[+] Japan Backing Australian Property Sector at Record Rates

It may have one of the most resilient property markets in the world right now, but Japanese investors are seeking some southern exposure. While many investors are looking for deals in Japan’s low interest rate ecosystem, the nation’s pension funds are hunting in Australian waters—in a big way. Japan’s capital volume for 2023 is in excess of $2.5 billion to date, 11 times its 10-year average, according to Colliers managing director of Asia Pacific markets Chris Pilgrim. In fact, MSCI Real Capital Analytics data points to acquisitions in excess of $3 billion this year, compared to just $19 million a decade ago. Japanese real estate house Daibiru took a 50 per cent stake in Mirvac’s $630-million 7 Spencer Street office tower in May this year. Japan’s biggest homebuilder Daiwa House has partnered with Lendlease on its $650-million, 797-apartment build-to-rent project at Melbourne Quarter . Lendlease will retain a 25 per cent interest in the development. ▲ Among the Australian assets with Japanese involvement are the Melbourne Quarter Skypark and 7 Spencer Street (main image). It’s the second time Daiwa House has partnered with Lendlease, after Claremont Hall residences in Manhattan. The developer has secured significant levels of Japanese partner investment in projects totalling about $11 billion in end value. But for Daiwa House, the population growth and promise of solid returns are key fundamentals underpinning its investment Down Under. In contrast, Japan’s ageing and shrinking population is constraining investment opportunities domestically. Mitsubishi Estate is the third biggest global capital real estate player in terms of property investment in Australia. It scooped up a significant stake in Mirvac’s build-to-rent portfolio in joint venture with the Clean Energy Finance Corporation earlier this year. “Japanese pension funds are targeting Australia’s property market for its safe and sustained returns,” Colliers’ Chris Pilgrim says. He says Australia’s apartment sector, including build-to-rent and student accommodation, has accounted for 39 per cent of foreign investment this year. But it’s not only residential markets driving foreign investment. “Australia is one of the top 10 destinations for foreign capital,” he says. “Alternative assets are becoming very appealing for investors globally, and there’s now more product in those alternative asset classes. “Australia has been very strong particularly in healthcare and senior living.” ▲ Colliers managing director of Asia Pacific capital markets Chris Pilgrim. Pilgrim says while there has been a focus on foreign investment into Australia’s emerging build-to-rent market, student beds is also a focus. “Investors in purpose built student accommodation are allocating their money to US, UK and Australian property,” he says. “It may have taken a hit during the pandemic but all of those student living towers are back to strong occupancy rates. “All of those countries have well-established international student programs, and students are looking for English language degrees. The fundamentals are there. “When there are economic headwinds there’s generally been a robustness to the student accommodation market.” The pension funds’ “patient capital” takes a 10-year view on property investments, according to Pilgrim, which lends itself to the build-to-rent and student accommodation markets, and even an office recovery. ▲ Japan’s ageing population is giving investors there an appetite for markets with population growth. Indeed the Japanese investors’ shopping lists are long it would seem, chalking up the highest value of cross-border acquisitions this year. Pilgrim says in Australia there is “more Japanese capital in the market in 2023 than for many years prior”. “Australia is seen as a safe haven for foreign investors, and probably more so now than ever before,” he says. “Australia is relatively politically and economically stable. “Japan is facing a population decline. Population growth (in Australia) means people need real estate. Japan is arguably one of the best performing real estate markets globally right now, but investors are looking at the population growth of Australia as an opportunity. “Japanese investors have often been overweight in their own market allocations. But foreign investors are moving into Japan’s markets. Japan hasn’t really raised their interest rates so there’s an opportunity to come into that market and there’s a lower cost of capital there, so you can look at leveraging.” Pilgrim says Singaporean and Hong Kong SAR are also looking to deploy capital into Australian markets, and while residential and alternative assets are appealing now, he says office may yet have a resurgence as investors look for exposure up the risk curve. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Japan Backing Australian Property Sector at Record Rates

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