A stable market is at the root of its appeal.
Japan’s relative stability and favourable funding conditions continue to attract international capital. This trend is even more apparent in the increasing uncertainty in the world due to the pandemic. Moreover, geopolitical risks are likely to lean more into the spotlight once the Covid-19 situation comes under better control.
Japan’s position as a safe haven in an uncertain world is thus becoming more obvious to investors searching for stability. Meanwhile, more Japanese corporations are starting to dispose of corporate real estate in order to alleviate economic damage from the pandemic as well as to increase capital efficiency, leading to eagerly awaited investment opportunities. Recent headlines include Japanese advertising giant Dentsu planning to sell its headquarters in Tokyo for US$2.5b. Furthermore, large foreign investment firms BentallGreenOak and PAG have decided to invest US$10b and US$8b respectively in Japanese assets over the next few years. Furthermore, the recently expedited rollout of vaccines is likely to hasten the opening of the economy, contributing to corporate activity levels, and more active leasing and sales markets.
Japan is able to offer appealing returns to those looking for secure investments. Looking at Graph 1, Japanese government bond yields have remained at virtually zero, making the relatively stable real estate market in Tokyo an attractive investment. Tokyo is also likely to garner the attention of overseas investors as the favourable spread between high-grade office yields and 10-year bond yields is highest there when compared to its peers in the Asia Pacific region, standing at 2.7%. Other major cities in Japan, like Osaka, Nagoya and Fukuoka, are able to offer slightly higher yields, although their markets are admittedly not as strong as Tokyo’s.