Japan remains a coveted market for developers and fund managers keen to expand their warehouse portfolios, even as higher construction and labour costs conspire to curb new supply, industrial panellists said Tuesday at the Mingtiandi Tokyo Forum. Watch the full recording>>
Four leaders from Unified Industrial, ESR Group, CBRE Investment Management and Rava Partners spoke at the Yardi-sponsored event on the opportunities and challenges facing shed growth in the world’s fourth-largest economy. Their remarks came as industrial deal volume in Asia Pacific jumped 72 percent year-on-year in the third quarter to $11.5 billion, according to JLL, with investors turning bullish on Japan logistics due to favourable rental prospects.
Despite the improving outlook, Unified Industrial principal Ross Antoci cautioned that rising costs were likely to restrict new supply in Japanese sheds.
“We’re hearing in the market that projects are getting shelved,” said Antoci, who has been involved in projects spanning over 1.3 million square metres (14 million square feet) of gross floor area. “And it’s not only just the construction cost, it’s the labour shortage. We can’t get people. So I think that will definitely stifle supply because it’s more expensive. My shed is costing me more, so I need to charge more rent.”
Playing Catch-Up
Rava Partners co-head Joseph Gagnon noted that travel restrictions had put Japan’s logistics market “off limits” during the COVID era, but he affirmed his belief that logistics “is still very early innings” regionwide.
Shed experts talked shop at the Mingtiandi Tokyo Forum
“Given some of the complexities and cost, particularly around some of the more value-add or specifically niche sectors like last mile, cold storage, there are some very interesting entry points that are still worth taking a lot of time,” Gagnon told the audience of more than 200 at the Mandarin Oriental Tokyo.
Rava, a unit of financier Zhang Lei’s Hillhouse Investment, recently acquired logistics facilities in India from rival Indospace for INR 8.4 billion ($99.6 million). In Japan, the fund manager announced a $1.1 billion deal last month to expand its presence with a residential-focused investment platform. It’s still on the hunt for warehouse opportunities in the country.
“We have current activities in six countries, in Australia, Southeast Asia, China and India,” Gagnon said. “So certainly, from size and scale, Japan is a market that you have to be in, and it’s just trying to find the right points of entry.”
Cost Questions
Fears of rising interest rates in Japan after a long period of near-zero borrowing costs are overblown, said Pierre-Alexandre Humblot, managing director for fund management and capital at Warburg Pincus-backed ESR.
“There is a consensus, including in this room, I believe, that while normalisation is going on in the interest rate policy of Japan, there’s not a lot of room for moving rates materially and not breaking something,” Humblot said. “So our view right now is that the normalisation may have a bit further to run.”
Tetsuya Fujita, managing director and country manager for Japan at CBRE IM, noted that construction costs rose 30 percent in the past three years, representing a “big challenge”.
Fujita said his firm could mitigate soaring expenses by taking advantage of long-standing ties with general contractors and investing in locations in close proximity to the central business districts of major cities, where opportunities for rental upside are clearer, and building costs constitute a smaller portion of project investments compared to land prices.
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