Swisslake: Japan tops shopping list for investors in 2011

According to the latest research by the Switzerland and Singapore-based investment advisory group, Japanese private equity real estate funds attracted the most investment in Asia during the first nine months of 2011.

Japanese private equity real estate funds attracted more capital than similar funds across Asia in the first three quarters of 2011 according to Switzerland and Singapore-based investment advisory group, Swisslake.

In a market analysis document published yesterday, the firm said $7.4 billion was captured by Japanese private equity real estate vehicles in that period, accounting for a market share of 37 percent. This compares to just $2.7 billion raised by Japanese funds during the same period last year.

“Compared to 2010, the target equity for Japan has almost tripled with its market share increasing by 13 percent year on year,” Swisslake said. The firm attributed this increase to the size of the Japanese market, which is second only to the US, coupled with it being the most liquid in Asia and, particular to 2011, a sizeable market correction compounded by the events surrounding the Fukushima earthquake in March.

“Following the events at Fukushima, the already significant price correction continued but has bottomed out in the meantime,” Swisslake said echoing similar sentiments shared by Japanese fund managers with PERE over recent months.

Swisslake said initial yields are a way off peak levels recorded in 2007 and 2008 and that rental levels, which also heavily corrected, are now affordable for certain occupiers wishing to enter or re-enter Tokyo’s central business district, to do so. This, in turn, has benefited Tokyo’s vacancy rate which now stands at around 7 percent, an improvement on the about 10 percent level recorded in the immediate years following the start of the global financial crisis.

“It is therefore not surprising that 28 percent of the equity, targeted by private equity real estate funds in 2011, are earmarked for office investments,” Swisslake said adding there was a lack of competition for such funds as Japanese REITs, traditional buyers of Japan’s offices, had until recently been net sellers.  “They had to struggle with financing issues and the equity market due to high discounts of their shares.”

Swisslake also said 37 percent of equity was raised for debt-related investment vehicles and that provided a “vivid example” of how private equity real estate immediately picked up on certain market inefficiencies and provide funds to take advantage, “a model for anti-cyclical investment” it said.