Japan: an attractive market prospect for 2013

PUBLISHED : Wednesday, 06 February, 2013, 8:09pm
UPDATED : Wednesday, 06 February, 2013, 8:15pm

Due to the ongoing economic recession and impact of natural disasters, Japan’s real estate market has experienced prolonged sluggishness. However, the domestic economy exhibited signs of bottoming out in 2012, and Tokyo prime office rents increased for the first time in four years during 2Q12.

Japan’s commercial real estate transaction volumes also recovered in 2012 from its decline in 2011 (though full-year transaction volumes only amounted to about 20 percent of the peak recorded in 2007).

One notable transaction in 2012 was the sale of 15 logistics facilities located across Japan. Purchased by a joint venture between Global Logistic Properties (GLP) and China Investment Corporation (CIC), the portfolio had a sales price of JPY 123 billion (equivalent to USD 1.6 billion at the time).

This transaction supported the recognition that modern logistic facilities, which have become increasingly rare, represents confidence in Japan’s huge distribution field, which is ranked highly among the economic powers of the world.

In addition, the growing amount of online commerce in Japan is expected to boost the country’s existing distribution volumes.

Following this transaction, a number of investment funds targeting Japanese real estate were formed by domestic capital and overseas investments from Asia, the United States and Europe. I

Investors have been particularly interested in the Japanese real estate market, which is considered to be at the bottom of its cycle.

While a large amount of money has been put into large IPOs, including Activia Properties REIT (170 billion yen), Daiwa House REIT (115 billion yen) and GLP REIT (209 billion yen), J-REITs have started to purchase commercial real estate.

This has led to an increase in transaction volumes for Japanese commercial real estate. Going forward, private funds and overseas investors are expected to more actively purchase properties.

It is assumed that the new government will implement a bold economic stimulus package, anti-deflationary policies and measures to counter the strong Japanese yen. These should have a positive impact on the real estate market.

As we see the highest yield gap among Asian economies and abundant debt financing in Japan, a solid increase in the country’s sales volume is anticipated.

As prime office rents in Tokyo are set to improve further, the Japanese real estate market is ready to receive an increasing amount of global capital.