The country remains a safe spot for global capital.
According to a recent Knight Frank release, international investors are gradually re-entering the Japanese market, capitalising on favourable long-term prospects. This is most evident in established players seeking opportunities in prime locations and high-quality assets that offer stable yield spreads.
For instance, BentallGreenOak acquired Honmachi Garden City in Osaka, a mixed-use building, from Sekisui House REIT for US$422.9 million in May 2024. The deal cap rates at 3.0% for the hotel component and 3.4% for the office component reflect the premium placed on well-located, high-quality assets in Japan’s major cities.
While the living sectors continue to draw investors’ interest, cap rate compression has led to investors’ increased selectivity in multifamily asset acquisitions. Interestingly, some investors are expanding their focus to include the senior living sector. This shift is strategic, capitalising on Japan’s demographic trends toward an aging population.
Neil Brookes, global head, capital markets, Knight Frank, says, “We expect 23% of the total cross-border flows to target Japan in 2024. As Japanese companies accelerate the shedding of property assets, more motivated sellers are unlocking extensive opportunities in the country. Japan remains a safe spot for global capital due to the Bank of Japan’s cautious approach. The Central Bank monitors market conditions, prioritising sustainable wage growth and moderate inflation before significant rate hikes. A short-term 10-30 basis point rise is possible with minimal impact on value-add players.