Savills Investment Management (Savills IM) has won two mandates to invest in Japanese real estate equaling $600 million, with the commitments coming earlier this month from an existing investor and from a new institutional partner.
The London-based international real estate investment firm has been benefiting from a trend for mandates over the past three to four years, Justin O’Connor told IPE Real Estate, adding that there is growing interest in Japan, where the company has assets under management in excess of $1 billion.
Building a Japan Operation
Before scoring the two new mandates, Savills IM has been doing some legwork in Japan, including raising its first Japan-focused investment vehicle last year. The Greater Tokyo Office Fund, which garnered $82 million in commitments in an initial round, including $52.3 million from Singapore’s Straits Real Estate, has pulled together another $150 million in subsequent closes and continues to raise funds. The company has had plans to launch another similar investment vehicle in the works since last year.
O’Connor also pointed out that Japan is a market “where you need people on the ground.” Savills IM has been buttressing its Japanese team over the past few years with Will Johnson and Ataru Hayashi joining in 2015 and Mike Flynn taking over the CEO role for Asia Pacific last year.
Japan’s economy in early 2017 has been lackluster, but real estate investments in Japan remains relatively strong, according to a recent survey by the Urban Land Institute and PwC. The Emerging Trends in Real Estate report found that residential is currently the “sector of choice” for investors in Japan, and that “high occupancy levels and stable rents” have created a “quite bond-like” income stream. “We like offices and residential […] Depending on where you buy, you can get cash on cash yields of between 4 percent and 6.5 percent,” O’Connor told IPE Real Estate.
APAC and the Billion Dollar Fund
While Savills IM has been expanding in Japan, it has also been ramping up its operations in the rest of Asia following its acquisition of Germany’s SEB Asset Management in September of 2015. In January 2016 the company announced Asia Fund 3, a $1 billion Asia core-plus fund.
After more than a year, Asia Fund 3, which follows the Savills Asia Fund 2, is reportedly on track and the firm transacted a record $868 million in Asia Pacific real estate in 2016. Of those deals, Savills IM managed to close six transactions in the Land of the Rising Sun over the course of the year, including the sale of the Tama Center building in Tokyo and the Chinatown Point complex in Singapore.
Facing Challenges to Mainland Deals
Despite Savills IM looking forward to opening a Shanghai office this year, O’Connor told the AsianInvestor last week that China’s economic slowdown and capital outflow restrictions are hurting real estate investments in the Middle Kingdom: “Tier one prices are very high in large part because capital can’t leave the country.”
In early 2017, the investment management firm’s affiliated brokerage released a report which highlighted challenges facing real estate investors on the mainland caused by heavy regulation. “The increasingly convoluted and varied nature of these measures is making it harder to understand and navigate China’s property market, for investors, developers and home owners alike,” the report stated.