Tokyo Stock Exchange REIT Index, which shows the overall price movement of real estate investment trusts (REITs), rebounded sharply on the Tokyo market on the 24th. It closed at 1660.93, up 24.04 points (1.5%) from the previous day, and the rate of increase was the highest in 5 months since mid-August 2024. In light of the fact that the Bank of Japan raised the policy interest rate at the monetary policy meeting held on January 23rd to 24th, overseas investors started to buy again, as they thought that all concerns in the near future were went out.

More than 90% of REITs listed on the Tokyo Stock Exchange rose. In the stock market, the Nikkei 225 fell 0.1% from the previous day, but the REIT index rose against the trend. By property sector, the office REIT index stood out as being in good shape, rising 2% from the previous day, surpassing the residential REIT index (up 1%) and the retail & logistics REIT index (up 1%). Among individual REITs, Japan Excellent, Inc. temporarily rose 4%, its highest price in three and a half months, while Nippon Building Fund Inc. also rose 3%.

At the monetary policy meeting held on the 24th, the Bank of Japan decided to raise the policy interest rate to 0.5%, 0.25% higher than before. For REITs, rising interest rate is a factor that puts downward pressure on earnings through increased interest payments. While rising interest rates can be expected to lead to an increase in real estate rents, this is because rising borrowing costs usually precede increases in rents.

The REITs market has been on a downward trend since 2024, against the backdrop of growing expectations of additional interest rate hikes by the Bank of Japan. Takashi Nakamura, senior REITs analyst at Tokai Tokyo Intelligence Laboratory, pointed out that “excessive caution about rising interest rates was taken into account,” and that “overseas investors, who see the REITs as undervalued at the moment, moved to buy back as they felt that all the information had been released.”

The NAV multiple (the ratio of the appraisal value of the properties held to the market capitalization) is the general valuation scale of REITs, which is equivalent to the PBR (price-to-book ratio) of stocks, was 0.8 as of the 24th, significantly lower than the average of the past 10 years (1.1). The expected dividend yield (weighted average) of REITs listed on the Tokyo Stock Exchange is also 5.2%, which is more attractive than the average dividend yield (4.5%) of the “Nikkei 225 High Dividend Yield Stock 50 Index.”

Fujiwara Naoki, senior fund manager at Shinkin Asset Management Investment Trust, points out that “the favorable conditions of the office market are also attracting overseas money to buy.” According to Mr. Fujiwara of Miki Shoji (Chuo, Tokyo), a major office brokerage, the average office vacancy rate in central Tokyo’s five wards (Chiyoda, Chuo, Minato, Shinjuku, Shibuya) in December 2024 was 4%, a decline of seven consecutive months. “It is below 5%, which is considered the level that lenders have an advantage”.

There were voices around the market, “The market conditions that are favorable for bargain hunting will likely continue” (Takashi Nakamura of Tokai Tokyo Intelligence Laboratory).