector, the flight to safety has been apparent, with higher quality J-REITs coming out as winners.
- Looser monetary policy in the US, a boon to the J-REIT market under normal circumstances, has instead dragged given the current challenges. There may be further turbulence ahead as it would seem that a significant outbreak in Japan is yet to be priced into markets
Volatility in J-REIT unit prices may be a sign of things to come
Capital markets around the world were hit hard by the COVID-19 outbreak, and the J-REIT markets have been no exception. This has, however, given rise to discounted opportunities, especially in the hospitality and retail sectors, and those with ample dry powder may be able to capitalise. Even so, further pain could lie ahead in the J-REIT markets.
Savills Research & Consultancy