The Japanese Real Estate Investment Market 2015

June 2015

Nomura Research Institute

Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan To create a transparent real estate investment market in Japan

This report has been produced by Nomura Research Institute solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. No warranty for representation, express or implied is made as to the accuracy or completeness of any of the information herein and Nomura Research Institute shall not be liable to any reader of this report or any third party in any way whatsoever.

Macrofundamentals Financial and Capital Markets GDP growth, corporate performance, demographic movements… Interest rates, financial and other regulations, political trends…

Rental Market Trading Market

Demand Supply Buyers Lenders Sellers What are the key drivers of demand? How much floor space What properties What properties Who are the Which industries require more space? is newly developed ? interest buyers? are lenders willing potential sellers? Which districts are in demand? How much floor space How strong is their to finance? What assets are … is demolished? buying appetite? What are the lending likely to be sold? … conditions?

Vacancies Liquidity Increase or decrease? What kinds of properties are transacted successfully and what are not?

Rent and NOI Cap Rate Increase or decrease? What cap rate level leads to successful transactions?

Will asset value rise or fall? Times New Roman, size 8, color: Dark Gray Asset Price Estimation Ex) Source: NRI based on IMF

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 4 Population Movements in Japan Japan’s population is aging and shrinking due to a low birth rate. The number of households will also be decreasing soon.

 Total population peaked out in 2005. The number of households is increasing for now, but it is projected to decrease after 2019.  The population of 65 years or older is expected to level off in 2025 and head downwards in 2040.

Population and Households in Japan

Households Population ←Actual Forecast → (thousand) (thousand) 140,000 60,000

120,000 50,000

100,000 40,000 0-14 80,000 15-64 30,000 65+ 60,000 Household 20,000 40,000

10,000 20,000

0 0

1980 1985 1990 2015 2020 2025 2030 2055 2060 1970 1975 1995 2000 2005 2010 2035 2040 2045 2050

Population continues to increase in Greater Tokyo.

 Population inflow into Tokyo is expected to continue.

Net Population Inflow into Greater Tokyo

Population (thousand) 250

200

150

Inflow 100 Kanagawa Chiba 50 Saitama Tokyo 0 1980 1985 1990 1995 2000 2005 2010

-50 Outflow -100

-150 Source: NRI based on Basic Resident Register Population Migration Report

Population and households are projected to decrease in Tokyo in 5 to 10 years time.

 In the Tokyo metropolitan area, total population and number of households are projected to peak out in 2015 and 2025, respectively.

Population in Greater Tokyo Households in Greater Tokyo

Population Households (thousand) (thousand) 40,000 ←Actual Forecast → 18,000 ←Actual Forecast →

35,000 16,000 14,000 30,000 Chiba Chiba 12,000 Saitama 25,000 Saitama Kanagawa 10,000 Kanagawa 20,000 Tokyo Tokyo 8,000 15,000 6,000 10,000 4,000

5,000 2,000

0 0

1975 1980 1985 1990 1995 2005 2010 2015 2020 2025 2035 2040 1970 2000 2030

Source: NRI based on National Institution of Population and Social Security Research Note: Medium-fertility (medium-mortality) projection Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 7 Population Movements in Tokyo Households in Tokyo are expected to increase over the medium term owing to the strength of one-person households.

 The number of single-person households is expected to peak out in 2030.

Number of Households by Family Composition

Households (thousand) ←Actual Forecast → 7,000

6,000

One-person 5,000 Couple-only

4,000 Couple-and-child(ren) One-parent-and-child(ren) 3,000 Other

2,000

1,000

0 1995 2000 2005 2010 2015 2020 2025 2030 2035

Source: NRI based on National Institution of Population and Social Security Research Note: Medium-fertility (medium-mortality) projection Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 8 Population Movements in Tokyo Population in Tokyo is predicted to increase over the long term only in the three wards along Tokyo Bay.

 Population is expected to increase in the Chuo, Koto and Minato wards.  In seven wards, the population is projected to decrease by over 10% between 2010 and 2040. Population Trends in Tokyo (2010=100)

Ward 2010 2015 2020 2025 2030 2035 2040 Chuo 100.0 112.9 115.3 116.6 116.8 116.1 114.4 Koto 100.0 102.7 104.4 106.8 108.2 108.8 108.5 Minato 100.0 105.0 107.0 107.9 107.8 107.0 105.2 Shinjuku 100.0 103.3 104.4 104.8 104.4 103.4 101.6 Nerima 100.0 103.8 105.1 105.3 104.5 102.9 100.6 Sumida 100.0 100.8 101.7 102.6 102.7 102.0 100.6 Arakawa 100.0 102.4 103.0 102.8 102.2 101.2 99.7 Chiyoda 100.0 106.9 106.9 106.1 104.6 102.2 99.3 Setagaya 100.0 102.1 102.7 102.4 101.5 100.0 97.9 Shinagawa 100.0 102.4 102.9 102.7 101.7 100.0 97.8 Edogawa 100.0 101.5 101.7 101.1 99.8 98.2 96.2 Bunkyo 100.0 101.8 101.9 101.3 100.1 98.2 95.7 Toshima 100.0 107.3 106.1 104.5 102.2 99.2 95.3 Ota 100.0 101.6 101.6 100.8 99.4 97.5 95.1 Itabashi 100.0 100.9 100.5 99.1 97.2 94.7 91.8 Meguro 100.0 100.8 100.2 98.8 96.8 94.1 91.1 Taito 100.0 100.6 99.5 97.7 95.4 92.6 89.4 Shibuya 100.0 100.3 98.8 96.6 93.9 90.9 87.4 Nakano 100.0 99.4 97.7 95.5 92.9 89.8 86.2 Kita 100.0 99.4 97.6 95.1 92.2 89.0 85.5 Suginami 100.0 99.4 97.6 95.1 92.0 88.5 84.5 Katsushika 100.0 98.2 95.7 92.4 88.7 84.8 80.8 Adachi 100.0 98.0 95.2 91.6 87.5 83.1 78.7

Source: NRI based on National Institution of Population and Social Security Research Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Note: Medium-fertility (medium-mortality) projection 9 Table of contents

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 10 Macro Fundamentals of Japan Japan’s economic growth is the lowest compared to other major economies with low forecasts for future growth.

 IMF forecasts estimate Japan’s GDP growth rate at 1% for the next 5 years.

Real GDP growth rate of major economies （％） 15.0 ←Actual←Actual EstimateEstimate→ →

10.0

India China 5.0 Korea US UK Japan 0.0

-5.0

-10.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Despite the weak growth, Japan remains one of the largest economies in the world.

 Although Japan was overtaken by China and fell to the third place in world nominal GDP, India, Brazil and Russia will still remain behind Japan by 2020, assuming current growth rates continue.

Nominal GDP of Major Countries

(Billion USD) ←Actual Forecast → 25,000 US

20,000 China

15,000

10,000

Japan 5,000

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: NRI based on IMF (2014 Oct.) Note: Figures up to 2019 are IMF forecasts and those up to 2020 are calculated with the assumption that the CAGR from 2014 to 2018 will be maintained. Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 12 Macro Fundamentals of Japan Consumer price index became less active, despite the rise in price due to the consumption tax increase.

 With consumer sentiment depressed due to the consumption tax increase, the growth of consumer price index began to slow down.

Year-on-Year Change in Japan’s Consumer Price Index (excluding fresh foods)

（％） 4.0

3.0 Inflation target 2.0 set by BOJ

1.0

0.0

-1.0

-2.0

-3.0

Yen still continues to decline.

 Large-scale monetary easing, the “first arrow” of Abenomics, has rapidly lowered the yen from the end of 2012.

USD-JPY exchange rate (USDJPY=X) 130

120

110

100

Source: NRI based on Bloomberg data

Trade deficit is expanding, while the current account surplus is shrinking.

 Japan’s trade balance recorded deficit for four consecutive years from 2011, while the current account surplus fell to a record low in 2014.

Japan’s Current Account

((Trillion兆円) yen) 35 (Trillion yen) 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (年) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (CY) Trade貿易収支 Balance Serviceサービス収支 Balance Primary第一次所得収支 income balance Second第二次所得収支 income balance 経常収支Current Account Source: NRI based on Japan Ministry of Finance data Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 15 Macro Fundamentals of Japan

The principle factor behind the rise of trade deficit was imports unit value.

 In 2014,Increase in export volumes has not been yet reflected to trade balance.

