International investors are putting Japan at the top of their Asian target list this year. And a number of substantial deals have already taken place.
Morgan Stanley’s P2 Value, a German open-ended fund, has bought Citigroup’s Japanese headquarters for ¥48bn ($445m) in a sale-and-leaseback deal. Morgan Stanley has been one of the most active players in Japan’s property market and last year paid $2.4bn to buy 13 hotels from All Nippon Airways. The investment bank has also sold the Westin Hotel in Tokyo to GIC Real Estate for ¥77bn ($724m), in one of the year’s biggest deals.
German fund manager Deka has bought the German Centre for Industry and Trade in Yokohama, Japan from RREEF Alternative Investments for $104m. The deal, the first investment in Yokohama for the Deka-ImmobilienGlobal fund, boosts the fund’s Asian weighting to 27%.
Japan remains the Asian investment location most tipped by international property fund managers, despite the attractions of other countries with more growth potential. The Japanese property market is one of the few in Asia to offer core returns and is also the region’s largest – larger than the rest of Asia combined. Despite very low yields, the low cost of borrowing locally means that investors can still achieve a positive spread on their investments.
Although many fund managers are still interested in Asian growth markets, Japan is the one universally tipped location. A number of managers are still researching the Indian market. Others are concerned about regulation in China strangling the market. LaSalle Investment Management, in its Investment Strategy Annual, says: “There are signs that some investors are scaling back plans for China in the short term, owing to difficulties in execution.”
Robert Lie, CEO Asia for ING Real Estate Investment Management, which is set to launch a Japan fund later this year, says: “We’ve been researching India for two years and are talking to prospective partners but remain cautious. In undeveloped markets, the advantages of being a first mover tend to be overplayed.”
Macquarie Global Property Advisors, which manages a Japan core-plus fund, is positive on Japan, says MGPA’s head of Asian investments Simon Treacy. For higher-growth opportunities, MGPA is eyeing south-east Asia. And LaSalle tips Japan as both a core and value-added play in all sectors, apart from residential. However, it warns that yields could creep up from their very low levels – 3% for prime Tokyo offices – and recommends looking at secondary cities.
