This is especially true in a market such as Japan, with strong domestic players – not limited to the real estate investment trusts and developers – and keen interest from overseas capital.

Falling transaction volumes year on year belie the continued fierce interest from all categories of investors, who frequently cite a lack of assets being marketed for sale. However, there are still opportunities to find value.

The first measure is comparative value, pound for pound. According to data from RCA, average commercial property prices in Tokyo sit approximately 9.5% below their pre- global financial crisis highs. Other global gateway cities – including Hong Kong, Singapore and Melbourne – are trading at multiples of previous peak capital values. Meanwhile, Japan’s borrowing costs are among the lowest globally, making Japanese property investments particularly attractive on a risk-adjusted levered return basis.

Savills IM’s top Japan picks for 2019 are Grade A-/B+ offices and multifamily accommodation in Greater Tokyo and established regional submarkets such as Osaka, Nagoya and Fukuoka. We see these markets benefitting most from ongoing rental tailwinds, including historically tight leasing markets, restricted supply and demographic concentration.

Japan’s hugely deep and liquid real estate market also allows for opportunities to secure alpha. Its diverse owner universe and a cultural preference for discreet sales generates opportunities for off-market deals. This provides scope to originate investments with value upside, including under-managed assets from non-professional sellers, expense rationalisation, repositioning and lease-up of buildings.

In order to take advantage of these market conditions, investors or their on-the-ground partners need not only local knowledge but strong relationships to access the various seller groups and a demonstrable track record through the cycle.

There are no shortcuts to find off-market deals; the Savills Investment Management team in Japan has been active in the market for 20 years, building a sourcing framework that identifies and consistently delivers transactions.

Further reading:
Savills Investment Management

Contact Us:
Simon Smith