Asia Pacific Real Estate Private Equity Capital Deployment to Top JPY 5.9 Trillion by 2020

JPY 1.2 trillion to be invested in Japan

Investors lured by attractive yield spread and favorable fundamentals

Tokyo, April 2, 2018 - Japan can expect to see robust investment by Asia Pacific-focused closed-end real estate funds over the next three or four years, according to the latest CBRE Research Asia Pacific report, entitled “The Next Wave of Capital Deployment.”

Capital deployment in Asia Pacific by private equity real estate funds

• CBRE Research estimates that approximately JPY 5.9 trillion^*1 of private equity real estate capital will be deployed in the region between now and 2020. China, Japan, and Australia will be the top three recipients of this capital.
• Between 2014 and Q3 2017, JPY 4.7 trillion of capital was raised by Asia Pacific-focused closed-end real estate funds, which translates to around JPY 12.9 trillion (post-leverage^*2) of purchasing power. Since then, 54% of capital has been deployed, with Australia, Japan, and China accounting for nearly 75% of total investment. The remaining capital will need to be deployed by 2020, or funds must apply for an extension or return the capital to investors, given the usual investment period of three to four years. Fund managers are unlikely to wait much longer for deployment, meaning that 2018 may see significant purchasing activity.

Capital deployment in Japan by overseas real estate private funds

• CBRE Research data show that between 2014 and Q3 2017, overseas real estate private funds invested JPY 1.7 trillion in Japan, a figure second only to Australia^*3. 50% of total investment volume in Japan was accounted for by opportunistic funds and 40% by core or core-plus funds.
• The remaining capital is expected to be invested mostly in developed Asian economies. Japan is expected to see as much as JPY 1.2 trillion, second only to China where JPY 1.6 trillion of investment is expected. However, the lack of prime assets for sale in Tokyo will remain a major challenge to investors, many of whom are shifting focus to mid-sized office buildings in Tokyo and assets in regional cities.
• Global investors, particularly institutional buyers, retain a strong appetite for real estate amid the globally low interest rate environment. Japan continues to be seen as an attractive destination due to its large, sophisticated economy; stable fundamentals; low inflation; and current loose monetary policy. Interest rates look set to remain at current ultra-low levels for some time, ensuring Japan offers higher yield spread relative to other major markets.

^{*1. JPY 110.9595 per USD
*2. USD 116 billion figure includes leverage by assuming the LTV ratio for core/core-plus funds (30-50%), value added funds (60%) and opportunistic funds (70%)
*3. Capital deployment by major country (USD billion): Australia (21), Japan (15), China (11) and South Korea (5)}