, Japan

Tokyo remained as most liquid property investment market in Q1

Acquisitions by J-REITs during the quarter were 30% higher than the quarterly average since 2014.

For the second year in a row, Tokyo was the most liquid investment market in the world in Q1 2019, a report by JLL revealed.

The Global Capital Flows Q1 2019 report, which assessed global commercial real estate markets, found that early 83% of all activity during the quarter was driven by domestic groups, primarily corporates and J-REITs, which have both seen relatively strong performance since 2018.

For J-REITs in particular, a combination of historically low financing costs and the sustained rally in share prices since 2018 supported increased acquisition activity. Acquisitions by J-REITs in Q1 2019 were 30% higher than the quarterly average since 2014.

“Cross-border investment in Tokyo was limited with just one transaction recorded in the first quarter,” Lauro Ferroni, JLL’s research director, highlighted. Private equity fund management firm Gaw Capital’s $757m acquisition of the Aoyama Building in Minato reportedly marked the firm’s entrance to the Tokyo office market, and is the first major office acquisition in the city by a foreign buyer in two quarters.

“The transaction highlights the strength of the Tokyo office market which has been supported by solid fundamentals,” Ferroni explained.

JLL further noted that Japan’s vacancy rates remained low thanks to healthy leasing activity, with flexible space providers amongst the key sources of demand. Investors are said to look set to benefit as both rents and capital values are expected to rise in 2019.

Meanwhile, the report highlighted how outbound investment by Japanese groups are picking up, with Q1 2019 seeing over $1.3b in cross-border acquisitions by investors from Japan, the second highest quarterly level in the past five years. Many Japanese investors are said to be moving forward with their global investment strategies as yields in the relatively tightly held domestic market remain low.

Although there is a growing preference for European markets, due mainly to lower currency hedging costs, investors continue to be attracted to the US which has received nearly 70% of all outbound investment by Japanese groups since 2014.

“Developers have been among the most active outbound investors from Japan. Some groups who have extensive track records within Asia are now looking to the US and Europe in order to diversify their portfolios,” Ferroni said.

Property development firm Mori Trust acquired HQ@First, an office asset in Silicon Valley, for $429m during Q1, which was the second by the group in the US. Meanwhile, Sumitomo Corp. purchased the SPS Tower in Minneapolis for $144m, demonstrating that investors are now eyeing secondary markets as they search for higher returns, Ferroni added.

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