Asia’s most dynamic real estate market continues to present a multitude of investment possibilities across diverse asset classes, as affirmed by decision-makers from four major industry players during their discussions at the Mingtiandi Tokyo Forum, an event generously sponsored by Yardi.
A distinguished panel comprising leaders from AXA IM Alts, UBS Asset Management, Alyssa Partners, and Norges Bank Asset Management commended Japan for its plethora of appealing investment opportunities, which span essential sectors such as residential properties (beds), logistics (sheds), high-demand data centres, and even office assets. This comes in the wake of Japan leading the Asia-Pacific region in real estate transactions, with a remarkable $19.3 billion worth of income-yielding properties changing hands in the first half of 2024, according to data compiled by MSCI.
In the context of political turbulence on both sides of the Pacific — highlighted by the anticipated return of Donald Trump in the U.S. and a precarious minority government situation in Japan — Laurent Jacquemin, who heads Asia Pacific for AXA IM Alts Real Assets, identified the trajectory of interest rates as the predominant risk factor when evaluating real estate investments.
Policy Continuity a Plus
AXA IM Alts has embarked on a significant investment spree in Japan in recent years, underscoring its confidence in the local market. In June, the fund manager completed the acquisition of a 183-key hotel located in the historic city of Kyoto for $44 million, with ambitious plans set to refurbish the asset to enhance its value. Last year, AXA made significant strides in the senior housing sector by purchasing two properties totaling 331 rooms on the picturesque island of Hokkaido, alongside acquiring a portfolio comprising 33 apartment assets strategically located across Tokyo, Greater Osaka, and Nagoya.
The keynote panel discussed Japan investment at the Mingtiandi Tokyo Forum
As part of its vision for diversification, AXA is keen to reduce its bed-heavy portfolio in Japan by exploring promising investments in the burgeoning life sciences and data centre sectors. Jacquemin shared with the 200 delegates gathered at the Mandarin Oriental Tokyo that his firm acquired a data centre back in 2020, and a recent sale of the asset presented an attractive opportunity under favorable conditions. He added, “We like the data centre space because we feel that in Japan, there is a growing demand for more data centres.”
Observations about political shifts were highlighted by Taiyo Taimi, who serves as the head of Asia unlisted real estate at Norges Bank Investment Management, the firm responsible for managing Norway’s $1.7 trillion sovereign fund. Taimi noted that while Trump’s potential election victory was somewhat anticipated, the unexpected loss of the ruling coalition’s majority in the Japanese parliament marked a significant political moment. Nevertheless, he urged caution, asserting that stakeholders should not expect abrupt policy shifts that would drastically impact Japan’s real estate sector.
“Japanese policies are, more or less, very slow to change,” Taimi remarked, emphasizing the steadiness of interest rates, tax policies, and other regulatory frameworks. “I think changes will unfold gradually, but I don’t foresee any drastic differences in Japan.”
Stabilized office assets in Tokyo remain highly appealing to Norges Bank, as Taimi noted that the city’s new supply of office space accounts for a mere 1 percent of the total stock, with net additions declining steadily over the past decade. “As a long-term core investor, we consider a 10-year holding period as still relatively short,” he stated. “Our strategy is to navigate the market cycle thoughtfully and partner with exceptional assets and partners for the long haul.”
Multi-Family Matters
Hajime Watanabe, president and representative director at UBS Japan Advisors, conveyed that he perceives minimal distinction between Japan’s ruling and opposition parties regarding policies that would significantly influence real estate valuations.
The rental residential sector has become increasingly attractive for Watanabe’s firm, which operates under the umbrella of Swiss financial giant UBS Asset Management, known for managing $117 billion worth of global investments spanning real estate, infrastructure, and private equity. Watanabe remarked on the multi-family segment’s stability, which receives robust backing from private capital, family offices, wealthy investors, and other financial powerhouses.
“Multi-family is a very good tool for those in a wealthy family to compress the actual taxable amount for the asset,” he explained, highlighting the sector’s financial advantages.
Few industry professionals possess as much expertise with multi-family dealmaking as Chedli Boujellabia, the founder, managing partner, and CEO of Alyssa Partners, which concentrates exclusively on investments in Japan while collaborating with industry heavyweights such as AXA IM, PGIM Real Estate, and private equity giant Blackstone. Boujellabia confirmed that Alyssa intends to maintain a strong focus on living sectors while exploring new opportunities in logistics and data centres. He stressed that interest rates remain a critical variable impacting the investment climate, noting that they have risen from near zero to 40 basis points, leading to compressed cap rates while still offering prospects for positive yields in core markets like Tokyo and Osaka.
“Japan is the largest developed market in Asia, with exceptional depth and liquidity,” Boujellabia mentioned. “Most investors choose Japan for its specific asset class, for the stability it offers and the predictable income stream. Therefore, it comes as no surprise that Japan continues to attract keen interest from an array of international investors.”
A Panel in Pictures
**Interview with Laurent Jacquemin, Head of Asia Pacific for AXA IM Alts Real Assets**
**Editor:** Thank you for joining us today, Laurent. The Mingtiandi Tokyo Forum showcased Japan’s dynamic real estate market. Can you highlight what makes Japan an appealing destination for real estate investment right now?
**Laurent Jacquemin:** Thank you for having me. Japan’s real estate market is particularly attractive due to its stable economic environment and diverse investment opportunities across various sectors. We’re seeing substantial movement in residential, logistics, data centers, and office assets. With Japan leading the Asia-Pacific region in real estate transactions—over $19.3 billion of income-yielding properties in just the first half of 2024—it’s clear there is strong investor interest.
**Editor:** Given the political landscape, with the potential return of Donald Trump in the U.S. and Japan’s minority government situation, how are these factors influencing investment strategies?
**Laurent Jacquemin:** Political turbulence undoubtedly presents risks, particularly regarding interest rates. They remain our primary concern when evaluating investments. However, we believe that Japan’s policy environment tends to be stable and slow to change, which provides a level of comfort for long-term investors like us.
**Editor:** You mentioned AXA IM Alts has been expanding its footprint in Japan. Can you share more about your recent acquisitions?
**Laurent Jacquemin:** Absolutely. In June, we acquired a 183-key hotel in Kyoto for $44 million, which we plan to refurbish. Last year, we entered the senior housing sector with two significant purchases in Hokkaido and acquired 33 apartment assets in major urban centers. This growth reflects our confidence in Japan’s market fundamentals.
**Editor:** You also indicated a shift in focus towards life sciences and data centers. Why is that important now?
**Laurent Jacquemin:** The data center sector is booming due to increasing demand in Japan, and we view this as a promising area for growth. We sold a data center recently, which confirmed our belief in the space’s potential. We’re looking to diversify our holdings to maintain a balanced portfolio, moving away somewhat from residential-heavy investments.
**Editor:** Lastly, could you elaborate on your long-term strategy in Japan’s office market?
**Laurent Jacquemin:** Certainly. The office market in Tokyo remains appealing due to limited new supply—just 1 percent of the total existing stock. Our strategy revolves around maintaining a long-term core investment approach. We often consider a holding period of around ten years to be ideal, as it allows us to ride out market cycles and seize opportunities with exceptional partners.
**Editor:** Thank you for your insights, Laurent. It seems Japan’s real estate market holds promising prospects, even amidst global and local uncertainties.
**Laurent Jacquemin:** Thank you. Yes, we’re optimistic about the future and committed to navigating these waters thoughtfully.