U.K.-based asset manager Aberdeen Standard Investments has become the latest institutional money mover to set its sights on the Japanese real estate market. Last week, the company announced the hiring of a new head of direct real estate investment for the Japan market, and the securing of regulatory approval to sell offshore investment funds to Japanese institutional investors.
Earlier this year, Aberdeen acquired the Hong Kong-based institutional real assets investment firm Orion Partners, a move intended to extend its institutional reach into property markets across the Far East. In June, Aberdeen and Sumitomo Mitsui Trust Bank announced a joint venture to invest in residential housing in mature Asian markets, principally in Japan.
Meanwhile, U.S.-based private equity giant KKR announced in March that it was committing $250 million in capital, and seeking to raise a total $1.5 billion for a dedicated Asian real estate fund. By late July, DealStreet Asia reported that KKR had already hit its target for the initial fund and was looking to roll out a second, private equity-focused Asian fund within the next 6-18 months.
Figures from financial data firm Preqin, cited by Reuters, showed that global investment firms raised $18.6 billion in Asian real estate funds in 2018, $7.1 billion of which was concentrated in a single opportunistic fund run by Blackstone Group.
A recent report from real estate investment firm JLL Japan has found that foreign investors currently own just over one-third of the total real estate market in Tokyo, a figure that some market observers would like to see much higher, given Japan’s tepid economic growth outlook and declining population. According to JLL, commercial real estate transactions since 2013 have totaled JPY 4 trillion (about $38 billion), far less than markets of comparable size, and a disparity that JLL’s market analyst attributed to a relative lack of transparency in real estate data and price information (the country ranked 36th out of 100 countries assessed in the most recent Global Real Estate Transparency Index).
Japanese real estate has nonetheless retained, and appears to be expanding, its appeal with institutional investors in the current, prolonged ultra-low interest rate environment. Figures obtained and reported this weekend by Nikkei Asian Review show that prime located office buildings in Tokyo currently offer a yield spread of 2.9% compared with a mid-2% range in London and sub-2% in New York City. Nikkei also cited figures from Daiwa Real Estate Appraisal placing the price per tsubo (3.3 square meters) at just over JPY 10 million in the second quarter of 2019, the highest level since just before the Great Financial Crisis.