Big investors target Japan’s logistics properties

Some of the world’s biggest institutional investors, including Singapore’s Global Logistic Properties (GLP), are snapping up more and more Japanese real estate. The reason? Not Abenomics but the massive shortage of modern warehouse facilities that has resulted in very low vacancy rates.

Prime Minister Shinzo Abe’s pro-growth strategies have been lauded by some market observers as the impetus needed to reverse a 20-plus-year trend of decline in real estate prices. With total real estate transactions on track for their best year since 2008, even Japan’s normally property-wary domestic investors are starting to sniff around.

Pension and sovereign wealth funds from Singapore to Canada have been active in the Japanese market in recent months, investing in property through joint ventures and private funds.

Despite their purchases, the funds say their investments do not mean they are bullish about the outlook for Japan’s economy or even the broader real estate market. Instead, they say they are targeting property they think will do well no matter how the overall economy performs.

They are especially drawn to logistics properties in Japan because there is a shortage of modern warehouses and distribution centres, a good sign for potential investors looking to gauge tenant demand. Vacancy rates at logistics properties in Tokyo were at 2.7 per cent in the second quarter, the lowest since at least 2004, according to real estate services firm CBRE.

“With 97.5 per cent of the market still being older, obsolete buildings,” there will continue to be opportunities to invest,” said Mr Jeffrey Schwartz, co-founder and Executive Committee Chairman of GLP.

“With the growth of e-commerce, same-day delivery and the need to get closer to your customers, all the trends point to the need for more efficient, better logistics,” he added.

GLP, partly owned by Singapore sovereign wealth fund GIC, has partnered on investments with the Canada Pension Plan Investment Board and sovereign fund China Investment Corp.

The logistics giant said in its fiscal second-quarter results release: “In Japan, the lease ratio remains high at 99 per cent, with a strong customer retention rate of 81 per cent. During the quarter, rents increased 3 per cent on renewals in Japan, while average rents remained stable at ¥1,081 (S$13.20) per sq m per month … Demand from customers in Japan continues to be strong, with leasing negotiations at developments progressing well.”

APG, the Netherlands’ largest pension fund manager with €337 billion (S$582 billion) under management, is another major investor eyeing Japanese logistics property. In July, the firm led a group of investors in a ¥40.8 billion deal to invest in assets in greater Tokyo and greater Osaka.

But Mr Daan Van Aert, head of non-listed real estate in Asia for APG, said the outlook for Japan’s real estate market remains murky as some of the structural reforms the government proposed to ensure long-term growth have not been made clear. But he added that APG would also look into investing in nursing homes and healthcare facilities as Japan’s population ages.

Some of the biggest deals involving overseas funds also happened when investors sensed a bargain.

In August, a group of investors including Asia Pacific Land, Secured Capital Investment Management, and the Abu Dhabi Investment Council bought a 14-storey office building in downtown Tokyo for about US$1 billion after a previous investor who bought the building for US$1.4 billion in 2006 defaulted on its loans.

Source : Today – 13 Dec 2013

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