Japan Doubled APAC Outbound Real Estate Buys to $2.24B in 2023

Japanese investors more than doubled their overseas acquisitions of real estate in Asia Pacific last year to spend $2.24 billion on income-earning properties around the region, at the same time that most other players were stepping back.

After spending a total of $2.16 billion on Asia Pacific properties outside of their own borders from 2020 through 2022, investors from Asia’s second-largest economy surpassed that three-year total in just 12 months as they homed in on offices and residential projects in Australia and other bargain-priced assets around the region.

For Japanese investors, who have enjoyed low-interest rates in their home markets, the spending binge came as traditional cross-border leaders such as the US cut their acquisitions in the face of the highest interest rates in more than a decade.

“Global investors continued their retreat, while regional investors maintained elevated levels of activity. These trends were part of a broader global narrative of investors retreating to markets closer to home,” MSCI said in a recent report.

Top Aussie Targets

The top target for Japan’s 2023 spending spree was Australia, where investors from the country acquired $1.85 billion in income-earning assets last year – up nine-fold from the $200 million annual average over the past decade, data from MSCI Real Assets showed.

Within Australia, Japanese investors focused their efforts on the residential and office sectors, according to a separate report by CBRE last month.

“Ultra-low interest rates in Japan have given those investors a competitive advantage compared to other countries and Australian groups,” Tom Broderick, CBRE’s head of capital markets research for Australia, said in that report.

In October Mitsubishi Estate teamed up with Sydney-based investment manager AsheMorgan to buy the 60 Margaret Street commercial complex in the New South Wales capital from Blackstone and Mirvac for A$777 million ($494 million).

That deal came after Mitsubishi Estate in June backed an A$1.8-billion Mirvac build-to-rent venture.

Global Investors Retreat

Japan’s APAC investment tsunami came as cross-border investment in assets in the region plunged to $29.8 billion in 2023, down 36 percent from the $46.4 billion tally a year earlier, as most investors within the region and from around the world cut their spending.

Apart from Japan’s upswing, the only other country to increase its cross-border real estate acquisitions within APAC last year was mainland China, which boosted its 2023 deal-making by 8 percent in its first year of post-lockdown freedom.

The more than one-third dip in cross-border deals in 2023 aligned with a 28 percent decline in real estate deals in general across Asia Pacific last year, with investment volume fathoming an  11-year low at an annual total of $140 billion, according to MSCI.

Singapore Outpaces US

While Japan upped its investments, its 2023 total still ranked it fourth among cross-border capital sources in the region, behind top investor Singapore, which led outbound activity in APAC with $7.65 billion in deals last year.

The Little Red Dot led the region despite that total representing a 23 percent drop from its 2022 performance and a 26 percent decline from the country’s annual average from 2020 through 2022.

The biggest cross-border deal involving a Singaporean investor last year came when Mapletree Investments joined with regional private equity shop PAG to acquire the Goldin Financial Global Centre in Hong Kong’s Kowloon East for HK$5.6 billion (then $713 million).

The Lion City took over the top spot among cross–border investors in APAC last year from the US after American investors cut their spending for the year 44 percent from 2022 levels to $7.5 billion.

Hong Kong ranked third among sources of cross-border real estate capital in APAC in 2022, with $6.7 billion worth of deals closed during the year, which was down 16 percent from the preceding 12 months and 5 percent below its 2020 through 2022 average.

With most of the biggest investors in the region having cut back in 2023, analysts at MSCI predict that a major rebound in confidence and activity will be necessary to rekindle markets around Asia Pacific.

“Looking ahead, a broader region-wide recovery will require a pickup in activity for the rest of the heavy hitters (beyond Japan). These are the office and industrial markets for the big four markets, as well as multifamily in Japan and retail in Australia,” MSCI said.