For real estate investors paying attention to the Japanese market, the term “apartment housing” has become commonplace in recent years. For example, in July, BlackRock along with Dash Living acquired a multifamily asset in Tokyo. And in September, Goldman Sachs reportedly acquired a portfolio of eight residential assets in the metropolitan area for $80 million.
Multifamily housing is one of the main sectors considered by real estate investors, along with office buildings, commercial properties, logistics facilities, and hotels. The term multifamily housing refers to a single building that houses multiple rental units, and is also sometimes referred to as a rental home or apartment complex.
From 2019 to 2024, investments in living sectors, including student housing, co-living, serviced apartments, multifamily housing and senior housing, will account for the largest portion of Asia Pacific (Apac) investors’ portfolios, according to statistics from a CBRE report. It accounts for only 6%. That’s far lower than the 44% of US investors.
In Asia, the living sector is still in its infancy as the focus has traditionally been on other profitable assets such as office buildings, industrial assets and retail assets.
As geopolitical uncertainty prevails, the post-pandemic recovery weakens, and the cost of capital remains high across Asian markets, investors are looking to alternatives with stronger fundamentals, specifically the livelihoods sector and the collective sector. There is an increasing focus on residential assets.
CBRE’s report claims that “multifamily has become the most popular asset class in Asia-Pacific,” stating that it will account for about a third of investor-preferred assets by 2024. are. In 2021, that percentage was less than 15%.
Increase in rent
Jing Dong Lai, chief executive officer and chief investment officer of M&G Real Estate Asia, said rental growth has led to the purchase of assets in Japan’s living sector, including apartment complexes. This is one of the important aspects of the process.
The booming tourism industry is creating short-term stay opportunities for multifamily property owners. Japan has recorded more than 24 million overseas travelers as of August this year, approaching 2019’s full-year record of 31.8 million. Japan aims to attract 60 million tourists a year by 2030.
Lai said the increased influx of tourists from markets such as South Korea, mainland China, Taiwan and Hong Kong contributed to local consumption and Japan’s economic recovery after the pandemic, leading to positive changes in Japan’s private consumption.
“For residential investments over the past 12 months, the average market rent growth rate across Tokyo has been around 5%, well above historical averages,” said Richard Orbel, director of investment property and capital markets at CBRE Japan. said. During the pandemic, growth levels were only around 1% per year.
He added that asset classes such as hotels are also benefiting from the tourism growth story. Japan’s hotel transaction volume increased by about 50% in the first half of 2024 compared to a year ago.
Another consideration for residential and hotel properties is high tenant turnover, according to Ober. This gives investors more flexibility to adjust and respond to market conditions. However, most rental contracts in Japan have a traditional structure, with the tenant having the sole right to terminate the contract, which limits the landlord’s ability to adjust rent.
On the demand side, M&G’s Lai says the mindset of the younger workforce is changing. M&G is listed in the UK and manages around $41 billion in the global property sector, around a quarter of which is in Asia. The company’s portfolio in Japan consists of 61 residential assets.
“More than half of residents in Japan’s major cities rent real estate instead of buying it,” he pointed out. This is due to rising real estate prices in major Japanese cities such as Tokyo. The city has one of the world’s widest housing price disparities, with a 60 square meter apartment costing 15 times the salary of a skilled worker, according to Reuters.
Lai also pointed out that certain high-end manufacturing activities are returning to Japan. For example, Taiwanese semiconductor giant TSMC has opened a chip manufacturing factory in Kumamoto, with a second factory scheduled to be operational by the end of 2027. According to Moody’s Ratings, Japan is one of Asia’s largest markets in terms of data center capacity.
“These will drive demand not only for Japan’s residential assets but also for logistics facilities,” Lai commented.
Stability and fluidity
Investors say Japan has one of the most stable and liquid real estate sectors in Asia. This is primarily due to the number of domestic players such as asset managers, insurance companies, family offices, and real estate investment trusts (REITs). In recent years, foreign investors have also entered the market.
Meanwhile, Japan’s cost of capital has remained stable, especially as neighboring markets such as Australia and South Korea have raised interest rates to combat inflation.
U.S.-based real estate investment firm Hines has acquired or developed approximately 500,000 square meters of real estate assets across six cities in Japan, valued at more than $1.7 billion, said John, the firm’s Japan Country Director.・Mr. Tanaka stated.
He told the FA that compared to other Asian markets, Japan offers abundant liquidity and attractive financing terms across sectors, which is driving positive capital inflows across asset classes. He said he is doing so.
“Our research at Hines shows that allocations to developed Asia, including Japan, have historically reduced downside volatility in global portfolios and enhanced risk-adjusted returns,” Tanaka said. , adding that the multifamily sector remains one of the most resilient and only large institutionalized housing markets in Asia, reflecting promising growth prospects for rental rates.
Tanaka cited healthy demand, supply constraints and a slowing development pipeline as factors that could support strong rental growth momentum.
Greg Hyland, Head of APAC Capital Markets at CBRE, said: “Compared to neighboring markets such as Australia, China and South Korea, Japan remains the largest and most dominant market for multifamily assets and is the most attractive market for foreign investment. “Home interest remains very high.” ”
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