PODCAST: Global investors eye Japan in hunt for safe havens

Global real estate investors are looking for deals in Japan’s major cities, part of a worldwide hunt for safe-havens amid ongoing economic uncertainty and the COVID-19 pandemic.

Japan’s commercial real estate market has traditionally been dominated by domestic investors with international capital accounting for around 20 percent over the past decade, declining from a high of 35 percent in 2007, according to JLL.

“Japan will probably emerge as one of the more attractive investment destinations for cross-border capital in the second half of 2020,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL. “Global investors have long-desired greater exposure to Japan, and with a slight price correction, there will be greater opportunities.”

Cross-border capital flowing into Japan has typically entered via the country’s mature office market in the Greater Tokyo area. However, strong domestic competition has seen international investors playing a less prominent role in Japan’s commercial real estate market than other similar global markets.

“Pricing has usually been the main challenge faced by investors, as well as tight supply in Tokyo,” says Kenichi Negishi, Head of Capital Markets, Japan, JLL. “When international investors look at Japan, they see a safe haven and the opportunity to access a core investment market within global and regional strategies. They are also looking for stable income, and typically office is one of the sectors that provide a very stable cash flow, which becomes more attractive if there is a price adjustment.”

“We are anticipating global investors to increase allocations to Japan and accelerate plans to look beyond Tokyo into markets like Osaka and Fukuoka,” says Negishi. “Investors view Japan through a more diverse lens when looking into increased exposure, which can also be seen through the growing attraction to emerging asset classes like data centres, logistics, and multifamily.”

Allianz Real Estate announced in May its purchase of a portfolio of multifamily properties in Tokyo for €110 million (US$122 million), spread across 23 wards in the city. The acquisition comes seven months after Allianz closed its first direct transaction in Japan, a portfolio of multifamily assets from Blackstone for US$1.1 billion.

“We do think multifamily and logistics will emerge as larger asset classes in terms of trading volumes than some of the traditional asset classes over the next 12-to-18 months,” says Crow. “Momentum is already building, deals are getting done, and signs are there that Japan will be one of the least impacted markets in Asia Pacific and probably will emerge as one of the more attractive investment destinations, particularly for cross border capital in the second half of 2020.”