April 12, 2016

Japan’s is globally renowned for its greying demographic, with the country often used as a case study for all issues related to an ageing population. However, the country’s Aged Care real estate sector has been slower to establish itself in comparison to other markets like the United States and Australia. Nevertheless, the past five years have seen Japan’s Aged Care market make strong progress towards establishing itself as an asset class within its own right with new players entering the market, operators growing and expanding into new facilities and the establishment of several listed REITs and private funds focusing on investment into the sector.

Demographics aside, it’s important to looks more closely at the outlook. Much of Japan’s population growth among the elderly is in the age cohort above 75 years old. In fact, over the next 15 years, those aged 65-75 will actually fall as a percentage of the overall population. This has significant ramifications for the Aged Care sector in terms of demand drivers; senior living requirements will need to be more heavily focused towards those over 75 who require a more intensive level of care, rather than a more lifestyle focused retirement arrangement.

japan aged care

Figure 1: Japan’s population by age cohort

The investment thesis for the sector is also arguably the strongest of all asset classes in Japan: there is a huge level of structural demand via the demographic outlook; supply of public non-profit facilities are significantly below requirement; government funding covers a large portion of overall occupier costs; operators are seeking to expand into new facilities and long-term lease contracts provide a stable income stream.

Furthermore, Aged Care assets have the highest stabilized yield of all core sectors across the real estate spectrum which seems mispriced given the long-term structural demand requirements and non-discretionary nature of both the residential and health care components that make up aged care facilities. However, as this sector continues to develop, investors will be more able to accurately rationalize the risk within this very stable sector with a favorable outlook.

japan aged care 2

Figure 2: Core sector cap rates (Tokyo)

For more information on the Aged Care sector, please read JLL’s latest Japan Aged Care Market Report, April 2016.

JLL is currently marketing a number of opportunities within the Aged Care sector.

Nick Wilson, Japan Capital Markets
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