Japanese investors – heading overseas

July 10, 2015 / By  

Earlier this week you heard from my colleague Roddy Allan about overseas investors targeting Japan, but what about Japanese investors, are they still staying domestic?

Some Japanese investors are looking overseas.  Their strategies are varied, but these can be largely broken into two camps.  (1)  Developed market strategies where investors are targeting core commercial real estate in mature global markets such as London, New York, San Francisco etc – namely office.  e.g. Mitsui Fudosan is currently developing large projects in London and New York, and Unizo Holdings purchased several office buildings in New York. (2) Emerging market strategies where investors are developing in regional markets within Asia, namely South East Asia retail and residential. e.g.Daiwa House Industry has been expanding its detached house business in Malaysia, and Mitsubishi Estate is presently developing high-rise condominium projects in Thailand.  As can be seen in the chart below, bar 2014, outbound purchases have been rising significantly with 2015 set to be a record year.


Note: Figures relate to the direct purchase of commercial real estate.

Source: JLL Global Capital Flows

But, given the depreciation of the Yen, doesn’t overseas investment look expensive to Japanese investors and why does this make any sense, especially given the fact that capital values in Tokyo are still significantly off their historical peaks, and near term capital value growth rates are set to outstrip most markets globally?  Essentially the strategy is a diversification play partly targeting markets with good long term economic growth prospects and the ability of investors to be able to tap into debt at some of the lowest interest rates in the world.  There is no doubt yen depreciation has reigned in overseas investment to some extent, but 2015 is already set to be a record year. Japanese overseas investors are focused on deploying capital on a long term basis in the developed markets, but also willing to focus on shorter term investment/development opportunities in emerging markets where they feel they can add value to a project or JV – namely development expertise, build quality and brand.

Since the 1990’s bubble, Japanese investors have been very cautious about investing overseas and certainly they have been slower to come to the table this cycle than their counterparts in China, where outbound investment has been red hot for some time.  By comparison Japanese overseas investment is still relatively small, around one fifth of that of China in 1Q15. That said we expect the trend of Japanese investors targeting overseas investment to continue and feel things may be better timed this cycle.

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