Outbound real estate investments from Japan totaled $1.8 billion in 2014, a figure expected to increase further as the Japanese investors seek higher yields and diversify their investments globally and across Asia-Pacific, according to a report published by CBRE.
“The weaker yen and persistent low interest rates have steadily improved activity in the domestic real estate market, resulting in increased competition and significant cap rate compression for core assets,” said Hiroshi Okubo, head of research, CBRE Japan. “Concurrently, the expected economic growth in many Asian countries due to the rising middle class and rapid urbanization, juxtaposed with Japan’s ageing population and anticipated decline in domestic demand, has pushed numerous Japanese investors to deploy capital into overseas Asian real estate investments.”
The property consultancy has estimated that Japanese investors, mainly real estate companies and general trading companies, would start investing more in the coming years via funds as opposed to direct investments.
A major driver of this demand would be the impending real estate investments by the Government Pension Investment Fund (GPIF). The world’s largest pension fund has allocated 5 percent of its portfolio to alternative investments following the policy overhaul last year. Based on the assumption that the fund would allocate investments in foreign assets in similar levels as the major US pension funds, CBRE has estimated that GPIF’s total investments in overseas real estate alone could reach $1.8 billion in the coming years.
At present, North America is the top destination for Japanese capital, receiving $1.3 billion in outbound investments in 2014, mostly in the office sector. Close to $211 million in outbound investments went to Europe while $165 million was invested by the Japanese within Asia’s property markets. However, CBRE has suggested that Asia is set to attract more investments.
According to a survey carried out by CBRE in January this year, Japanese investor interest in developed countries and emerging countries in Asia was 39 percent and 24 percent respectively, accounting for 63 percent of the total responses.
“A number of groups looking for a more diversified path to growth have found significant opportunities in Southeast Asia’s favorable demographic segments. Furthermore, many of the preferred locations have long been part of Japan’s offshore manufacturing network; investors are hence able to leverage their long-standing market knowledge to identify unique opportunities and potential demand for new development projects,” said Marc Giuffrida, executive director, global capital markets, CBRE.
China has previously attracted high levels of demand for industrial and mixed-use developments – 60 percent of total Japanese investments in 2012 were estimated to have been in China – but since then the shares of other Asian countries have also been rising. Industrial developments in Indonesia and retail developments in Malaysia are some of the popular destinations in the region.