A combination of Abenomics and quantitative easing has led to a revived economy and an increasingly bullish real estate market in the Land of the Rising Sun. Investment rose by 10 percent year-on-year for the first half of 2017 and transaction volumes are set to grow.
“Property rents have picked up in the various sectors and geographical regions after the global financial crisis while Bank of Japan (BOJ) has echoed Abenomics with favourable debt financing environment, leading to capital inflow to real estate,” says Akagi Takeshi, Head of Research, JLL Japan.
“Japanese real estate is also seen as a ‘safe haven’ due to unexpected political events such as Brexit. In this time of uncertainty, Japan’s large market size and huge stock of quality buildings are all the more appealing for foreign investors.”
Takeshi observes that quality office buildings in cities remains the preferred asset class, in particular Tokyo’s fringe areas as supply in the investment market is scarce in Central Business District. Logistics is another popular choice given the rapid growth of e-commerce and Third Party Logistics while the surge in tourism has also led to a greater demand for hotels.
Areas outside Tokyo, Osaka and Fukuoka are especially attractive to investors, says Takeshi. “Osaka has been seen lagging behind Tokyo economically but its office market is now showing stronger rental growth backed by solid demand and limited supply in the market, attracting both domestic and overseas investors.”
He adds that Fukuoka’s proximity to China and South Korea is an advantage in terms of logistics and tourism. “It is an economic and transportation hub on Kyushu Island, and the upcoming shinkansen route in Kyushu that connects to Nagasaki will further boost economic activity in the region with Fukuoka at the heart of it.”
With Japan to see moderate but stable economic growth till the 2020 Tokyo Olympics, property prices are likely to reflect the same. “BOJ will keep the low interest rate policy at least in next few years, the cap rate will remain low. As current cap rate is already lower than the previous bottom before the Global Financial Crisis, further compression is unlikely to happen except in the regional cities and emerging sectors getting attentions from the investors,” Takeshi says.
And, the bullish outlook is likely to lead to more supply entering the market with more assets already being put up for sale, contributing to the increase in investment volume. Takeshi adds: “Investment demand is very strong – we foresee more transactions ahead as more landlords think it’s the right time to sell.”
Click here to read more about Why Abenomics has been good for Japan’s real estate market