Japan’s Trade Balance (YoY Change) (Trillion yen) 30

10 輸出数量要因Exports quantum factor 輸出価格要因Exports unit value factor 0 輸入数量要因Imports quantum factor 輸入価格要因Imports unit value factor 近似誤差Approximation error -10 貿易収支の変化額（前年差）Changes in trade balance (YoY)

-20

-30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Export volumes have been increasing, because of yen’s depreciation.

 Export volume has expanded due to yen’s depreciation and lower oil price, especially in industries such as automobile. However, Japanese companies are experiencing stagnant growth in exports as a result of growing offshore transfers of production as well as of severe competition with cheap foreign products.

Japan’s Export Indexes

2010＝100 130

120

110

100

60 2009 2010 2011 2012 2013 2014 2015 Exports Quantum Index Exports unitvalue index （seasonally-adjusted）（contract currency basis）

Government debt has mounted, raising concerns about a potential financial collapse.

 The IMF forecasts that Japan’s ratio of government debt to GDP will peak out but still remain high.  A surplus in the primary balance, which is one of the conditions for preventing financial collapse, is expected to be difficult to achieve at least for the next several years.

Ratio of Government Debt to GDP Ratio of Government Primary Net Lending/Borrowing to GDP

←Actual Forecast → ←Actual Forecast → （％）（％） 4 250 UK Japan 2 200 Germany 0 US -2 150 Japan -4 US 100 -6 UK -8 50 Germany -10

0 -12

2003 2004 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017 2018 2019 2005 2016

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: NRI based on IMF data (2014 Oct.) Source: NRI based on IMF data (2014 Oct.) Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 18 Macro Fundamentals of Japan A financial collapse is unlikely as long as domestic capital remains in Japan and continues to circulate.

 The possibility of Japanese government bonds collapsing is seen to be small since more than 90% of the bonds are held by domestic investors.  Household financial assets, which are a resource for government bond purchases, have increased due to rising stock prices in recent years. Government Bond Investors Household’s Financial Assets in Japan

100% (Trillion yen) 1800

1600 80% 1400

60% 1200

1000

40% 800

600 20% 400

200 0% Japan US UK Germany 0 (年) Domestic investors Foreign investors 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Note: Figures for Japan and US are from Dec 2014; for UK and Germany, from 2014 Q3. Source: NRI based on Bank of Japan data Source: BoJ, FRB, ONS, Bundesbank Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 19 Macro Fundamentals of Japan

Long-term interest rates remain stable at a low level.

 Currently Japan’s interest rates remain at a lower level than that of UK and US. If the irrational gap between the interest rate level and sovereign ratings is closed, Japan’s interest rates may rise.

Long-term Interest Rates (Monthly) and Sovereign Ratings

US 6.0 AA+/Stable/A-1+ UK AAA/Stable/A-1+ 5.0

4.0

3.0 Germany AAA/Stable/A-1+

2.0

1.0 Japan AA-/Negative/A-1+ 0.0

Note: Classifications are as of Feb. 2014 (Long-term/expected/short-term, in local currency) Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Ministry of Finance Japan, FRB, ECB, Bank of England, and S&P 20 Macro Fundamentals of Japan

Tokyo continues to be the world’s largest city in terms of population and GDP.

GDP/population estimation in 2025 (Top 30 cities of population)

2025 population 40,000 by city Tokyo ( in 1000’s) 35,000 Delhi

30,000 Shanghai Beijing 25,000 Mumbai Dhaka Sao Paulo Cairo Mexico City 20,000 New York Buenos Aires 15,000 Los Angeles Paris 10,000

5,000

0 2025 GDP scale 0 500 1000 1500 2000 2500 by city （in billion USD at 2008 PPPs ）

Tokyo has the second largest concentration of world-class enterprises.

Number of Fortune Global 500 companies by city (2014) Fortune Global 500 companies in Greater Tokyo (within top 200)

Rank Company Revenue(Mil$) 23 Japan Post Holdings 152,125 45 Honda Motor 118,210

Beijing, 52 51 JX Holdings 111,014 53 Nippon Telegraph & Telephone 109,054 61 Nissan Motor 104,635 Tokyo, 41 78 Hitachi 95,988 London, 18 105 Sony 77,532 108 Mitsubishi 75,755 Paris, 18 124 Marubeni 70,429 New York, 17 135 Softbank 66,546 Others, 310 Seoul, 14 139 Tokyo Electric Power 66,194 Osaka, 8 145 Toshiba 64,907 Shanghai, 8 148 AEON 64,240 Houston, 7 164 Dai-ichi Life Insurance 60,340 Moscow, 7 173 Mitsui 57,302 176 Seven & I Holdings 56,572 184 Nippon Steel & Sumitomo Metal 55,062 199 Mitsubishi UFJ Financial Group 51,667

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Investors’ activities has been recovering to the 2005-2006 level.

 In 2013, J-REIT, the most powerful real estate buyer in Japan, acquired assets of more than 20 billion USD. In 2014, however, J-REIT lost its dominance to other investors such as private-REITs, high-net-worth individuals and corporations with more aggressive attitude towards acquiring assets. Other professional investors are also being ousted from the Tokyo market.

Acquisitions of Securitized Real Estate billion yen 10,000

Others J-REIT

8,000

6,000

6,242 7,205

5,159 4,000 2,156 4,439 3,307 1,791 2,000 2,123 2,210 2,236 1,549 2,031 1,359 2,237 1,772 1,679 539 1,555 611 676 895 628 604 792 0 305 439 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Hotel deals has been increasing amongst other key segments, i.e. office, residential, retail and logistics properties.

 Factors such as the 2020 Olympic game in Tokyo, weak JPY currency, and strong macro economy in Japan have helped to push the demand in hotels, attracting more investors to hotel investment.

Allocation of Securitized Real Estate by Asset Class Acquisitions of Securitized Real Estate by Asset Class in 5 years (2009-2013) billion yen

8,000

Office Residential Retail Logistics Hotel Others

Others, 16.0% 6,000 Hotel, 3.3%

Office, 33.8%

981 1,107 Logistics, 4,000 790 13.8% 1,321 746 835 1,293 1,589 404 615 788 808 2,000 161 Residential, 267 686 452 603 Retail, 16.0% 479 17.1% 270 2,503 252 550 2,194 2,124 348 309 552 1,728 289 441 1,611 1,516 235 406 1,501 891 1,092 710 556 768 512 0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 2001. Because of this, the yearly totals and amounts will not match up with the documents cited for this entry. Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Survey of the Current State of Real Estate Securitization”

Lack of assets in Tokyo is likely to cause investment money to head to other regions.

 For last few years, it has been extremely difficult for investors to find investment opportunities in Tokyo. In 2014 and 2015, transactions in the ex-Tokyo area are expected to increase significantly in a trend similar to the one seen in pre-global financial crisis era.

Number of Properties Securitized by Region Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others

FY2013 51.9% 13.3% 10.0% 3.7% 17.8%

FY2012 47.9% 15.3% 9.5% 5.1% 19.9%

FY2011 58.8% 12.0% 8.0% 4.0% 14.9%

FY2010 66.0% 11.8% 6.9% 12.0%

FY2009 53.0% 10.5% 8.4% 6.9% 17.2%

FY2008 51.9% 12.7% 8.8% 5.5% 17.4%

FY2007 41.9% 12.1% 10.5% 6.4% 23.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Note: not including securitization of real estate of SPC Source: NRI based on MLIT

Total return recovered to 7%, the 2005 Q1 level.

 Prior to the global financial crisis, the total return reached to 7% in 2005 Q1, and hiked till 2006 Q2.  Total return maintained the rate over 10% until 2007 Q1.

Performance Trend in Japan

(%)

20.0

15.0 13.8

10.0 7.3 Total Return 7.4 Income Return 5.0 3.7 5.0 0.3 0.0 2.3

Capital Return -5.0 -7.2

-10.0

-11.7

-15.0

Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun

Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep

Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec

Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: MSCI Real Estate IPD

Cap rates fell sharply and by 2014 most likely reached the 2007 level.

 In the Tokyo market, an increasing number of real estate deals have cap rates of 3-4%. Some investors believe that arguing cap rates is futile as one can expect higher rents. Such market players consider timing and level of rent increase more important rather than cap rate compression.

