Capitalisation rates at a cyclical high and rental and interest rates at a cyclical low are combining to make Japan an attractive investment destination at a time of significant political and economic uncertainty around the global, delegates at PERE’s inaugural Japan conference argued. “Now is a good time to invest,” said Scott Kelley, founder and chief executive of Aetos Capital Asia. “Not because of a great growth story, but because of stability.”
Accordingly, foreign funds increasingly are turning to Japan, while a surge in J-REIT listings this year has underscored a strong appetite for property acquisitions. Indeed, despite a property glut and several years of decline, speakers at the PERE Forum: Japan agreed that the market for the office and retail sectors showed signs of bottoming out.
It wasn’t all good news, however. Fundraisings backed by Japanese investors remain low, and that is further reflected in a shortage of long-term core investments by such buyers. Domestic investors have allocated just 0.4 percent of their capital to private real estate, the audience heard, versus a global pension system that allocates between 10 percent and 15 percent to the asset class. Nonetheless, Japanese investors at the event acknowledged the need to seek growth and diversity offshore.
In an effort to entice such investors, GPs identified several offshore opportunities, including opportunistic returns in Europe and India and core investments in Australia. “We believe there’s a case for diversification,” Jeremy Plummer, chief executive of the multi-management platform of CBRE Global Investors, told the audience. “We see that our portfolios are more stable if they are global – in other words, well diversified across countries and property types.”
Domestically, Tokyo remains the primary investment focus. “The two crucial issues regarding real estate investment in the regional areas outside of Tokyo are timing and exiting,” said Fred Schmidt, managing partner at GreenOak Real Estate. “You need the right platform to make your money on the buy but, if you don’t exit at the right time, you’re going to end up holding the asset for a very long time.” The window of opportunity to invest in regional markets in Japan is therefore very limited, he added.