CPPIB’s Phua: we ‘missed the cycle for Japan office investment’

The Canadian pension fund is doubling down on the logistics sector in Japan instead, as indicated by its recent commitment to GLP’s $2.2bn Japan industrial fund.


Canada Pension Plan Investment Board is focusing its investment efforts in Japan on logistics for now with the office sector not likely to form part of its strategy.

Jimmy Phua, head of Asia real estate at the Canadian pension fund, speaking at the HKVCA Asia Private Equity Forum 2019 held in Hong Kong, said he thinks it is a “bit too late” for CPPIB to enter the office space in the country today.

“We kind of feel we missed the cycle for office in Japan,” he said.

CPPIB made its first foray into Tokyo office market back in 2013 with a joint venture programme with GE Capital Real Estate. The 40 billion yen ($367 million; €322 million) in equity jointly committed by the two firms was invested in core-plus and value-add deals, as PERE previously reported. These assets were eventually divested as part of General Electric’s global sell-off of its reported $30 billion real estate portfolio starting late 2014.

As a December 2018 report by property services firm Savills noted, the office market across Japan has remained in the “upswing phase” since 2014. “Supported by strong demand, majority of office supply that will enter the market by 2020 has already been pre-leased and there is little sign of loosening in the near term,” the report added.

Cap rates for office assets in Tokyo, for instance, have been as low as 2.9 percent from the end of 2017 until Q3 2018. The resultant high valuations and limited investment opportunities has moderated some of the demand for Tokyo office. Total investment in Japan office market totalled 1.3 trillion yen as of the third quarter of 2018, down 23 percent from the same period last year, according to Savills’ estimates.

CPPIB is betting on logistics instead. In late December, the investor made one of its largest capital commitments in Japanese real estate when it committed around $696 million to GLP Japan Development Partners III. The logistics specialist GLP’s Japan-focused industrial fund, with $2.2 billion in total equity, is estimated to be the largest industrial fund raised for investments in the country, as PERE has reported.

In fact, logistics is one of CPPIB’s key investment sector across Asia with notable commitments to strategies in China, South Korea and India, with the Southeast Asian markets next on its radar.

“In the last 2-3 years, we have been spending more time in Southeast Asian countries like Malaysia and Indonesia. These are countries in need of modern logistics, but the big logistics players are not there. We are cultivating local partnerships and hoping to be there before all the other institutional investors come in,” said Phua.

CPPIB currently has between $14.5 billion to $15 billion invested across sectors and markets in Asia-Pacific.