Mitsubishi Estate Logistics REIT Buying Japanese Warehouse Portfolio for JPY 2.8B

Mitsubishi Estate Logistics REIT Investment Corp (MEL REIT) has agreed to buy four logistics facilities across Tokyo, Osaka and Nagoya for JPY 28.4 billion ($266.6 million), and increase its stake in another, as it seeks to tap growing demand for logistics facilities in the country.

MEL REIT is acquiring the four assets from units of its sponsor, Mitsubishi Estate, as industrial rents in locations surrounding Japan’s major cities continue to rise this year despite the COVID-19 pandemic, with demand from e-commerce players on the rise and tenants placing growing value on modern logistics facilities.

The portfolio deal, which was announced last week, comes during the same month that Hong Kong-listed logistics giant ESR announced a $368 million sale of a Tokyo area warehouse facility with other international players also hungry for logistics real estate in the country.

Tokyo Warehouses Reach Capacity

MEL REIT’s acquisition includes two properties in the greater Tokyo orbit previously acquired by Mitsubishi Estate’s asset management division, as vacancy in the Japanese capital’s warehouse market stood at just 0.6 percent in the second quarter, according to CBRE.

Given Tokyo’s popularity, it makes sense for investors to look beyond the Japanese capital for potential investments as the city currently attracts about 70 percent of all cross-border capital into the country, according to JLL. Pricing has been challenging for investors in Tokyo, it added.

“We are anticipating global investors to increase allocations to Japan and accelerate plans to look beyond Tokyo into markets like Osaka and Fukuoka,” said Kenishi Negishi, head of capital markets at JLL in Japan. “Investors view Japan through a more diverse lens when looking into increased exposure, which can also be seen through the growing attraction to emerging asset classes like data centres, logistics, and multifamily.”

In Saitama Prefecture, about one-hour drive north of Tokyo, MEL REIT is buying the two-storey MJ Logipark Kazo 2 for JPY 1.64 billion. The 7,349 square meter facility is fully occupied by MS Japan, a Mitsubishi division which distributes industrial machinery.

The company is also buying the four-storey MJ Logipark Sendai 1 warehouse, about 424 kilometers north of Tokyo in Miyagi Prefecture, from SD Logistic Fund for JPY 7.4 billion. The 36,854 square meter facility is fully leased to three tenants, with third-party logistics provider Toho Transportation and Warehouse as the primary occupier.

MJ Logipark facilities are acquired by Mitsubishi Estate and are located across Japan, including projects in Nishinomiya in Hyogo prefecture and Kasugai Shi in Aichi prefecture as well as the Saitama and Miyagi locations. The company’s self-developed warehouses carry the Logicross brand.

Osaka Warehouse Rents Climb

MEL REIT is also buying two sheds in Japan’s second-largest city, Osaka. Average warehouse rents in the traditional economic hub climbed 3.1 percent in the second quarter compared to the previous three months as vacancy rates for warehouses fell to a three-year low of 2.8 percent during the quarter, according to CBRE.

In the metro area of 20 million people MEL REIT is buying a 60 percent stake in the four-storey Logicross Osaka warehouse in Osaka’s Nishiyodogawa ward for JPY 5.87 billion. The 36,619 square metre property was developed by Mitsubishi Estate and is fully leased to e-commerce fulfillment specialist e-LogIT.

Over in the city’s Taisho industrial district, MEL REIT is acquiring an additional 17.5 percent stake in the four-storey Logiport Osaka Taisho for JPY 4.8 billion, bringing its interest in the logistics complex to 37.5 percent after Mitsubishi Estate had co-developed the warehouse with Mitsubishi UFJ Lease & Finance and LaSalle Investment Management. The trust had acquired its existing 20 percent holding in September last year.

Completed by Mitsubishi Estate Co. in 2018, the 117,045 square metre facility is fully occupied by Toshiba Logistics and strategically located to serve as a logistics base for Osaka, Kobe, Kyoto and the rest of the Kansai region.

MEL REIT is making its biggest acquisition in the port city of Nagoya where it is buying a 60 percent stake in the four-storey Logicross Nagoya Kasadera for JPY 8.71 billion.

Completed by Mitsubishi Estate in January 2019, the 72,376 square meter facility is fully occupied by Yagami Co., a distributor of surgical equipment and other medical devices, and serves a logistics base for both Nagoya and the Chubu region.

Japanese Shed Appeal

The manager of Tokyo-listed MEL REIT said that it is making the acquisition to expand the trust’s footprint across Japan and create value for its unit holders, as ESR, Blackstone and other investment heavyweights make Japan a focus for sales of stabilised logistics assets.

Earlier this month, a joint venture between Warburg Pincus-backed manager ESR and AXA Investment Managers announce that it had purchased a logistics facility near Tokyo for approximately JPY 39 billion, just seven months after Amazon leased nearly half of the property.

That August deal followed soon after Blackstone in late July agreed to purchase four logistics facilities from Daiwa House Industry for JPY 55 billion. The properties are located in Japan’s Kanto region, which includes Tokyo, as well as in the Chubu region, which includes Nagoya.

The popularity of Japanese warehouses also allowed CBRE Global Investors to divest all the assets from a Japanese logistics portfolio for JPY 140.4 billion, ending a 3-month-long series of disposals of 169 industrial properties.

In January, Singapore government-linked Mapletree Logistics Trust agreed to buy the Mapletree Kobe Logistics Centre for JPY 21.9 billion from a unit of Mapletree Investments, which controls the trust’s manager.