Cap Rate Trend in Japan

8.0%

7.0%

6.0% Office Osaka CBD 5.0% Logistics Tokyo Multi Residential Tokyo

4.0% Retail Tokyo Office Tokyo CBD

3.0%

12 07

04 09 14

03 08 13

04 09 14

06 11

10 05

05 10

06 07 12 11

13 08

07 12

10 05

- -

- - -

- -

------

- - - -

- -

Jul Jul

Jan Jan

Jun Jun

Oct Oct Oct

Apr Apr

Sep Feb Feb Sep

Dec Dec

Aug Aug Aug

Nov Nov

Mar Mar Mar

May May

Office Tokyo CBD Office Osaka CBD Retail Tokyo Residential Tokyo Logistics Tokyo Multi

Mega deals of over one billion USD have increased.

Transaction Dec, 2013 Mar, 2014 Aug, 2014 Oct, 2014 Nov, 2014 Month/Year Land next to the Pacific Century Place GE’s Residence Portfolio Asset Otemachi Tower Meguro Gajoen Hamamatsucho Station (Ratio of Acquisition: 17% ) Tokyo （Office floors）（200 properties）

Property Type Land Office Office・Hotel Office Residence

Area Minato, Hamamatsucho Chiyoda, Otemachi Meguro, Meguro Chiyoda, Marunouchi All parts of the country

Secured Capital Japan Seller Kokusai Kogyo Tokyo Tatemono’s SPC Lone Star GE Real Estate Japan （PAG） Nippon Life Insurance Buyer Mizuho Bank Mori Trust GIC Blackstone Obayashi Transaction 800 million USD 1,782 million USD 1,300 million USD 1,700 million USD 2,000 million USD Amount Gross Floor 34,200㎡ 38,840㎡ 7,205㎡ 155,820㎡ NA Area (Floor Area of Acquisition) (Floor Area of Acquisition)

Source: NRI based on Nikkei Real Estate Market Report and others

Money from investors with different perspectives have caused real estate prices to rise and capital to diversify in various market segments.

 Properties that domestic investors do not favor due to risk concerns have been purchased by foreign and non-professional (e.g. high- net-worth) investors with different goals, causing real estate prices to rise in the ex-Tokyo area. The trend is undoubtedly due primarily to the fact that such investors cannot find any good investment opportunities in Tokyo.

Transaction Jun, 2014 Sep, 2014 Oct, 2014 Nov, 2014 Nov, 2014 Month/Year Nihonbashi Tomihisa Asset Shinbashi Park Place Parel Royale Shoto Ginza Granvia Bldg 2 Seiko BldgH Daini Building

Property Type Office Office Residence Retail Office・Retail

Chuo, Nihonbashi- Area Minato, Shinbashi Shibuya, Shoto Chuo, Ginza Osaka, Kita Shinchi Honcho

Seller NA Ascott NA Hulic NA

high-net-worth Buyer high-net-worth high-net-worth high-net-worth high-net-worth (Taiwanese) Transaction NA NA NA NA NA Amount Gross Floor 2,646㎡ 1,310㎡ 2,873㎡ 1,340㎡ 3,342㎡ Area

Source: NRI based on Nikkei Real Estate Market Report and others

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 30 Overview of Real Estate Investment Market in Japan Because of the lack of investment opportunities at Tokyo metropolitan area, equity heads to the Tokyo neighboring part and ex-Tokyo area.

 Many investors are seeking investment opportunities in Osaka, Nagoya and other regions other than Tokyo, repeating a similar trend seen between 2004 and 2007. How to build good relations with regional banks is one of the key issues for real estate investors at present.

Transaction Jul, 2014 Oct, 2014 Oct, 2014 Oct, 2014 Jan, 2015 Month/Year Maebashi Daiichi Life Renaissance Resort Shinagawa Seaside Sumitomo Life Sendai Asset Beppu Kamenoi Hotel Bldg Okinawa (3 properties) Bldg Oyama Daiichi Life Bldg

Property Type Resort Hotel Office Office Hotel Office

Area Okinawa Shinagawa Miyagi, Sendai Oita Mebashi, Oyama

Seller Ishin Hotel Group Japan Tabacco Sumitomo Life AZ Hotel Chain Daiichi life

Idera Capital Management Fortress Investment Buyer Green Oak Real Estate Goldman Sachs KAISER ASSET Lone Star Group Elliott Management Transaction 600 million USD 130 million USD NA 40 million USD 8.5 million USD Amount (for 3 properties) Gross Floor 40,195㎡ 140,000㎡ 20,411㎡ 19,422㎡ 12,000㎡ Area

Source: NRI based on Nikkei Real Estate Market Report and others

Fierce competition among commercial banks help boost prices.

 Banks’ lending attitude toward the real estate industry is nearly the most lenient since 2000 and almost as lenient as in 2006. Many people in Japan believe that there are too many banks, and competition among lenders is quite fierce. Along with major banks, regional mid-size banks are trying to reduce spreads and loosen covenants. One big difference from the last peak we saw in 2006, however, is the non-participation of foreign lenders. One reason why foreign lenders are staying away from the Japanese debt market is the fact that the CMBS market has been frozen since 2009.

Financial Institutions’ Lending Attitude DI toward Real Estate Industry

Loose 5

-5

-10 Tight -15

-20

-25

-30

-35

00 01 04 05 07 08 10 11 13 14 02 03 06 09 12

01 02 04 05 07 08 10 11 14 00 03 06 09 12 13

------

Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep

Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Source: NRI based on BOJ

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Tokyo Area holds 60% of Japan’s office rental market.

 Japan has a stock of around 106 million ㎡ of available office rental space. The Tokyo area holds an overwhelming share of the market at 64 million ㎡, comprising 60% of the total.

Office Floor Space Shares by Major City

100% 2.1% 1.6% 2.4% (1.72million ㎡) 3.3% (2.23million ㎡) 90% 5.5% (2.54million ㎡) (3.57million ㎡) 1.7% 1.0% (5.87million ㎡) 80% (1.12million ㎡) 14.9% (1.85million ㎡) 70% Osaka Area 1.8% 1.0% (15.91million ㎡) 17.7％ 4.7% (1.95million ㎡) 60% (1.03million ㎡) (5.00million ㎡) 50%

40% Tokyo Metropolitan Area 12 major cities 106.73million ㎡ 30% 59.9% 67.4％

20% (63.94million ㎡) 10%

0% Tokyo Yokohama Saitama Chiba Osaka Kobe Kyoto Nagoya Fukuoka Sapporo Sendai Hiroshima

Source: NRI based on JREI As of Jan.2014 The investigation focus on central area of each city. The investigation object which are smaller than 3,000 square meter are excluded Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 34 Office Market

There are five sub sectors in Tokyo’s Central Business District.

 Tokyo’s Central Business District(CBD) has an accumulation of office buildings and is concentrated in an area of 5km wide.

Adachi Itabashi Kita Katsushika Nerima Arakawa Saitama Toshima 7.15 million people Bunkyo Sumida Nakano Taito Tokyo Edogawa 13.22 million people Chiba Suginami Shinjuku 6.15 milion people Chiyoda Kanagawa Koto 9.07 million people Shibuya Chuo 30 km Minato Setagaya Meguro Shinagawa

Ohta

Vacancy rates in the Tokyo office market have been improving for two consecutive years.

 Retrospectively, vacancy rates have been experiencing regular ups and downs.

Vacancy rate movement in Tokyo CBD

Yearly(1998 - 2014) Monthly(Jan 2013 –Jan 2015)

14.0% 14.0%

12.0% 12.0%

Shinjuku 10.0% Shinjuku 10.0% Chuo Minato Minato 8.0% 8.0% Chuo

6.0% 6.0%

Chiyoda Chiyoda 4.0% 4.0% Shibuya Shibuya 2.0% 2.0%

0.0% 0.0%

13 14

13 13 14 14 15

13 14

- -

- - - - -

- -

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Jul Jul

Jan Jan Jan

Oct Oct

Although rent increase is slow, there has been a clear reversal in the rent trend.

 Retrospectively, the high rent period have been short, making office owners’ negotiation power weaker than that of tenants.

Rent trends in Tokyo CBD (yen/tsubo per month)

Yearly(1999 - 2014) Monthly(Jan. 2013 – Jan. 2015)

Yen/month, tsubo Yen/month, tsubo 26,000 26,000

24,000 24,000

22,000 22,000

20,000 20,000 Chiyoda Chiyoda 18,000 Shibuya 18,000 Shibuya Minato Minato 16,000 Chuo 16,000 Chuo Shinjuku 14,000 Shinjuku 14,000

12,000 12,000

10,000 10,000

13 14 15

13 14 14 13

13 14

- - -

- - - -

- -

1999 2001 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2002 2004

Jul Jul

Jan Jan Jan

Sep Sep

Nov Nov

Mar Mar

The number of Tokyo’s office workers is declining at a fast rate than the published forecast.

