APAC guide: Japan real estate transactions show resilience amid APAC downturn

Japanese real estate yields are higher than borrowing costs and banks are still keen to lend.

While Japan’s transaction volumes fell in the first half of this year, down 25 percent year-on-year to $16.3 billion, this was better than Asia-Pacific overall, where volumes dropped 42 percent over the same period. However, overseas investors remained active, particularly in logistics and multifamily.

Louise Kavanagh, chief investment officer and head of Asia-Pacific real estate at Nuveen, says: “Logistics and multifamily fundamentals remain strong, bolstered by secular tailwinds. The former is supported by flight-to-quality occupier demand for higher efficiency and modern stock while the latter is aided by the return of young professionals to city centers post-pandemic.”

However, foreign investment managers are slowing deployment of funds, says Kunihiko Okumura, chief executive of LaSalle Investment Management Japan. “The large gap between buyer and seller expectations on price has also contributed to lower market volume.”

While Japan has not raised interest rates, it has seen inflation rise sharply, and government bond spreads have increased 20-25 basis points, causing a hike in borrowing costs. Some investors are concerned that new Bank of Japan governor Kazuo Ueda might take the nation’s base rate into positive territory.


Year-on-year fall in deal volumes in H1


Total amount targeted by funds in market

The opening up of Japan saw a flurry of investment into the hospitality sector: MSCI Real Assets data shows $1.7 billion invested in the sector in the 12 months to March. However, the numbers were skewed by big deals such as BentallGreenOak’s $385 million purchase of the Rihga Royal Hotel Osaka.

Both Okumura and Kavanagh agree there is still an opportunity in the recovering hospitality sector, not just in major cities, but also in smaller cities that are emerging tourist hotspots. A growing availability of financing has been encouraging investors to return to the sector.

Meanwhile, larger Japanese investors continue to allocate capital to overseas real estate funds. Speakers at the 2022 PERE Japan conference said investors were looking for income but also hoped for less competition to enter overseas funds.

October 2022

Japan’s Government Pension Investment Fund appointed LaSalle Investment Management to manage its third global real estate mandate, structured as a fund of funds targeting core co-investments and joint ventures

December 2022

Hong Kong-based Gaw Capital Partners revealed plans to more than double its assets under management in Japan to $8 billion, from $3.7 billon

June 2023

Singaporean manager GLP Capital Partners secured $106 million of new commitments for its flagship open-end logistics core fund, GLP Japan Income Fund. The vehicle had raised ¥453 billion ($3.2 billion; €2.9 billion) from more than 60 investors