While warehouses grabbed the property investment spotlight around Asia Pacific in 2020, transactions in a more traditional asset class more than tripled during the first half of the year, led by major institutions betting on one of the region’s core markets.
Major acquisitions by Blackstone, Allianz Insurance, and AXA Investment Management in Japan helped the country tally $4.9 billion in rental apartment investments from January through the end of June, according to information from property data provider Real Capital Analytics.
The flood of cash into Japanese multi-family assets helped push investments in rental apartments across APAC to $6.5 billion during the first half of this year — a 157 percent increase compared to the same period in 2019.
That compares with transactions in the highly touted industrial sector having contracted by 4 percent across the region over the same period, while the volume of office deals fell by 44 percent, according to RCA data.
Stability is Sexy in 2020
“There has been a continued trend of institutional and core investors seeking exposure to the Japanese residential sectors given the stability of income and the relative high cash-on-cash yields,” JLL APAC chief executive Stuart Crow told Mingtiandi.
Those yields appear to be most appealing in Japan’s commercial hubs, which are attracting young professionals as the country continues to urbanise. Portfolio deals by international institutions focused on assets in Tokyo, Osaka and Nagoya so far in 2020.
“Private equity has pursued a strategy of aggregating multi-family into larger portfolios and selling down longer term core investors,” Crow explained. “[This] has increased the total transaction volumes.”
The potential for collecting rent from Japan’s urban professionals helped the country account for more than 75 percent of multi-family deals in the region during the first half of 2020, according to RCA.
This burst of activity in Japan comes as overall transactions of commercial real estate assets in Asia Pacific during January through 30 June fell by 28 percent compared to the same period last year.
Titans Turn to Japan’s Cities
Japan’s apartment appeal attracted several of the world’s A-list institutions so far this year, with the deals continuing even this month.
Most recently, the property arm of European insurance group Allianz in mid-August added to its collection of Japanese apartment deals by scooping up 18 newly built Tokyo assets for $160 million on behalf of its APREAP Core 1 Fund. That purchase was the firm’s third major Japanese apartment acquisition in less than a year.
“Continued strong performance of our existing multi-family residential portfolio in Japan has validated our conviction about the resiliency of the asset class,” said Rushabh Desai, Asia Pacific CEO of Allianz Real Estate, after the acquisitions.
APAC’s biggest biggest apartment deal of 2020 happened in February, and may have set the tone for this year’s multifamily trend in Japan, according to JLL’s Crow. The veteran broker pointed to American private equity group Blackstone’s $2.7 billion deal to buy back a portfolio of Japanese apartments from Anbang Insurance, which it had sold to the troubled mainland insurer three years earlier, as the year’s most significant milestone.
Two months later, Allianz Real Estate acquired another portfolio of Tokyo-area rental apartment properties for $122 million just weeks after opening an office in the city.
In July, AXA Investment Management moved beyond the Tokyo-focused deals to purchase a rental residential complex in the port city of Nagoya for $168 million.
Tokyo Rents See Growth
The investments may in part be recognition of the resilience of apartment rents as citizens stay in their homes this year as commercial properties struggle to keep tenants.
By the end of June residential rents in Tokyo had inched up by 3 percent compared with the same period last year, a Savills’ report noted, to hit JPY 4,138 ($39.0) per square metre per month.
“The rental collection experience of investors has been very positive during COVID,” noted JLL’s Crow, and Tokyo is no exception. Young residents flocked to the Japanese capital in the first half of 2020, leading the prefecture to reach a 14-million strong population for the first time in history.
This latest milestone for urbanisation in the city, paired with a rising number of couples choosing to marry later in life, have more people looking to rent homes rather than purchasing apartments.
“Investors are seeing multi-family and build to rent as a growing asset class in Asia Pacific, in part driven by longer term demographic trends of renting versus owning,” he added.
And as current economic conditions wreak havoc on personal finances, more may be forced into renting rather than owning, Crow pointed out, making rental residential properties a reliable source of income for investors.