Trend and Forecast of Office workers in Tokyo

（千人）(1,000 people) 4,500

4,000 3,818 3,835 3,660 3,648 3,643 3,565 3,461 3,498 3,500 2323 wards区 3,243 3,000

2,500 2,083 2,078 2,020 1,988 2,035 1,998 Central 5 wards 2,000 1,884 (Chiyoda,5区 Chuo, Minato, Shibuya, Shinjuku) 1,533 1,539 1,501 1,473 1,500 Central 3 wards 1,467 1,474 3区 1,415 (Chiyoda, Chuo, Minato) 1,000

500

0 1990 1995 2000 2005 2010 2015 2020 2025

Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 38 Office Market Chiyoda and Minato has been increasing its share of office workers, whilst Shinjuku has been losing its share midst fierce competitions among submarkets.

Trend of Office Worker Share （23 Ward ＝100%）

千代田区Chiyoda 18% 16.4% 15.8% 15.4% 15.5% 15.5% 16% 15.6% 14.8% 15.2% 15.4% 15.3% 15.3% 14% 15.0% 13.5% Minato港区 12% 11.6% Chuo中央区 11.8% 11.8% 11.5% 11.4% 11.3% 11.3% 10% 8.6% 8.6% 8.6% 8.6% Shinjuku新宿区 8.9% 8% 8.7% 8.4% 6.3% 6.4% 6.4% 6.4% Shibuya渋谷区 6% 6.2% 6.2% 6.1%

Despite the dwindle in the number of office workers, new office supply will continue to grow.

Office Space Supply in Tokyo’s 23 districts

Supplied floor area # of buildings (1,000 ㎡) 250 Office supply area 70 Number of building supplied 216 60 200 183 175 50 154 150 40 125 124 118 119 121 119 117 114 111110 108104 100 99 96 30 100 92 91 83 86 85 88 74 72 77 65 20 56 55 58 50 36 10

0 0

1986 1988 1989 1991 1994 1996 1997 1999 2002 2004 2005 2007 2009 2010 2012 2015 2017 2018 1987 1990 1992 1993 1995 1998 2000 2001 2003 2006 2008 2011 2013 2014 2016

Source: NRI based from Mori Building Company’s “Mega Office Building Market Trends Survey (Preliminary figure)” dated October 22, 2014

Cap rate has been dropping for three consecutive years since 2012.

 As of March 2015, office deals with cap rates of 3-4% are commonly carried out, resting on investors’ expectations for higher rent and NOI, henceforth.

Tokyo office market cap rate trend 6.5%

6.0%

5.5%

5.0%

ShinjukuShinjuk 4.5% ShinagawaShinaga Shibuya Minato(Toranomon) 4.0% Chuo(Nihonbashi) Chiyoda(Marunouchi) 3.5%

3.0%

13 14 03 04 05 06 07 08 09 10 11 12

04 05 06 07 08 09 10 11 12 13 14

------

Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct

Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon) Shinagawa Shinjuku Shibuya

Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey” Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 41 Office Market The improvement of the vacancy rate is not leading to the recovery of rents in the ex-Tokyo office market.

Office Vacancy Trend in ex-Tokyo Market Office Rent Trend in ex-Tokyo Market

20.00% (yen/tsubo) 24,000 18.00% 22,000 16.00% Fukuoka 20,000 14.00% Nagoya Sendai Yokohama 12.00% 18,000 Tokyo Sapporo 10.00% Osaka 16,000 8.00% Tokyo 14,000 6.00% 12,000 Osaka 4.00% Nagoya Yokohama 2.00% 10,000 FukuokaFukuok Sendai

0.00% 8,000 Sapporo

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NRI based on Miki Shoji Co., Ltd. data

Liquidity is growing as real estate prices rise in ex-Tokyo office market.

 Office cap rates in most major cities have decreased due to investors’ strengthening interest in opportunities outside of Tokyo.

Ex-Tokyo Office Market Cap Rate Trend

9.0%

8.0%

7.0% Sendai Sapporo 6.0% Fukuoka Nagoya Yokohama 5.0% Osaka

4.0%

3.0%

03 05 06 08 10 12 14 04 07 09 11 13

04 06 08 10 11 13 05 07 09 12 14

------

Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct

Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr

Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 44 Residential Market About 20% of all households in Japan are living in non-public rental apartments, and the percentage is trending upwards.

 Households living in non-public rental apartments (excluding wooden apartments; hereafter the same in this section), which numbered 3.34 million in 1988, increased by about 2.6 times to 9.96 million (about 20% of all households) in 2013.

Breakdown of All Households by Housing Type (2013) Number of Households by Housing Type 1988 - 2013 Ratio of Households Living in Private Rental & Company 6,000 25% Housing Public Rental 5,238 2% House 5,000 4,989 20% Apartment House (non 6% 4,716 4,421 18% 20% 4,097 16% 3,760 Private Rental 4,000 15% Housing, 15% Others 12% 9% 3,000 9% 10% 1,783 1,857 2,000 1,682 1,724 - 1,411 1,578 wood) 879 996 5% 1,000 650 750 Number of Households (unit:10,000) Households of Number 334 490 Private Rental House, Own House 0 0% Apartment 63% '88 '93 '98 '03 '08 '13 House (non- Households Living in Housing wood) 20% Households Living in Rental Houses Households Living in Private Rental & Apartment Houses (non-wood) Ratio of Households Living in Private Rental & Apartment Houses (non-wood) Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 45 Residential Market The total number of moving households has decreased, but the ratio of households moving to non-public rental apartments is trending upwards.

 The number of moving households peaked out in 1994-98 and decreased to about 77% of the peak-time level in 2009-13 .  The number of households moving to non-public rental apartments is also on a decreasing trend, although its ratio to the total number of moving households is trending upwards.

Housing Choices of Moving Households 1984 - 2013 Ratio of Households Living in Private Rental & & Rental in Private Living Households Ratioof 1,600 48% 50% 45% 46% 44% 45% 1,400 45% 39% 1,186 1,221 40% 1,135 1,200 1,103 Houses Apartment 1,039 35% 939 1,000 884 868 30% 782 778 800 698 25% 639 557 20% 600 532 502 466 447 427 15% 400 10% 200 5%

Number Number Moving of Households (Unit:10,000) 0 0% 84-88 89-93 94-98 99-03 04-08 09-13 Number of Moving Households in Past 5 Years Number of Households Moved into Rental Houses Number of Households Moved into Private Rental (Apartment) Houses Ratio of Households Moved into Private Rental (Apartment) Houses

Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan. Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 46 Residential Market The majority of households moving to non-public rental apartments moved within the same city.

 Looking at the former locations of households moving into non-public rental apartments in seven major cities, those that moved within the same city were greater in number than those that moved in from outside the city.  Tokyo’s 23 wards and Osaka saw a decline in households moving into non-public rental apartments from outside the city, while major regional cities saw no change.

Location Choices of Moving Households 500 Household moving in a city 450 Household moving out a city 400 350

wood) (Unit:1,000) wood) 300 266 - 250 207 197 200

200

Flow Households Moved in Moved Households Flow - 150 105 100 86 165 58 54 58 77 73 157 148 137 51 45 47 54 50 46 55 49 50 48 25 24 27 36 37 32 24 56 57 55 55 73 61 53 50 30 28 30 28 31 32 28 27 33 27 27 23 22 47 46 41 48

Breakdown of In of Breakdown 0

Private Rental Houses (non Houses Rental Private

98 08 03 13 98 08 98 03 13 03 08 98 08 13 03 13 03 13 98 08 03 13 08 98 13 03 98 08

------

94 04 99 09 94 04 94 99 09 99 04 94 04 09 99 09 99 09 94 04 99 09 04 94 09 99 94 04 Sapporo Sendai Tokyo 23 Nagoya Osaka Hiroshima Fukuoka Wards

Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan. Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 47 Residential Market The supply of non-public rental apartment units has increased more sharply than total housing stock.

 The growth of rental apartments (public and non-public combined) outpaced the growth of overall housing as well as the more modest rise of rental housing in general.  As a result, the ratio of rental apartments to total rental houses increased from 60 to 70%.

Housing Stock by Type 1988-2013 Housing Growth Rates by Type

70 140 61 60 58 54 130 130 50 50 44 124 39 40 120 119

30 112 114 112 23 110 20 21 22 18 107 108 20 16 15 16 12 14 103 100

10 100

HousingStockmillion) (Unit:1 Growth Rate (1988 = 100) = Growth(1988 Rate

0 90 Number of Houses '88 '93 '98 '03 '08 '13 Number of RentalHouses Number of Houses Number of Rental & Apartment Houses (non-wood) Number of RentalHouses 80 Number of Rental & Apartment Houses (non-wood) '98 '03 '08 '13 Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.

