Institutional funds shift their gaze and chequebooks to Japan’s real estate as value outweigh ageing demographics and empty cities

Savills Investment Management acquired a 24 billion yen portfolio of 10 residential assets in Tokyo, central Osaka and central Nagoya

AXA IM Alts paid 4.2 billion yen in May for two residential towers in the Miyagi prefectural capital of Sendai

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A view of Tokyo’s skyline from an escalator at the Shibuya Sky observation deck at the Shibuya Scramble Square building in Japan’s capital city on Tuesday, September 29, 2020. Photo: Bloomberg

Published: 8:30am, 13 Jul 2021Updated: 5:37pm, 13 Jul 2021

Institutional investors are flocking into Japan’s residential property market, as value assets in one of Asia’s most prosperous nations outweigh concerns of a resurgence in Covid-19 infections, ageing demographics and the trend of remote work that has emptied major urban centres.

Savills Investment Management, under its Japan Residential Fund II recently acquired a 24 billion yen (US$218 million) portfolio of 10 assets in residential markets in central and outer Tokyo, central Osaka and central Nagoya. The fund also acquired four assets between April and May in the Yoyogi-Uehara, Ikebukuro and Ikejiri-ohashi wards in the Japanese capital.

Joining the action was AXA IM Alts, an alternative investment manager under the French insurer AXA, which paid 4.2 billion yen in May for two residential towers in the Miyagi prefectural capital of Sendai, the site of the 2011 Tohoku earthquake and its ensuing tsunami. The purchase marked AXA’s 15th investment into Japan’s residential market with a total portfolio of 71.4 billion yen so far.

“The residential market in greater Tokyo has shown strong stability and liquidity of transactions in the past,” said Kohei Kawai, director of research for Colliers in Japan. “In contrast to certain Asian markets such as Singapore and China, where around 90 per cent of households own their homes, the proportion of home ownership in Japan is only about 60 to 65 per cent, [so] a substantial proportion of the population relies on rented accommodation, especially in the big cities.”

Street scene of Tokyo’s Ikebukuro area on December 30, 2020. Photo: Kyodo

Foreign investment in Japan’s apartments more than doubled to US$5.9 billion in 2020 during the Covid-19 pandemic, from US$2.7 billion a year earlier, according to Real Capital Analytics, which tracks deals worth at least US$10 million. So far this year, the segment has attracted US$704 million in foreign capital with another US$161 million still pending.

“Japan has the largest institutional residential market in the Asia-Pacific, and Greater Tokyo is the largest urban agglomeration globally, with close to 37 million residents, so that gives rise to a huge amount of investment opportunities and liquidity,” said Alex Jeffrey, global CEO of Savills IM. “Japanese multifamily assets provide a highly defensive income profile through achieving consistently high occupancy rates.”