Foreign investors are increasingly willing to explore the relatively untapped regions of Japan as yields compress and supply dwindles in Tokyo, it was discussed at PERE’s Tokyo Forum last week.
Nick Okumura, regional director, acquisitions at LaSalle Investment Management, said on the sidelines of the one-day event that many foreign players are buying prime quality office buildings outside Tokyo, which are not as attractive to domestic core investors yet. LaSalle, for instance, is also looking at opportunistic deals in cities such as Nagoya and Fukuoka as well as in Osaka.
“The rental level for an office building in central Osaka is extremely low; in some places the rent is even lower than residential rent,” he remarked. “There is potential for a slight rental growth on the regional office market, with which we should be able to have a good opportunistic play.”
Christian Mancini, chief executive officer, Northeast Asia, Savills, said that Osaka, with better demographics than Tokyo, currently is a better investment option when it comes to retail real estate, for example.
However, moving out of Japan’s biggest property market also has its share of risks, warned panellists. And Mancini admitted that the high risk of investing in these regional cities has led to some yields softening there too.
Further, according to Benjamin Lee, managing partner of Hong Kong-based Phoenix Property Investors, these markets may face a liquidity constraint. “Most of the urbanization is focused on Tokyo,” he said. “When the market doesn’t perform well, liquidity will be difficult to come by in some of these large cities.”