Construction of new rental housing declined in 2009 but is now on a recovery path.

 The number of new constructions decreased in 2014 as a reaction to last minute surge in demand prior to the tax increase.  The ratio of rental house has increased as the number of new rental housing has leveled off while the total number of new construction has declined.

New Housing Supply Trend: 1991-2014 Breakdown of New Rental Housing Construction by Region 2,000 50% 800 Provincial Region ） 1,800 45% Kinki Region 700

1,000 Chuubu Region

： 1,600 40% Metropolitan Region

Ratio of Rental Houses 600

Unit 1,400 35% （ 1,200 30% 500 1,000 25% 400 800 20% 600 15% 300 400 10% 200 200 5%

Number of Construction Starts Construction of Number 0 0% 100

New Rental Housing Construction by Region(Unit:1,000) Construction Housing Rental New

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 08 09 11 12 14 07 10 13

Own House Rental House Company House 0

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 House Built for Sale Ratio of Rental House 91 Source: NRI based on data from “Survey of Construction Work Started”, Ministry of Land, Infrastructure, Transport and Tourism of Japan.

Vacancy rates are rising in all of Tokyo’s 23 wards.

 Vacancy rate in the metropolitan Tokyo has continued to decline for the past decade.  In the recent years, however, Tokyo has seen an upward trend of vacancy rates, especially in the 23 wards.  Affected by the Great East Japan earthquake in 2011, vacancy rates in Sendai has seen a significant shrinkage.

Vacancy Rates of Rental Housing (non-wood) in Major Cities Vacancy Rates of Rental Housing in Tokyo Metropolitan Area 25% 17 '98 '03 '08 '13 16

20% 15 wood) (Unit:%)

- 14

15% 13

10% 11 All Tokyo areas

10 23 Tokyo districts 5% Tokyo cities 9 Rental Housing Vacancy Rate (Unit: %) (Unit: RateRentalHousing Vacancy Kanagawa

Vacancy Vacancy Rate of Rental Housing (non

Jul Jul Jul

Jan Jan Jan

Sep Sep

0% Sep

Nov Nov Nov

Mar Mar Mar

May May Sapporo Sendai Tokyo23 Nagoya Osaka Hiroshima Fukuoka May Wards 2012 2013 2014 Source: NRI based on data from Data from “Housing and Land Survey”, Ministry of Internal Affairs Source: NRI based on data from “Report on Rental Housing Market”, TAS Corp. (Analyzed by TAS and Communications of Japan. Corp. Data Supplied by At Home Co., Ltd.). Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 50 Residential Market

The rent level of non-public rental housing continues to fall.

 The rent level of non-public rental housing rose steadily from 1990 to 2000, after which it gradually declined. The rent level downward trend continued in 2013.

Rent in the Private Sector (Annual Average) – Nationwide and Central Tokyo 108.0 106.0 104.0 102.0 100.0 98.0 96.0 94.0 92.0 90.0 Japan

88.0 Tokyo 23 Wards Private (Annual (Annual Private Average) Rent Index(Base Year 2010)

86.0

91 92 94 95 97 98 00 01 03 04 07 10 13 93 96 99 02 05 06 08 09 11 12 14

Source: NRI based on data from “Consumer Price Index”, Ministry of Internal Affairs and Communications of Japan.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 51 Residential Market Occupancy rates of REIT-owned and private fund-owned properties are rising, while their rent levels remain stable.

 Looking at the changes in the REIT-owned and private fund-owned occupancy rate and monthly rent, the monthly rent level has remain stable although the occupancy rate in Tokyo’s 3 central districts and its 23 districts has been on an uptrend since 2012.

Occupancy Rates of REIT-owned and private fund-owned Properties Monthly Rents of REIT-owned and private fund-owned Properties 100% 5,000

) 4,500 2

98% 4,000 Yen/m

： 3,500 96% 3,000 2,500 94% 2,000 Tokyo 3 central districts Tokyo 3 central districts Tokyo 23 districts 1,500 Tokyo 23 districts

92% Nagoya city 1,000 Nagoya city Occupancy(Unit:%)Rate Osaka city Osaka city Monthly(Unit RentLevel 500 Fukuoka city Fukuoka city

90% 0

Jul Jul

Jan Jan Jan

Sep Sep

Nov Nov

Mar Mar Mar

Nov Nov

Mar Mar Mar

May May

May May 2012 2013 2014 2012 2013 2014

Source: NRI based on data from “ARES J-REIT Property Database”, Association for Real Estate Securitization of Japan.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 52 Residential Market The rate of housing ownership, which has a negative impact on rental housing demand, has shown a downward trend with the 40-49 age group.

Housing Ownership Rate in Japan

90%

80%

70% (age) 60% 70+ 60-69 50% 50-59 40% 40-49 30% 30-39 -29 20%

10%

0% 1998 2003 2008 2013

Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Development of large-scale retail stores has started to recover since 2009.

New Retail Space Supply vs. Number of Development Projects

5,000 Floor Area Number of projects 900 786 4,500 738 731 730 750 738 800 705

4,000 654 700 of projects(cases) Number 638 620 3,500 584 600 3,000 500 450 500 2,500 4,545 4,369 400 2,000 4,178 3,983 3,729 3,335 300 FloorArea(1000m2) 1,500 2,860 2,824 2,455 2,351 2,193 200 1,000 1,919 2,081 500 100

0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 （year）

Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication. Source: NRI based on data from the Ministry of Economy, Trade and Industry’s “Large-scale Retail Chain Site Expansion Report”

Overall floor area and per-store floor area for shopping centers

Overall floor area Floor area per SC 2 2 (in 1 million m ) Old SC Standard New SC Standard (in 1000m /store) 15.3 60 14.8 15.0 16 14.1 14.2 14.5 13.6

13.2 center area Floor per shopping 12.8 47.9 14 50 12.1 12.4 46.4 11.8 11.6 44.2 45.7 42.1 42.7 12 40 36.5 38.0 33.1 34.6 10 30.6 30.4 31.5 30 8

6 Overallfloorarea 20 4 10 2

0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (year) NB: In the old SC standard, only shopping malls with more than 10 retail tenants were considered. In the new SC standard, the shopping center must have more than 10 tenants including food stalls, service centers and retail outlets. On the same note, the shopping center must have more than 1,500 m2 retail space. Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on data from the Council of Shopping Centers’ “SC White Book” 56 Retail Property Market

Declining tendency of shopping center’s sales is mitigating.

Yearly comparison of existing shopping centers’ sales (％) 1 0.3 0.3 0.5 0.0 0.1 0 -0.5 -1.3 -1 -1.6 -1.7 -1.5 -2.1 -2.0 -2 -2.2

-3 -3.4

-4

-5

-6

-7 -6.8 -8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: NRI based on the Japan Council of Shopping Centers’ “Overall Sales Statistics Report

Abenomics has not changed consumer outlook dramatically.

Consumer outlook index chart

60 ▼ Dec. 2012 Liberal Democratic Party 50 becomes the ruling party again

Jul Jul Jul Jul Jul Jul Jul Jul

Jan Jan Jan Jan Jan Jan Jan Jan

Sep Sep Sep Sep Sep Sep Sep Sep

Nov Nov Nov Nov Nov Nov Nov Nov

Mar Mar Mar Mar Mar Mar Mar Mar

May May May May May May May May 2007 2008 2009 2010 2011 2012 2013 2014

NB: Consumer outlook index calculation methodology: Consumers are asked to rate their outlook for the next 6 months for the following 4 categories: “Lifestyle”, “Income”, “Job environment” and “Determining when to purchase consumer durables” using a 5-scale index. Each of the 5 scales is assigned a value: +1 for “Will get better,” +0.75 for “Will get somewhat better,” +0.5 for “Won’t change,” +0.25 for “Will get somewhat worse,” and +0 for “Will get worse”. This numerical index is used to provide a component ratio for each of the answers, from which the results are calculated. To illustrate, a value of 50 will be produced if all participates answer “Won’t change” for all available items. Source: NRI based on from Cabinet Office “Consumer Trends Survey” Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 58 Retail Property Market

Compared to other areas, rent level of Ginza, Omotesando and Shinjuku are still high.

