Fund Managers fear Japanese Commercial Property Prices are nearing Peak

Posted on 21 January, 2015 by Jodee Redmond

Axa Real Estate (Axa) is concerned that Japanese commercial property prices may be close to their peak.

Tokyo, Japan city skyline with Tokyo Tower and Tokyo Skytree in the distance.

The fifth-largest property fund in the world is looking at the recent increase in real estate values due to the government’s efforts to put an end to deflation and give the economy a boost, and is considering putting some of its properties on the market.

The properties that would be put up for sale are ones held in a fund that Axa established in 2012, according to Tetsuya Karasawa, head of AXA Real Estate Investment Managers Japan KK. The fund is now fully invested, the company has recently stated.

Property Fund a Joint Venture

The fund is a joint venture with the property arm of Sumitomo Mitsui Trust Holdings Inc. The fund has acquired $170 million worth of assets, most of which are medium-sized office buildings in Tokyo.

It can hold the assets until 2019, although it has the option of taking advantage of recent price increases to sell some of the properties earlier, according to Mr. Karasawa. He pointed out that if the assets are sold now, the fund will be able to get a good price.

Falling Yields for Tokyo Office Buildings

According to Real Capital Analytics Inc., the capitalisation rate (which is a way to track investment yield) for office buildings in Tokyo fell to the lowest level since August 2009 last November.

The New York-based firm stated that yields decreased to 4.75 per cent in November from 5.3 per cent two years previously. When yield declines, values increase.

Tokyo’s property market has been in recovery mode since Prime Minister Shinzo Abe introduced a policy to stimulate the economy and end deflation two years ago.

Prices of prime office buildings in Tokyo increased by over 20 per cent in 2014 and are projected to go up by at least another 10 per cent this year. Rising rents and low borrowing costs are contributing to the increase, according to Takeshi Akagi, Jones Lang LaSalle’s head of research in Tokyo.

The current market is very competitive and Mr. Karasawa stated that his firm doesn’t want to launch a new fund that can’t invest. At present, they are considering their strategy very carefully before deciding what their next move should be.

AXA Real Estate currently has $66.7 billion in assets under management, according to a 2014 fund manager survey conducted by Anrev and Inrev, associations for real estate investors.

The property fund is part of AXA Investment Managers, which is a subsidiary of the French insurance and financial services company AXA SA.

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