Japan's industrial investment inflows down 20% in H1 2020

But this is due to elevated investment levels last year, not weak investor sentiment.

Whilst the logistics sector has been one of the few in-vogue sectors during this global pandemic, Savills reveals that investment flows across the nation in 1H/2020 declined compared to the same period last year. According to data provided by Real Capital Analytics (RCA), inflows this time around amounted to just over JPY200 billion – a near 20% YoY drop.

According to Savills, this is unsurprising on two fronts. First, the decline is credited to the elevated levels of investment that took place last year, rather than a worsening of investor sentiment this year. Second, international travel bans continue to play havoc for overseas investors hoping to conduct due diligence. That said, 1H/2020 remains on par with the average 1H investment volume over the past decade.

Still, examples of big-ticket item transactions were observed in 1H/2020, including Prologis REIT’s acquisition of three logistics facilities in February for JPY59.3 billion. Meanwhile, GLP’s establishment of a JPY280 billion private fund specialising in logistics facilities also signals a strong investment pipeline ahead.

Indeed, the logistics sector should be able to maintain its appeal for investors over the remaining months of 2020, especially considering the contrasting prospects for the sectors most impacted by COVID-19.

Whilst funds continue to flow into the sector, the aforementioned bi-annual survey appears to temper some of this optimism, at least over the next six months. In the previous questionnaire six months ago, for example, with the extent of the global pandemic yet to be fully understood, market sentiment towards both capital values and rents hit four-year highs. As the crisis has developed, however, market participants have understandably downgraded their views.

Driven by the economic difficulties facing tenants and the subsequent weakening of demand, as well as the health of the Japanese economy in general following the onset of COVID-19, the prospects for rents saw the greatest deterioration as shown by the index falling by almost 20 points to 28.4.

As for capital values, despite a slight drop in market sentiment, the proportion of respondents who believe that values will appreciate during the next six months has marginally risen this period, with the increased attention the sector has been receiving from investors cited as the main factor.