Asia’s most active real estate market continues to offer investment opportunities across an array of asset classes, decision-makers from four major players said Tuesday at the Mingtiandi Tokyo Forum, which was sponsored by Yardi. Watch the full recording>>
A panel of top leaders from AXA IM Alts, UBS Asset Management, Alyssa Partners and Norges Bank Asset Management gave Japan high marks for its many attractive investment targets — including beds, sheds, data centres and even office assets — after the country led the region with $19.3 billion in income-earning properties changing hands during the first half of 2024, according to MSCI.
In light of political turbulence on both sides of the Pacific with the return of Donald Trump in the US and a shaky minority government in Japan, Laurent Jacquemin, head of Asia Pacific for AXA IM Alts Real Assets, pointed to the direction of interest rates as the chief risk factor when considering real estate bets.
“If you start implementing tariffs, it will definitely have an impact on the inflation on the ground, and when you say inflation it means potentially increasing interest rates,” Jacquemin said. ”So all of that would have an impact on real estate. We know that real estate is highly correlated to interest rates.”
Policy Continuity a Plus
AXA IM Alts has made a string of investments in Japan in recent years. In June, the fund manager acquired a 183-key hotel in Kyoto for $44 million with plans to refurbish the asset. Last year, it bought two senior housing properties totalling 331 rooms on the island of Hokkaido and a portfolio of 33 apartment assets across Tokyo, Greater Osaka and Nagoya.
The keynote panel discussed Japan investment at the Mingtiandi Tokyo Forum
The unit of French finance giant AXA is looking to diversify its bed-heavy Japan portfolio with investments in life sciences and data centres, according to Jacquemin, whose firm has €80 billion ($85 billion) in real estate assets under management worldwide.
“We bought a data centre back in 2020,” he told the 200 delegates at the Mandarin Oriental Tokyo. “We actually just sold it because it was a good opportunity to sell it at attractive conditions. But we like the data centre space. We feel that in Japan there is definitely a need for more data centres. We see a lot of demand.”
Trump’s election win was less surprising than the shock loss of the ruling coalition’s majority in the Japanese parliament, said Taiyo Taimi, head of Asia unlisted real estate at Norges Bank Investment Management, which manages Norway’s $1.7 trillion sovereign wealth fund. Still, he cautioned not to expect an abrupt shift in policies affecting the country’s real estate business.
“Japanese policies are, more or less, very slow to change,” Taimi said. “So interest rates, other policies, tax rates, I think it’ll gradually change but I don’t think it’s going to make a huge difference in Japan.”
Stabilised Tokyo office assets continue to interest Norges, he said, as the city’s new supply of office space accounts for a mere 1 percent of total stock after net additions of space decreased for the last decade.
“As a long-term core investor, we think a holding period of 10 years is still short,” Taimi said. “So we try to kind of go through the cycle and hold a great asset with a great partner in the long term.”
Multi-Family Matters
Hajime Watanabe, president and representative director with UBS Japan Advisors, said he saw no difference between Japan’s ruling and opposition parties in terms of policies that would directly impact real estate valuations.
Japan’s rental residential sector holds a special appeal for Watanabe’s firm, whose Swiss parent UBS Asset Management oversees $117 billion worth of real estate, infrastructure and private equity investments globally. He observed that the multi-family segment enjoys stability due to its broad backing by private capital, family offices, wealthy individuals and other deep-pocketed investors.
“Multi-family is a very good tool for those in a wealthy family to compress the actual taxable amount for the asset,” Watanabe said.
Few players have more experience with multi-family dealmaking than Chedli Boujellabia, the founder, managing partner and CEO of Alyssa Partners, which invests exclusively in Japan and has formed joint ventures with heavyweights including AXA IM, PGIM Real Estate and private equity titan Blackstone.
Boujellabia confirmed that Alyssa plans to maintain its focus on the living sectors while also exploring new opportunities in logistics and data centres. As ever, the wild card remains interest rates, which in Japan have risen from near zero to 40 basis points — compressing cap rates but still providing room for positive yields in core locations like Tokyo and Osaka, he said.
“We have to remember Japan is the largest developed market in Asia, is the deepest market, has great liquidity,” Boujellabia said. “Most investors come to Japan for a certain asset class, for stability, for income. So I don’t think it should be a surprise to anyone that Japan would continue to attract interest from various international investors.”
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