1st floor rent ranking in 13 principal business areas (yen/month/tsubo) （yen / month / tsubo） 60,000 Ginza Omotesando Ikebukuro 50,000 Ginza Tokyo NB2 Shinjuku Metropolitan Area 40,000 Omotesando Shibuya Shinjuku NB4 Shibuya Yokohama 30,000 Sakae Shinsaibashi NB1 Ikebukuro NB3 Oodori (Sapporo) 20,000 Sannomiya (Kobe) Provincial Sendai Areas 10,000 Tenjin (Fukuoka) Shijokawaramachi (Kyoto) 0 Sakae (Nagoya) Late 2011 Early 2012 Late 2012 Early 2013 Late 2013 Early 2014 NB1: Rent in Yokohama is shown to have spiked in the early half of 2012, but this can be attributed to the extremely small sample size NB2: Rent in Shinjuku is shown to have spiked in the late half of 2012, but this can be attributed to a sample bias toward small, high-rent properties NB3: Rent in Ikebukuro is shown to have dived in the early half of 2013, but this can be attributed to a sample bias toward low-rent properties in unfavorable locations NB4:Rent in Shibuya, Sakae and Ikebukuro are shown to have spiked in the early half of 2014, which can be attributed to a sample bias towards a small number of properties with high rent Source: NRI based on the Japan Real Estate Institute Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 59 Retail Property Market Cap rates have been falling since 2011. In the Tokyo Metropolitan Area, cap rates are approaching the all-time low.

Commercial establishment cap rates (expected yield)

8.0%

7.0% Suburban, Nagoya Suburban, Osaka 6.0% Suburnban, Tokyo Metropolitan , Metropolitan, Osaka 5.0% Metropolitan , Omotesando 4.0% Metropolitan , Ginza

3.0%

2.0% NB: 1.0% Metropolitan high-class specialty stores: Length of time after construction -or- large-scale repair/improvement: less than 5 years 0.0% Tenants: Mainly retailers of high-class brands. Rent system: Mainly fixed-term, variable rental schemes based on the revenue. Areas: Along Chuodoori in Ginza’s Chuo district. Along Omotesando in Omotesando’s Shibuya district. Suburban shopping centers: Sales floor area: around 20,000m2 Key tenants: Prominent general merchandise stores (GMS) Rent system: Mainly fixed-term, fixed-charge rental schemes Areas: 1-hour Shinkansen ride along key stations to Tokyo’s Metropolitan District Stores for areas outside Tokyo follow similar locational conditions as above.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on the Japan Real Estate Institute’s “Real Estate Investor’s Survey” 60 Retail Property Market Accessibility and density level of commercial facilities are the important factors in selecting locations.

 In evaluating a commercial district, the most heavily considered factor is its accessibility (i.e. inter-district factors), followed by quantitative aspects such as choice of items/services and number of shops/facilities within a district.  Intra-district factors are also regarded important (i.e. mobility between shops/facilities). On the other hand, exclusivity of a district is not heavily considered (i.e. presence of shops/facilities exclusive to the location, lack of similar shops/facilities around home/work). Important Factors in Selecting Commercial Districts by General Consumers (in Metropolitan Area)

The most heavily 0% 20% 40% 60% 80% 100% considered factor 交通アクセスがしやすいHigh accessibility 42% 41% 12% 5% Quantitative aspects of 商品やサービスなどの選択肢が豊富であるAbundant choice of items/services 22% 49% 21% 7% shops/facilities are 店舗や施設の数が多いAmple shops/facilities 20% 48% 24% 9% considered important 様々な用途の店舗や施設があるWide variety of shops/facilities 19% 48% 24% 9% High mobility店舗や施設間の回遊がしやすい between shops/facilities 18% 45% 25% 12% Exclusivity of a district is Shops/facilitiesその地域にしかない店舗や施設がある exclusive to the location 16% 42% 28% 14% not heavily considered 公園などの休憩エリアが十分にあるBountiful resting spaces 14% 36% 32% 18% 自宅や就業地に近接しているProximity from home/work 12% 33% 33% 23% Lack of similar自宅や就業地に同様の店舗や施設がない shops/facilities around home/work 11% 35% 32% 23% Presence of visitors from様々な年齢や職業の人が来訪している various occupations and age groups 8% 30% 31% 31% イベントなどが数多く開催されているHigh frequency of events 7% 26% 34% 33% High density企業が集積している of companies Questionnaire name： 6% 24% 33% 37% Investigation about integrated area ： High frequency of店舗や施設の入替や更新が多い realignment of shops/facilities 5% 20% 31% 44% Practitioner NRI Period of time：July 2014～ August2014 n=41,273 Veryとても重要である important Important重要である Slightlyやや重要である important Not重要でない important

Large scale development of commercial buildings will proceed mainly around Tokyo station.

Total store area of commercial buildings in metropolitanTokyo

(1,000m2） 350 100% 300 80% 250 200 60% Total area(Future plan) 36% 150 34% 40% Total area(Existing) 100 24% New store rate 15% 20% 50 6% 7% 8% 0%

0 0%

Yaesu

Ginza

Shibuya

・

Roppongi

Maruniouchi

Omotesando

Kyobashi

・

Shinjuku(West) Shinjuku(West)

・

Yurakucho

・

Nihonbashi

Aoyama Otemachi

NB) Total area(Existing) includes department stores and specialty stores. Data as of May 2014 Total area(Future plan) is calculated via following formula: Total area(Future plan) = Site area × Floor area rate ×Commercial building rate × Shop floor rate Note that the above-calculation is based on a presupposition that floor area rate, commercial building rate and shop floor rate to be 700%, 20% and 60%, respectively.

Source：NRI based on the Sangyo-Times ”Commercial Facilities Schedule Guide”, Toyo Keizai Shinposha “National Supermarket Guide 2015” Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 62 Table of contents

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 63 Logistics Property Market The truck-based transport volume (in tons), which forms the bedrock of Japan’s cargo industry, has continued to decline in recent years.

 Truck-based (automobile) transport is the primary transport method that constitutes a large share of Japan’s freight traffic.  In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for private use.

Cargo quantity by transport method (FY2012) Automobile cargo quantity movement

Unit: 1 million tons （1 million tons） Domestic aviation 7,000 Coastwise vessels Business Personal 366,8% 1,0% Railways 6,000 42,1% 5,000

4,000

3,000

Motor vehicles 4,366,91% 2,000

1,000

0 '60 '65 '70 '75 '80 '85 '90 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 NB: The chronological continuity of data from prior to 2009 could not be guaranteed due to the changes made to the in tallying methodology in the middle of 2010. Source: NRI based on the Ministry of Affairs’ “Transport quantity by transport method” and the Ministry of Land, Infrastructure, Transport and Tourism’s “Automobile Transport Statistics Survey” Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 64 Logistics Property Market As the movement to smaller logistics lots progresses, the quantity distributed in such lots appears to be in upward trend based on the number of instances.

 As the movement to smaller logistics lots progresses across the whole industry, the quantity distributed has increased to a yearly rate of 4.0% based on the number of reported instances.  The increased quantity of distribution in warehouses is remarkably high. This increase is propelled by the increase in distribution quantity using small lots that are less than 0.1 tons.

Industry-wide (except warehousing) distribution quantity by lot size Warehousing distribution quantity per lot size (unit: number of instances) (number of instances) Below 0.1t 0.1～0.5t 0.5～1t 1～5t Above 5t Below 0.1t 0.1～0.5t 0.5～1t 1～5t Above 5t 0 5,000 10,000 15,000 20,000 25,000 (thousand 0 500 1,000 1,500 2,000 (thousand instances) instances)

2000 64.4% 2000 46.4%

CAGR CAGR 4.5% 7.3%

2005 69.2% 2005 59.2%

CAGR CAGR 3.7% 12.6%

2010 75.3% 2010 72.4%

Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourism’s “Logistics Census” Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 65 Logistics Property Market Small-lot consignments increase, due partly to the expansion of e-commerce, which is expected to continue growing hereafter.

 Market size of Business-to-Consumer e-Commerce is expected to surpass 20 trillion yen in 2018.

Market Size of Business-to-Consumer e-Commerce （（兆円）trillion yen） 30

25.1 25 22.5 20.2 20 18.1 16.2 14.4 15 12.8 11.7 9.7 10

0 2012 2013 2014 2015 2016 2017 2018 2019 2020

NB: Business –to-consumer e-commerce: sale of products and services to consumers in general via the Internet Source: NRI

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 66 Logistics Property Market While new supply has stopped dwindling, facilities are growing larger due to businesses consolidating their logistics capabilities.

