Property investors remain attracted to offices in Japan’s regional cities

One company will invest US$10b in Japan, 70% of which will be invested in office buildings.

According to the bi-annual investor survey conducted by the Japan Real Estate Institute (JREI) in April 2021, cap rates in all regional markets have remained flat, with the exception of Sapporo which tightened 10 basis points (bps) from the previous half year. 

Overall, Savills says this indicates that interest in the market has remained strong amidst the pandemic because of its stability as well as the attractive funding options available. 

Here’s more from Savills:

In light of the pandemic, investment volumes in 2020 declined 9% YoY, although they were still higher than 2018 levels.  Specifically, within the office sector, transactions fell 13% YoY to its lowest annual investment volume since 2012. Indeed, more widespread remote work conditions had led to uncertainty over occupier demand for offices, and subsequently suppressed investor appetite towards the sector. 

Nonetheless, as the pandemic fades into the background and workers return, expectations of rental recoveries have driven some confidence back into the sector. This should translate to an increase in investment volumes in 2021. 

There are still high levels of both domestic and international investor interest. As an example, after announcing its plans to invest US$10 billion in Japan over the next two to three years, with up to a 70% allocation to office buildings, BentallGreenOak acquired Hirokoji Cross Tower in Nagoya in a transaction estimated to be in the higher end of the JPY40 billion range. 

Furthermore, PAG also acquired ShinYokohama Business Tower for an estimated JPY16 billion. Despite a slow first quarter, higher transaction volumes can be expected over the remainder of 2021 as the pandemic approaches a close and market prospects become clearer.