Investment by foreign-based funds and corporations in Japanese real estate has reached the highest level since 1996. Between January and September 2015, foreign funds acquired 706.5 billion Yen (5.91 billion USD) of property, an increase of 41% from the same period in 2014.
Meanwhile, some last minute transactions at the end of 2014 put the annual acquisition volume for 2014 at 981.8 billion Yen.
Some of the funds have been seeking capital gains, while others, including government-related funds, have been seeking high yields with a long-term view for holding their assets. In September, average office rents in central Tokyo increased for the 21st month in a row. The average spread between the office yield in central Tokyo and the long-term interest rate is around 3%, versus 1% in Singapore and Hong Kong.
In early October, the Norway Government Pension Fund Global opened an office in Tokyo as it seeks to expand its international real estate portfolio. The fund plans to acquire between 600 ~ 960 billion Yen of real estate over the long term. It is targeting office buildings in central Tokyo, such as Marunouchi, Otemachi and Akasaka.
In February, China Investment Corporation (CIC) and LaSalle Investment Management jointly acquired the Meguro Gajoen complex for approximately 140 billion Yen (approx. 1.17 billion USD at the time). CIC is a sovereign wealthy fund established in 2007 to manage China’s foreign exchange reserves, and has over 575 billion USD in assets under management.
Investors who had acquired properties several years ago at the bottom of the market are now starting to list their properties for sale to take advantage of the capital gains. In September, the State Oil Fund of Azerbaijan (SOFAZ), along with Mitsubishi UFJ Trust and Banking, jointly acquired the Kirarito Ginza retail building for 52.3 billion Yen (approx. 435 million USD at the time). The seller, Elliot Advisors Asia, acquired the property in 2011 and made a 12 billion Yen profit upon sale.
This number is still far below the levels of foreign funds flowing into other countries, indicating that Japan is still not at the top of investors’ radars.
In the US, Jones Lang LaSalle was expecting foreign investment in commercial real estate to reach 50 billion USD in 2014.
Savills estimated that foreign buyers spent around 14.6 billion pounds (approx. 22.6 billion USD) on commercial real estate in London in 2014.
In the 2014 year, the Australian Foreign Investment Review Board approved real estate transactions from foreign buyers with a total value of 74.6 billion AUD (approx. 54 billion USD at current rates). This is almost 10 times the volume of investment flowing into Japan. Of that, 34.7 billion AUD (approx. 25 billion USD at current rates) was for residential real estate alone, and included private buyers as well as corporations and funds. This figure only includes transactions by buyers that require approval before acquiring real estate.
Foreign Investment Review Board Annual Report 13/14
Reuters, September 23, 2015.
Reuters, October 8, 2015.
Savills, January 29, 2015.
The Nikkei Shimbun, October 20, 2015.
The Australian Financial Review, April 30, 2015.