 The number of supplied warehouse buildings fell to roughly 23% of the peak level in 1991 (12,000 buildings/year) which has stabilized in recent years.  The number of supplied warehouse buildings for the transport industry is dwindling at a more relaxed pace compared to the rest of the industry (see figure below left), but the floor space per building is on an upward trend (below right).  This explains the increased need for SCM support for generic enterprises and new/large-scale logistics facilities for logistics consolidation. Nationwide number of supplied warehouses including warehouses for transport and transport industry share Floor space per warehouse building

Transport industry Other than transport Transport industry share Entire industry Other than transport Transport industry (Buildings) （㎡） 60,000 25% 2,000

50,000 20% 1,500 40,000 15% 30,000 1,000 10% 20,000 500 5% 10,000

0 0% 0

'89 '90 '92 '93 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '12 '13 '88 '91 '94 '11

'88 '89 '90 '91 '92 '93 '94 '95 '96 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '97 Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Construction Statistics” 67 Logistics Property Market Development of logistics real estate, which had been shrinking since the Lehman shock, is now back in full swing.

Order volume for construction of warehouses/logistics facilities by ordering industry (1 billion yen) Real estate industry Transport industry Others 600

500

400

300

200

100

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Note: Only contracts worth 5 billion yen above are included Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Construction Order Trends, Statistics and Survey”

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 68 Logistics Property Market Major foreign-based logistics property players and Japanese real estate developers are gearing up for roadside development ahead of new expressway construction.

Expressway New devts Prologis Park Kitamoto MFLP Kuki Moriya Logistics Center Expressway Developer：Prologis Newly Developer：Mitsui Fudosan Developer：Orix (Planned) operational Completion: Mar. 2014 Completion: Jul. 2014 Total floor area: 74,000 ㎡ Completion: Apr. 2016 Total floor area: 75,000 ㎡ Total floor area: 48,000㎡ Prologis Park Yoshimi Landport Kashiwa ShonanⅡ Developer：Prologis Completion: Dec. 2015 Developer: Nomura Real Estate Total floor area: 109,000 ㎡ Completion; Apr. 2016 Total Floor area: 56,000㎡ Joban GLP Sayama HidakaⅠ Landport Kashiwa ShonanⅠ Developer：GLP Expressway Developer: Nomura Real Estate Completion; Dec. 2015 Completion: Feb. 2016 Total floor area: 42,000 ㎡ Total floor area: 50,000㎡ Logi-Port Hashimoto Goodman Business Park Chiba East Developer：LaSalle, Mitsubishi Estate Developer: Goodman Japan Completion: Feb. 2015 Completion: Mar. 2016 Total floor area: 157,000 ㎡ Total floor area:133,000㎡ MFLP Hino Ken-O Narita GLP Yachiyo Developer: Mitsui Fudosan Gaikan Expressway Developer: Redwood Group Completion: Oct. 2015 Airport Expressway Completion: Oct. 2015 Total floor area: 213,000 ㎡ Total floor area: 72,000㎡ Chuo GLP Zama Redwood Sakura Expressway Developer：GLP Haneda Developer: Redwood Group Completion; Jun. 2015 Completion: Nov. 2015 Total floor area: 132,000㎡ Airport Total floor area: 85,000㎡ GLP Ayase Goodman Ichikawa Developer：GLP Developer: Goodman Japan Completion: Apr. 2015 Completion: Apr. 2015 Total floor area: 69,000㎡ Leasable floor area: 64,000㎡ Landport Atsugi Kaneda Prologis Park Ichikawa 3 Developer: Nomura Real Estate Tomei Developer：Prologis Completion: Mar. 2015 Completion: Oct. 2015 Total floor area: 39,000㎡ Expressway Total floor area: 60,000㎡ Honmoku Distribution Center Redwood Namamugi Shinkiba Distribution Center Developer: Mitsubishi Corp. Urban devt Distribution Center Goodman Mizue Developer: IK Investment Ⅲ Completion: Dec. 2015 Developer: Redwood Group Developer: Goodman Japan Completion: Aug. 2015 Total floor area: 71,000㎡ Completion: Oct. 2015 Dec. 2014 Leasable floor area: 46,000㎡ Leasable floor area: 62,000㎡ Leasable floor area: 58,000㎡ Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: companies’ respective websites 69 Logistics Property Market Sourcing turns increasingly competitive due to market entries by Mitsubishi Estate, Mitsui Fudosan and Sumitomo Corporation and to IPOs of J-REITs.

Actions of Major Logistics Property Developers Abbreviation Devt: Development ACQ: Acquisition GFA: Gross Floor Area 2013 2015 Compl: Completion GLA: Gross Leasable Area

ITOCHU Logistics property devt with Kenedix Corporation (GFA 44,000㎡) (Begin: Apr. 2013) Logistics property devt in The Industrial and Infrastructure Fund holds Devt of 3 logistics properties Mitsubishi Ichikawa, Chiba (GFA 57,000 23 logistics properties acquired (GFA:200,000㎡) in Kanagawa and Corporation ㎡) (Compl. Oct. 2013) at a price of 72 billion yen (as of Mar. 2014) Chiba after Oct.2014 “SHOSHA” MITSUI ACQ of Urayasu Logistics Center ACQ of Zama and Chiba Logistics Centers by private fund by private fund managed managed by Mitsui & Co Realty (Mar./Apr. 2014) & CO., LTD by Mitsui & Co Realty (Sep. 2013)  Cooperation agreement with Kokyo Tatemono on logistics Establishment of a private REIT Sumitomo properties devt and establishment & management of private (diversified REIT, which also invests in funds. Sumitomo aims to develop logistics properties logistics properties)(Start: Jan.2015) Corporation worth 20 billion yen’s per year (Mar. 2014)  Devt of 2 logistics properties in Hidaka, Logistics property devt in GLP Saitama & Yachiyo, Chiba (GFA 200,000㎡) Atsugi, Kanagawa (GFA 89,000㎡) (Compl. 2015/16) (Compl. Jun.2016) IPO of Nippon Prologis REIT, Inc Devt of 2 logistics properties in Devt of logistics properties in Foreign Prologis (Feb. 2013) Yoshimicho, Saitama (GFA 100,000㎡) Narashino & Inzai, Chiba capital (Compl. Dec.2015) (GFA 190,000㎡)(Compl. Spring 2016) Sale of 6 logistics properties Sale of Atsugi Distribution ACQ of 3 logistics properties in Kawasaki, company LaSalle by a LaSalle-managed fund Center to Nissay (Apr. 2014) Kanagawa for 55 billion yen (Jul. 2014) for 74 billion yen (Oct.2013) Logistics property devt in  Devt of several logistics properties in Chiba. Goodman Mizue,Kanagawa (GLA 59,000㎡) When completed, they are said to be worth (Compl.Dec. 2014) 100 billion yen. (Compl. March 2016) Kenedix ACQ of 51% ownership of SG Realty Yokohama (logistics property) for 6.3 billion yen through a fund established with institutional investors （Apr. 2013） Logistics property devt in Independent Sale of Saitama Logistics Property to Askul ORIX Real Estate Joso, Ibaraki(GLA 46,000㎡) company for 15 billion yen (Jan. 2013) (Compl. Jun. 2016) ACQ of a 36,000㎡ site for logistics property Cooperation agreement with ACQ of 7 logistics properties by Daiwa House in Ichikawa, Chiba for 6.6 billion yen (Dec. 2013) Fast Retailing on Daiwa House REIT logistics properties (Oct. 2014) for 48.4 billion yen (Mar. 2015) Nomura Real IPO of Nomura Real Estate Master Fund (REIT ACQ of land for logistics property devt Logistics property devt in Atsugi, Kanagawa Estate of logistics and retail property) (Jun. 2013) in Tokyo and Chiba (March 2014) (GFA 40,000㎡)(Compl. Mar.2015) General Logistics property devt with The first solo project in Fukuoka Logistics property devt with LaSalle in Mitsubishi Estate LaSalle in Sagamihara, (Start: Dec. 2013) Sagamihara, Kanagawa (Compl. Feb. 2015) developer Kanagawa (Compl. Aug. 2013) Announced a plan to develop Entry into the logistics property market in partnership Devt of logistics properties in Yashio & Kuki, three more logistics properties in the Tokyo Mitsui Fudosan with GLP （Start: Sep. 2012）㎡ Saitama (GFA 117,000 )(Compl. 2014) metropolitan area (March.2015) （） Copyright C Nomura Research Institute, Ltd. All rights reserved. Source: companies’ respective websites 70 Logistics Property Market

Vacancy rate in Tokyo area, which was on a rise, has diverted downwards.

