They’ve been setting up, restructuring, researching and laying plans for years, but Japanese investors are not yet in European mainland real estate. Why? My advice: If you don’t come now, forget it until the next cycle.
Despite immense capital pools in public and private sector pension and insurance savings, Japan is the single major global capital source that is all but inactive in Europe. Ex-UK. One or two London projects are ongoing, yes. But in Europe the very active from Asia include PRC, Hong Kong and Taiwanese money, institutional and private. We have Singapore’s GIC immensely active for the last 20 years, and we have Korean, Indonesian, even Filipino and Thai capital. But no Japanese.
The trickle of external real estate investment from Japan was a mere $1.3bn in first half 2017 and went for the most part into US office assets, according to CBRE. Yes, this was an increase of 23%yy but, well… the world’s largest pension fund, the Japanese Government Pension Investment Fund has AUM of $1.28tr, and that is just the first of many. So this amount is, well, leakage.
And even last February’s appointment of the estimable Hideto Yamada to run the GPIF real estate division – long-time Mitsui Fudosan boss in London, known to many European executives – doesn’t seem to have made GPIF look signficantly to foreign property investment. Other vast Japanese pension plans have been similarly ‘in meetings’, it seems.
In indirect investment, CBRE Research estimates that outbound real estate investment from Japan, including that through funds, could reach $15.3bn in the next few years. “This is more than the cumulative amount of direct outbound real estate investment in existing properties recorded between 2012 to 2016, which totaled $9.1 bn” – which already tells you a lot. Even if CBRE sees more Japanese real estate and general trading companies forming real estate funds targeting overseas investment, the truth is there really hasn’t been much action. Foreign development investment but really, a total of projects in 1H17 up 35%yy – to $700m! Leakage.
The fact is the Japanese are just not coming to Europe. Is it the crisis in the Eurozone or the euro that the Anglo media seem to identify every two months? Is it the absence of value and opportunity?.. which I don’t see either. Or is it simply that no one wants to make the first move?
Being the world’s most pro-cyclical investors it is fairly certainly that Japanese institutions will start buying into European real estate sometime in 2019 – and subsequently lose a lot of money. That timing will of course be splendid for European, North American and other Asian sellers. It should be right about the top of the cycle, and will let them cash out.