Japan’s office market has been a strong performer and is a key target for core real estate capital, but those looking for higher returns need to roll their sleeves up.
Data from Real Capital Analytics show transaction volumes in Japan fell 26% to $28.8bn last year, as J-REITs reduced their acquisitions and all investors had difficulty in finding value.
Tetsuya Kaneko, head of Japan research and strategy at Savills, says: “Prime Tokyo office cap rates appear to have bottomed out at around 2.9%, though regional office markets may still offer growth and have a more favourable market balance.”
He suggests investors looking for higher returns need to work on their real estate: “Opportunistic investors could also renovate ageing office properties and ratchet up values. For instance, GreenOak Real Estate relaunched the Aoyama Building in September after a large-scale renovation.”
Kaneko believes provincial cities may offer even more opportunities than Tokyo, as their office markets are even tighter with no new supply pipeline. “There should be more opportunities left for long-term investors with well-thought-out strategies and strong intuition,” he says.