According to CBRE, outbound real estate investment by Japanese investors has been expanding since 2011. Although 2014 saw the total investment amount (in existing properties only, excluding purchases for development) drop 6.9% y-o-y to $1.8 billion, the market is likely to expand going forward.
Major investors driving the market to date include real estate companies and general trading companies. Offices are the most favored asset class, but in recent years, more investors are diversifying into hotels, residential and other sectors. The preferred regions for investment are North America and Europe. However, with regards investment for development purposes, such as land transactions which are not included in the figures quoted above, the largest number of investments has been in Asia.
Outbound real estate investment growth by Japanese companies is based on:
The expectation that demand for real estate in Japan will decrease in the long term because of the declining population
Greater geographical diversification of assets to lower investment risks
Increasing competition in the Japanese real estate investment market on the back of recovery in fundamentals and favorable funding environment
Outbound real estate investment by Japanese investors is likely to continue increasing further in the coming years, particularly through indirect investment through funds.
In this regard, anticipated investment by the Government Pension Investment Fund (GPIF) is of particular note. As part of its plan to increase allocations to riskier assets, the GPIF, which had JPY 141 trillion of assets under management as of June 2015, will invest a larger proportion of its assets in Japanese and international equities, and will start to invest in alternative sectors, including real estate. Assuming that it will invest a similar proportion of its assets in real estate as other Japanese public pension funds, and in overseas real estate as one of the major US pension funds, the total amount of investment in overseas real estate by GPIF could be at par with the total Japanese outbound real estate investment recorded in 2014 (all else being equal, and assuming an exchange rate of JPY 120/USD).