Japanese Real Estate Market Update

We all know that many (if not all) countries have suffered enough because of the pandemic. The global economic slowdown is too much and most industries have been suffering varying degrees of negative impact, which can be described as miserable. BUT, you can find Japanese real estate is recognized as having the least impact.

In the first half of 2020, the investment in the real estate market in Japan reached 1,600 billion yen, ranking first in the world. Foreign investors are increasingly looking to Japan. Following Warren Buffett, the Japanese real estate market once again ushered in PAG Group’s (Pacific Alliance Investment Group, Hong Kong) 800 billion "epic" capital injection.

In August, we just learned that Berkshire, owned by Warren Buffett, bought shares in five Japanese trading companies - ITOCHU Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co., and Sumitomo Corporation.

This incident alone was enough to excite investors who are optimistic about Japan for a long time, but they did not expect that in September, another "blockbuster" was precisely thrown into the Japanese real estate market - PAG, an Asia-focused private equity firm. In the next four years, a maximum of about 800 billion yen will be invested in real estate in Japan, with high-profile admissions.

The Blackstone Group also announced on October 14 to invest 2 trillion yen (about 130 billion yuan) in Japan. At this stage, it has raised about 15.8 trillion yen and continues to invest in Japanese real estate. (Note: At the beginning of 2020, the Blackstone Group, Allianz SE and AXA invested a total of over US$4.9 billion in the Japanese rental apartment market.)

In the global private equity investment industry, there is a ranking that best shows the investment ability and investment vision of a private equity investment company (PE, Private Equity) - the United States Private Equity International (PEI) ranking.

Among them, in the 2020 "PEI 300" list announced by PEI, the top 50 can definitely be regarded as the mainstay of the global private equity field in the past five years. In Asia, only 4 PE companies have entered the TOP50, among which PAG has invested.

When many investors hear "Blackstone Group", their eyes will shine, because as a temple-level investment company, we can get a glimpse of the future market dynamics from its investment trends. Similarly, as the "PEI TOP50" PAG, we can also look at the future investment development from its layout. After all, it has a title in the investment industry -"Asian Black Stone".

On Oct 12, Nikkei Asia also reported that BGO (BentallGreenOak) - a large Canadian real estate fund, decided to invest one trillion yen in the Japanese real estate market. This Canadian investor plans to invest up to $10 billion in Japan during the next two to three years as it expects high returns from a market that has been less roiled by the pandemic than the U.S. and Europe. BGO has raised capital from American and European pension funds and other investors for a new Asia fund.

BGO will focus on office buildings and other properties that companies put on the market. It does not expect a significant decline in office space demand in Japan - a trend experienced around the world as the pandemic puts workers in their own homes and convinces managers that the arrangement works - because Japanese residences are relatively small with poor information technology infrastructure.

In April, when Japan was under a state of emergency, BGO acquired an office building in Tokyo's Kojimachi district from real estate company Unizo Holdings. BGO also plans to buy low-priced hotels and flip them after tourism demand recovers. Among foreign funds, it has top-class investment records in Japan. CEO Carlos stated that "Japan is the most attractive real estate market in the world today."

It seems that all signs (from Buffett entered the Japanese market, PAG, Blackstone, BGO followed suit with large sums of money to favor Japanese real estate) indicate that Japanese real estate has not been hit hard by the pandemic. Even because of its limited impact on the Japanese real estate market, investors are more willing to obtain higher investment returns in Japan than European and American real estate.