With ultra-low interest rates and one of the highest yield gaps in international cities, foreign funds are increasingly turning their attention towards real estate in Tokyo and the rest of Japan.

According to JLL, the yield gap on prime office buildings in Tokyo was 2.9% in 2019, exceeding London’s average of 2.5% and New York City’s average of 1 ~ 1.5%. Tokyo’s yield gap has consistently outranked London, New York, and Hong Kong, hovering around the 2.5 ~ 3.0% range for the past 10 years.

According to Daiwa Real Estate Appraisal, the average purchase price of prime office in central Tokyo in the second quarter of 2019 was 3,000,000 Yen per square meter (approx. 2,640 USD/sq.ft), the highest level seen since 2008.

2017 was a record year for foreign investment in Japanese real estate with overseas institutions spending 1.1 trillion Yen on acquisitions. This was a three-fold increase from 2016 and the first time that annual volume had exceeded 1 trillion Yen. Norges Bank Real Estate Management, part of Norway’s sovereign wealth fund, made headlines after acquiring a 70% stake in a 132.5 billion Yen purchase of five commercial and retail buildings around the Omotesando district in central Tokyo. The expected yield was in the 2% range. Acquisitions slowed in 2018 but quickly picked up again in 2019.

THE YEAR SO FAR

January: 

  • Takeda Pharmaceutical Company announces the sale of 21 assets, including their Osaka headquarters to GreenOak for over 50 billion Yen (approx. 473 million USD).
  • ESR and AXA Investment Managers acquires a 100 billion Yen (approx. 946 million USD) portfolio of newly-built logistics facilities in Tokyo and Osaka.

April:

  • Hong Kong-based Gaw Capital Partners acquires the Aoyama Building in Tokyo for 84 billion Yen (approx. 795 million USD). The seller paid approximately 500 million USD for the building in 2015. 

June:

  • Aberdeen Standard Investments (ASI) joins forces with Sumitomo Mitsui Trust Bank to invest in various rental housing in Japan, with a focus on housing for senior tenants. 

July:

  • Blackstone spends over 100 billion Yen acquiring distribution centers across Japan, including an Amazon fulfillment center. Yields on distribution centers in Japan are typically around 4%.
  • Japan Tobacco indicates plans to sell its head office building in Toranomon, Tokyo after they have vacated the building in 2021. The 35-story building was built in 1995 and has a total floor area of 67,000 sqm (720,000 sq.ft). The price is expected to exceed 100 billion Yen, and several foreign funds have already expressed interest.

August:

  • U.S. private equity firm Blackstone Group is tipped to buy back Anbang Insurance Group’s $2.4 billion Yen portfolio of real estate across Japan. Anbang acquired the residential portfolio from Blackstone in 2017.

Source: The Nikkei Shimbun, August 7, 2019.

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