Monthly rent offers and vacancy rates of logistics real estate

(yen / month / tsubo) Tokyo area Osaka area 5,000

Jul.2008 4,500

Rent offer Jan.2015 Jul.2010 4,000 Jul.2008 Oct.2012 Jan.2015 Jul.2010 3,500

Oct.2012

3,000 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

Vacancy rates NB: Logistics facilities which have a total lot area or total floor area of 10,000m2 Source: NRI based on data from Ichigo Real Estate Information Service’s “Survey on the Logistics Facilities Rental Market”

Cap rates have been falling since 2012, with Tokyo hitting all-time low.

Logistics real estate cap rate (expected yield)

Single tenant Multi-tenant

7.5% 7.5%

7.0% 7.0%

6.5% 6.5%

Chiba(inland) 6.0% Chiba(inland) 6.0%

5.5% Tokyo(inland) 5.5% Tokyo(inland) Tokyo(bay) Tokyo(bay)

5.0% 5.0%

06 07 08 09 10 11 12 13 14

06 07 09 10 11 12 13 14 08

05 06 07 08 10 11 12 13 14 09

05 06 07 08 09 10 11 12 13 14

------

Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct

Apr Apr Apr Apr Apr Apr Apr Apr Apr

Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct

Apr Apr Apr Apr Apr Apr Apr Apr Apr NB: Single tenant: 2-3 floors; total floor area of around 10,000m2 NB: Multi-tenant: 3-4 floors; total floor area of around 50,000m2 Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey” Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 72 Table of contents

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

 Unlisted open-ended private REITs was offered in November 2010, and the size of private REITs market is growing rapidly.

Overview of the Real Estate Investment Instruments in Japan

(¥tn) 20

15.1 16 14.4 12.7 12

0.9 0.4 0 Listed REIT Private Fund Private REIT RMBS CMBS

Equity Type Debt Type

Listed Unlisted Residential Commercial Mortgage Mortgage Close-Ended Open-ended

NB: Listed REIT figure is updated as of end of Jan 2015, private fund figure is updated as of end of Dec 2014, unlisted REIT is an estimated figure as of end of Oct 2014, RMBS/CMBS figure is updated as of end of Sept 2014. Source: NRI based on the Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 74 Real Estate Investment Instruments The J-REIT market capitalization has reached approximately 10 trillion yen.

 The J-REIT market began trading on the stock market in Sept 2001 with 2 companies traded and a market capitalization of 2.5 trillion yen.  As of the end of January 2015, there are 49 companies traded worth approximately 10 trillion yen.

J-REIT Market Capitalization and Number of J-REITs

(¥bn) (No. of J-REITs) 12,000 50

10,000 40

8,000 30

6,000

20 4,000

10 2,000

0 0 2001/9 2002/8 2003/7 2004/6 2005/5 2006/4 2007/3 2008/2 2009/1 2009/12 2010/11 2011/10 2012/9 2013/8 2014/7

Market Capitalization No. of J-REITs Source: Bloomberg Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 75 Real Estate Investment Instruments Approximately 75% of J-REITs assets are located in the Tokyo Metropolitan Area, and approximately 50% of J-REITs assets are office properties.

 Approximately 75% of real estate owned by J-REITs is in the Tokyo Metropolitan Area.  In recent years, J-REITs have become more diversified in type of property, and Healthcare REIT has started in November 2014.

Asset Mix of J-REITs by Area and Asset Class

Other Areas Others 7.9% Logistics 3.8% 10.2% Kinki Area Hotel 13.1% 5 Central 3.3% Wards of Tokyo Chubu Area Approx. 37.8% Approx. Office 4.2% 12.7 Retail 12.7 47.4% trillion yen 18.2% trillion yen

Kanto Area 18.9%

23 Wards of Residential Tokyo 17.0% 18.2% Greater Tokyo Area 74.9% * As of the end of January 2015 Source: NRI based on ARES Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 76 Real Estate Investment Instruments The Tokyo Stock Exchange (TSE) REIT Indices have recovered from 2013.

 The TSE REIT Indices has dropped sharply from its peak in May 2007, and has recovered rapidly from 2013.

TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index

3,000

2,500

2,000

1,500

1,000

500

0 2003/3 2004/1 2004/11 2005/9 2006/7 2007/5 2008/3 2009/1 2009/11 2010/9 2011/7 2012/5 2013/3 2014/1 2014/11

TSE REIT Index TOPIX TOPIX Real Estate Sector Index Source: NRI based on Bloomberg Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 77 Real Estate Investment Instruments J-REIT dividend yields are currently down to around 3%.

 J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 3%.

J-REIT dividend yield and Japanese Government Bond 10-year yield

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0% 2002/1 2002/11 2003/9 2004/7 2005/5 2006/3 2007/1 2007/11 2008/9 2009/7 2010/5 2011/3 2012/1 2012/11 2013/9

Spread J-REITs Dividend Yield JGB 10-Year-Yield Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI based on Bloomberg, TSE. 78 Real Estate Investment Instruments The performance recovered to positive in the capital return.

 According to the index based on actual performance of core funds invested in domestic real estate, the performance of real estate investments in Japan recovered to positive in the capital return.

ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI)

25% 25% AJPI: Income Return AJPI: Total Return 20% 20% AJFI: Income Return AJFI: Total Return 15% AJPI: Capital Return 15% AJFI: Capital Return 10% 10%

5% 5%

0% 0%

-5% -5%

-10% -10%

-15% -15%

-20% -20%

-25% -25% 2002/12 2004/8 2006/4 2007/12 2009/8 2011/4 2012/12 2002/12 2004/8 2006/4 2007/12 2009/8 2011/4 2012/12

Source: NRI based on The Association for Real Estate Securitization (ARES) “ARES Japan Property Index” and “ARES Japan Fund Index”

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 79 Real Estate Investment Instruments CMBS issuance has decreased drastically since 2008, and at present only RMBS is issued at a constant pace.

 Most recently, about 80% of residential mortgage-backed securities were originated by the Japan Housing Finance Agency.

Asset Backed Securities Breakdown by Type of Backing and RMBS Breakdown by Originator (¥100m) 60,000

0% 20% 40% 60% 80% 100% 2004FY 1H 2004FY 2H 2005FY 1H 50,000 2005FY 2H 2006FY 1H 2006FY 2H 2007FY 1H 2007FY 2H 2008FY 1H 40,000 2008FY 2H 2009FY 1H 2009FY 2H 2010FY 1H 4,370 2010FY 2H 7,418 2011FY 1H 2011FY 2H 30,000 2012FY 1H 2012FY 2H 2013FY 1H 2013FY 2H 7,679 2014FY 1H 10,338 Housing Finance Agency Banks/Trust Banks Regional Banks Non-bank Others 20,000 6,937 8,755

32,311 1,994 30,260 563 2,038 3,511 980 413 1,288 140 5 10,000 20,955 153 16,935 16,276 16,352 1,701 341 138 14,815 15,064 12,143 11,113 11,132 11,148 9,702 10,742 9,741 10,760 7,537 8,491 8,341

0 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/Commercial Bills Others Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 80 Authors

SungYun KIM Tomohiko TANIYAMA Akira DAIDO Lead author of Japan Author of Real Estate Investment Products Author of Population Movements in Japan and Residential Property Market Kim has been engaged in real estate related Taniyama is engaged in consulting and research consulting projects and research for years. His projects. His resent research theme is the Daido is engaged in consulting and research current interest in real estate investment market analysis of alternative investment market projects such as real estate and housing, electric includes behavioral investment, market cycle including real estates and infrastructures, and industry, and planning of business strategies. theory, demographic impact on real estate the development of new financial instruments market, real estate securitization, global real and new real estate economic models. estate investment, and financial crisis.

Hirokazu SAO Keita KAMEI Seiya HARIMA Author of Retail Property Market Author of Logistics Property Market Author of Macro Fundamentals of Japan

Sao is engaged in consulting and research Kamei is engaged in consulting and research Harima is engaged in consulting and research projects, mainly on real estate, housing and projects, undertaking real estate, housing , projects such as real estate/infrastructure- infrastructure-related cases. Sao undertakes housing loan, and infrastructure-related related survey/research, and planning of survey/research as well as business strategy survey/research, as well as business strategy business strategies. planning. planning.

Aya IMAI Editorial Assistant Contact: Nomura Research Institute, Ltd.

Imai is engaged in research and consulting with Consulting Division specific focus on real estate and housing industries, primarily undertaking entry strategy planning into foreign markets.