September 2018 :: Case Studies
JAPANESE INVESTMENT INTO AUSTRALIAN REAL ESTATE ROSE SHARPLY IN 2017, REACHING ONE OF ITS HIGHEST LEVELS ON RECORD!
Japanese investors spent more than $1.6 billion on Australian real estate in 2017, which is more than triple their total spend across the previous eight years. This trend continued to gain momentum in 2018, with Tokyo listed group, Daibiru, acquiring 275 George Street, Sydney for close to AUD$240 million in August.
According to a new report from JLL - Japanese Investment into Australia - this is a trend around the world as Japanese outbound investment has grown steadily over recent years, with much of the focus being on core office assets, hotels and large scale development projects.
The target markets initially have been the United States and more recently Australia, with some development activity also occurring around South East Asia.
The findings come as market-watchers hail a new wave of capital from one of the richest countries in the world, as its investors re-engage their interest in the Australian market.
Stuart McCann, JLL's Head of International Capital for Australia, says: "There are a large number of Japanese groups in the early phases of their outbound investment strategies and Australia is a high priority market. Many groups are currently undertaking smaller investments via funds, forming separate accounts, strategic joint ventures or clubs alongside experienced local managers, as a means of growing knowledge and confidence in offshore markets.
"One of the most striking observations of their investment strategies is that Japanese investors are gearing up to build very large real estate exposures in offshore markets; however, they are being very measured in their approach. Many of their acquisitions have been high quality commercial office buildings, situated in highly liquid CBD markets and supported by robust income profiles," adds Mr McCann.
With an estimated $20 trillion of investible wealth and interest rates down to zero, capital allocation decisions have been of the utmost importance.
"This has led to fairly aggressive yield compression in Japan to sub-3% and has created an environment where real estate is incredibly tightly held, as the opportunity cost of holding funds in a bank account is decretive," said Mr McCann.
As a result, Japanese multi-asset managers, real estate investors and Japanese banks have all started to look abroad for investment opportunities.
Australia is one the most transparent real estate markets in the world, is one of only two countries in Asia Pacific with a AAA Standard & Poors rating and has enjoyed 27 years of consecutive positive economic growth, underpinned by a diverse economic base and positive government policy which is very open to foreign investment and immigration supporting very high rates of population growth.
According to Luke Prokuda, Director International Capital in Australia, "Over the coming decade we expect to see a fundamental shift in outbound capital from Japan. Faced with several structural headwinds, including slowing population growth, an ageing population and low economic growth Japan will have no other option but to look offshore. Australia's commercial real estate markets also remain highly attractive on a relative value basis."
