TH Real Estate has completed the purchase of a multi-use asset in Ginza, Tokyo, representing its debut investment in the Japanese market.
The company has acquired the Ginza 1 Chome Building, a 4,539 sq m (c. 49,000 sq ft) retail and office property from the Standard Life Investments Global Real Estate Fund for a consideration estimated at $82 million.
The 13-storey building is located in the heart of Tokyo’s CBD in Ginza, Chuo Ward with access to five train stations. It comprises of nine floors of retail and four floors of office with basement parking. The property is multi-let to ten diversified tenants, anchored by a Kimono shop, signed for a fixed long dated lease, representing its flagship Ginza store.
The investment has been led by Shu Watanabe, director of capital transactions for Asia, who joined TH Real Estate in June 2016. Watanabe commented: “The acquisition fits our strategy of owning well-located, prime properties that cater to today’s occupier needs.”
“The property is strategically located on the corner site fronting Showa-dori, a major arterial road in Ginza, providing high traffic and visibility for retail tenants while its close proximity to Nihonbashi CBD on the north and Shiodome CBD on the south draws strong demand for office tenants, underpinning our expectations for stable cash flo,” he added, stating that due to Tokyo’s demographic fundamentals, it made a “defensive long term investment.”
Given its role as their debut investment in Japan, Chris Reilly, their Managing Director, Asia Pacific, opined: “As a business, we are committed to growing our business across the Asia-Pacific region. This latest investment complements our existing Asia-Pacific portfolio and aligns with our strategy of investing across the world’s most attractive real estate markets, identifying tomorrow’s ‘winning’ cities.”
TH Real Estate is an operating division of TIAA Global Asset Management, is one of the largest real estate investment managers in the world with $97 billion in AUM. it maintains 18 global offices in the US, Europe and Asia Pacific, managing nearly 80 funds, with mandates spanning both debt and equity across diverse geographies, sectors, investment styles and vehicle types. the firm provides access to every aspect of real estate investing.
A recent research report by TH Real Estate that assesses the state of Japan’s economy and outlook for real estate opportunities has highlighted a number of fundamental justifications for investing in Tokyo real estate, including it being a core and highly liquid institutional market.
The Japanese market at this point has a strong safe guard to pricing, in the form of “supportive lending policy and a robust capital market with JREIT interests and appetite, ” to date.
According to the report by TH Real Estate, Tokyo’s office rents are virtually at the same level in real terms in 2015 as they were in 1996, following the property market crash, with the residential sector seeing real rents increase by about 25 per cent in the same period. Despite not being able to deliver long-term lasting growth to property investors, Tokyo properties are able to offer stable income returns, according to the company.
The development in Japan also reflects demographic changes elsewhere. Factors such as an ageing population, falling working age population, leading to an overall decline of the total population, will lead to a “clustering of people in some cities at the expense of less successful towns and cities”, with forecasts suggesting Tokyo will produce
almost 50 per cent of all GDP growth of Japan over the next 15 years.
As an international business hub and gateway to Japan, the Tokyo also stays perpetually younger than the rest of the country, with graduates moving to the city centre when initiating their careers and to the outskirts when starting a family; and then often to slower paced and less expensive towns once they approach retirement.
According to Investopedia, Japan’s economy ranks third in terms of nominal GDP and fourth globally when comparing the GDP by purchasing-power-parity as at July 2016. Economic growth has hovered between 0.5–2 per cent and is forecast to remain below 1 per cent over the next six years, with a nominal GDP of $4.12 trillion, a GDP (PPP) is $4.83 trillion and a GDP (PPP) per capita of $38,054.
Investors uncomfortable with deploying capital in Japan as a whole, due to the long-term demographic challenges, may conclude that Tokyo’s fundamentals fit their investment requirements in terms of prospects and risks and resembles a similar polarisation pattern emerging in Europe which is seeing successful cities like Milan and Munich pulling ahead of national peers weighed down by a rapidly ageing population.
This is likely to impact other Asia Pacific cities in the long term, such as Singapore, Taipei and Hong Kong, all of which are societies with ageing demographics.