Safe as houses: investors flock to Japan's multi-family real estate sector

Wooed by its compelling stability, Asian investors and fund managers are looking to increase their allocations into Japan’s multi-family real estate sector
Safe as houses: investors flock to Japan's multi-family real estate sector

Allianz Real Estate’s Asia Pacific business is looking to expand its investment into the multi-family sector in Japan, where the company already has a $1.5 billion portfolio comprising 130 multi-family assets in Japan comprising 5,500 rental apartments.

CEO of Allianz Real Estate’s Asia Pacific business Rushabh Desai said the residential real estate market in Japan “offers an attractive long term stabilized cash yield”.

“There is a deep capital market in terms of buyers and sellers, the regulations are well established, and there is a good arbitrage between the yield and the cost of borrowing,” he told AsianInvestor.

He said prime residential assets in central Tokyo yielded between 3.0% and 3.5% on borrowing costs of between 0.75% and 1%, compared with an upper limit of 3.0% for offices.

Desai pointed to the sector’s strong performance over the past three decades, its resilience during the pandemic, and said future returns would be helped by the strong trend towards greater urbanisation in Japan. The fund is focused across the country’s four largest cities of Tokyo, Osaka, Nagoya and Fukuoka.


Joseph Lee, co-chief executive and president of the Seoul-based real estate specialist Igis Asset Management, told AsianInvestor the fund is looking at investment opportunities between $50m and $200m in Japan’s multi-family sector and hoped to make several investments there this year.

“[Japan] is very compelling because of the stability of the rents and the market’s liquidity, especially in Tokyo,” Lee said. “We would like to come back to [the market] when travel conditions improve.”

He added that the fund’s net return expectations, after currency hedging costs, were “between 6% and 6.5%”. The fund already has extensive multi-family investments in Japan, comprising more than 10 buildings.

Louise Kavanagh, CIO and managing director, Asia Pacific, for Nuveen Real Estate told AsianInvestor the company’s Japan multifamily portfolio had provided resilient income backed by high occupancy and sticky tenants within the mass market space.

“Rents have risen by roughly 1% over the year, within our expectations given the traditional lease structure,” she said.

She said that foreign and domestic investors continue to hold a positive long-term view of the sector, adding that the wide yield spread, given the low financing environment, was driving strong cash returns.

“Investors continue to maintain a positive view of the sector, given positive demographics especially in the key capital cities such as Tokyo and Osaka.”

She said the impact of the pandemic on the sector varied, with the lower end of the mass market segment having been most exposed to the pandemic downturn.

“On the other hand, larger-sized units in certain suburban locations have seen strong leasing demand due to the flexi work arrangements,” she said.


The head of Asia for a large European insurance company, who asked not to be named, said the company was looking to add to its existing investments in Japan’s multi-family sector, although declined to specify the size or timescale for the allocation.

“We definitely prefer the residential sector compared with offices. Working from home has accelerated people’s wishes to upgrade to a larger home,” he said, adding that he expected a hybrid model in the long-term with work spread between the office and home.

He said Japan was particularly attractive because of its developed market structure and the restrictions on foreign investors entering residential markets in other major Asian economies including China.

“Global institutional investors such as Allianz, Blackstone, Nuveen and APG are pursuing investing in Japanese multi-family markets,” Hideaki Suzuki, head of research and consulting for Cushman and Wakefield in Tokyo, told AsianInvestor.

He highlighted five main attractions of the sector for global investors: the high levels of stock; the low delinquency rate; the range of companies who will manage and operate multi-family buildings; and the maturity of the sector.

“In addition to this, multi-family investments are considered a defensive sector with people not moving out during economic turmoil.”


Lee estimated that demand from Korean investors for multi-family properties had roughly doubled since the start of the pandemic, attracting allocations previously targeted to offices and logistics.

“There is a huge demand from tenants and developers are meeting demand.”

However, it still remained a relatively small part of allocations.

The total number of investors is still small,” he said, noting that it was generally limited to mutual aid and insurance companies.

Increased investor interest in multi-family was part of a wider improving trend in niche sectors, including data centres, and now comprised roughly 10% of typical investor allocations to real estate, he said.


Desai told AsianInvestor last August that even in the worst of the pandemic, the occupancy rate of assets in the firm’s portfolio has been between 90% and 95%.

He noted that Japan was currently Asia’s only institutionalized multi-family market, with the sector in China and Australia only just starting to develop. The company is reviewing these markets, although it has not yet made any investments, he said.

In May, Desai revealed that Allianz Real Estate was planning to launch a $1 billion multi-family fund in Japan, although the company declined to give further information.

“We’re not a co-mingled fund manager, but we look for like-minded investors with whom to invest,” he said.

Over the past two years, Allianz Real Estate has raised over €2 billion (US$2.35 billion) of third-party capital from like-minded institutional investors investing alongside Allianz, of which more than €1.4 billion has been placed in Asian ventures.

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