Australia has become a key market in Asia-Pacific for a growing pool of Japanese developers, multi-asset managers and institutional investors making a push into outbound real estate investing.
Japanese investors, including listed and private groups, invested more than A$1.6 billion ($1.1 billion; €980 million) in Australian real estate in 2016 and 2017, more than triple the amount invested across the previous eight years, according to property services firm JLL’s latest research report accessed exclusively by PERE.
The number of deals has also surged, with 11 transactions recorded in 2016 and 2017 versus four in 2014 and 2015. Among the new entrants include the listed Japanese real estate firm Daibiru Corporation that acquired 275 George Street in Sydney for around A$240 million last month. The group has mandated TH Real Estate to provide investment management and development oversight for the asset.
Stuart McCann, JLL’s head of international capital for Australia, told PERE that he has been seeing interest from Japanese pension funds and other investors for indirectly investing in the open-end wholesale real estate funds in Australia, with reasonably modest check sizes. At the same time, he is also observing an increase in direct investing appetite for core office assets, hotels as well as residential development projects (see charts).
On a comparative basis, cap rates and capital values are more favourable in Sydney than Tokyo, according to the report that analyses Japanese investment in Australian real estate. Cap rates in Sydney show a premium of 200 basis points for instance, relative to Tokyo. Meanwhile, given comparably higher rents in Tokyo and sub 3 percent cap rates, capital values in the city are double than those in Sydney.
There are also increasing examples of Japanese investors investing into operating platforms of construction companies in Australia. Late last year for instance, Japanese developer Daiwa House acquired Rawson Homes, a large home builder in New South Wales.
“It is a means of creating pipeline of opportunities, and also helps in generating revenues offshore,” McCann said, on the reasons behind such entity-level investments.
Another emerging trend, revealed in the report, is the increased activity by Japanese lenders financing Australian direct real estate deals, especially in deals that involve a Japanese equity partner.
McCann says this has been a general trend across Asia that international capital is leveraging relationships in their domicile country to finance their acquisitions in Australia.
Comparatively favourable lending terms is one reason. According to the report, Japanese debt is more flexible than the debt provided by Australian banks. For example, it is common for Japanese lenders to provide terms of up to 10 years, with leverage of up to 65 percent.