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“It is a great time to invest in Japan”

Interview - December 17, 2019

Norimasa Gaun, President and CEO of Japan REIT Advisor, an asset management company of the Japan real estate investment trust (JREIT), gives his insight into the booming Japanese real estate industry and how his company can help foreign investors to make some attractive returns on the JREIT market.



In the first quarter of 2018, Tokyo overtook London as the world’s busiest real estate market, with investment volumes reaching 9.1 billion USD. Many factors influence these investment waves, such as the Tokyo 2020 Olympics, the decreasing demographics or the increasing influence of Asia on the world scene. Could you give us brief analysis of the Japanese real estate segment and the trends in the market?

We are currently harvesting the fruits of the Abenomics policy initiated in 2012 by the Prime Minister of Japan, Shinzo Abe. These measures have been very efficient in terms of asset investments, whether it be residence or office buildings, and in terms of employment. Another factor that explains the uptick in the industry is the drastically increasing number of foreigners visiting Japan, and this growing influx is clearly boosting the hotel market.

Finally, the migratory influx towards major cities such as Tokyo makes it necessary to build more residential properties. We are an asset management company entrusted by United Urban Investment Corporation, one of the diversified J-REITs. Our assets have been very stable, and we are pretty confident for it to remain profitable in the coming years. Our challenge now is to find the best properties on the market at the best value to support our growth. There is a communication gap that still prevents Japan from attracting more foreign investors, but we are working hard on this matter to improve mutual confidence.


Regarding tourism, Japan is expecting 40 million visitors as early as 2020. With major events coming such as the Rugby World Cup earlier this year and the Tokyo Olympics Paralympics next year, how do you think this will affect the Japanese real-estate market as a whole?

We have been listed on the Tokyo Stock Exchange market since 2003, and soon after that, we acquired one of our major assets with the Shinjuku Washington Hotel. This acquisition shows that we are one of the first J-REITs that recognizes the potentials of hotel assets. Today, we can see that the peak of Japanese tourism market has still not been achieved because the number of visitors keeps growing every year. As a consequence, we need to adapt and offer more and more accommodation facilities. However, the hotel market is slightly riskier compared to the office or residential markets, so we need to continue diversifying our investment portfolio. That being said, the part of hotel assets in our portfolio has indeed increased to 20% this year. This business is not only limited to Tokyo but also includes other cities throughout Japan such as Sapporo, Fukuoka, Osaka, Nagoya and more.


It is true that for many foreigners, Japan is limited to three major hubs, Tokyo, Kyoto and Osaka. However, there is a big development of cities such as Fukuoka, Nagoya or even Niseko with property prices drastically rising. For a company that holds assets all over Japan, could you talk to us about the increasing attractiveness of Japan as a whole and how you would like to leverage on this situation?

You are right. The visitors tend to change their behavior when visiting Japan. Tourism in Japan used to be dominated by mainly Chinese people attracted by luxury shopping districts such as Ginza in Tokyo, but now they want to find more. There has been a change in the occurrence of their visits too, with more tourists tending to repeat their visits in Japan several times. The regional areas can offer a more authentic experience to these visitors, with local food and history. This new situation obviously creates some opportunities for the hotel market. The major events such as Rugby World Cup and Tokyo Olympics Paralympics will not only bring visitors but also awareness towards Japan in its diversity, and the effects will probably be spread over several years.


Moving towards the office market, there was an outburst a few years ago when some experts claimed that supply would be about to exceed demand. However, this is absolutely not what happened, and we can see today that the vacancy rate in Grade A offices in places such as Tokyo, Osaka, and Nagoya is less than 1.5%. Could you give us your insight on the office market?

I have been conducting business on this market for over 30 years now, and I can safely say that the market has never been as liquid as it is now. The supply and demand stand at very close levels. The revenues of the Japanese companies are also pretty stable and give us good reasons to think that this market will remain profitable in the coming years. The Japanese companies tend to expand to the international stage and this situation also provides them with more income and confidence, which has a good impact on the office market as a whole. Moreover, apart from Tokyo, there are few new office supplies coming on to the markets in regional cities. The only concern that we may have is the diminution of the human workforce in Japan, but this also creates some opportunities with companies willing to build more spacious and comfortable offices to satisfy their employees.


Your company’s AUM stands now at an impressive 640 billion JPY. What is your mid-term strategy to pursue this growth?

Our priority is to find new properties with intrinsic values. On the market today, even if the purchase prices are pretty high, we are always able to find sellers through various measures backed by the expertise of our own and Marubeni Corporation, one of the Global general trading companies as well as our sponsor. We do not have a specific target in mind in terms of numbers but growing by about 30 billion JPY year-on-year would be a good result for the company. Our second objective is to pursue diversification in terms of the type of assets and area.


The part of foreign investment in the Japanese real-estate market stands currently at 17.7%. How would you convince a foreigner to invest in your company?

It is a great time to invest in Japan. We can see that the dividend payouts are still very high and stable, and the market takes advantage of the 0% interest rate policy still applicable. If a foreigner has extra money to invest, Japan is definitely a good place to do so. We hold quality properties in various locations and our solid capital allows us enough flexibility to handle our business. In hotel and office buildings, there are ups and downs in the rent price on the market, but we have managed such fluctuation with sufficient capital to date. Finally, we also have a strong knowledge and experience to find the best time and opportunity to sell a property. For the past two years, the company made acquisition investments of 47 billion JPY and a latest annual revenue total s48 billion JPY.


According to various experts, in order to reach the 60 million tourist target by 2030, Japan needs to extend its offers in 5-star hotels. As a company owning 25% of hotels in its portfolio, what would be your opinion about it?

I agree with this idea, but it remains necessary for us to keep a diversified portfolio. There is definitely a lack of luxury hotels in Japan and there is a gap that we need to fill out.


If we had to come back in 10 years of time and take this interview again, what would you like to have achieved by then?

Our dream is to become number one in the diversified J-REIT in the sector. Being number one means to be the best at optimizing revenues, minimizing risks, diversifying assets and finding the best quality properties.