Japan industrial capital appreciation to see the largest increase since 2012

It’s expected to increase by 23 points this year.

With 2020 centred on the global pandemic, it was a challenging year for the real estate industry. According to data aggregated by Real Capital Analytics (RCA), overall yearly investment volumes in Japan have fallen more than 20% YoY to the lowest levels seen since 2012. However, this decrease was unevenly distributed towards the hospitality and retail industries, with the two sectors bearing the brunt of the impact from the global pandemic.

On the other hand, the logistics sector has emerged as one of the winners, with the drawn-out pandemic only appearing to have boosted it. While overall inflows in 2020 are around 10% lower than the record high volumes that 2019 had achieved, they are still more than 30% higher than 2018 volumes. Furthermore, 70% of the 2020 transaction volume occurred in 2H/2020, signalling a strong end to the year and providing the momentum for 2021.

Many large companies had a busy second half of the year. GLP Japan Income Fund with US$5.4 billion AUM completed its second round of fundraising. Elsewhere, Daiwa House Industry has also started to consider the establishment of a JPY300 billion logistics fund, funnelling additional capital into the market.

Cross-border investment was also active. ESR announced the development of ESR Higashi Ogishima DC that will be built in two phases, each with a GFA of over 300,000 sq m, completed in 2023 and 2025. Furthermore, Mapletree will be investing JPY43 billion to build two logistics facilities in Fukuoka prefecture, forecast to be the largest facilities in the Kyushu region, to be completed in 2023 and 2024.

Moreover, multiple headline transactions were also observed in 2H/2020 within the J-REIT space. Notable deals include GLP J-REIT’s acquisition of seven logistics facilities in December for JPY98.2 billion, REIT Mitsui Fudosan Logistics Park’s acquisition of two logistics facilities in October for JPY77.4 billion, and LaSalle Logiport REIT’s acquisition of four logistics in September for JPY76.5 billion. The second half of 2020 was indeed a busy period for the hottest sector of the year, as supported by the strong J-REIT unit prices. The J-REIT market has rapidly recovered year to date, and logistics J-REITs will likely remain active this year.

Indeed, with the high volume of large transactions and the amount of investment pouring into the market, it is unsurprising that investor confidence levels should be high. The 27th bi-annual survey market sentiment conducted by Ichigo Real Estate Service echoes this opinion, with expectations of rent and capital appreciation increasing by 27 points and 23 points respectively, the largest jump since 2012. Understandably, investors have upgraded their views given the strong market fundamentals and the high level of activity around. 2021 so far has ticked many boxes required for us to expect a promising year for the logistics sector.