Investors hunt for property bargains in Japan as Covid-19 hits the economy
The Covid-19 pandemic has savaged the already fragile Japanese economy, pushing it to the brink of technical recession. However, sentiment in the country’s real estate sector remains positive, with institutional investors hoping bargains will emerge as hoteliers and other owners sell off cheap to raise much-needed cash.
Hospitality operators would now have been looking forward to one of their most lucrative holiday seasons ever, if the global health crisis had not got in the way of the Tokyo 2020 Olympic Games.
“It is very unfortunate that Tokyo is facing a delay in the Olympics, which normally would be a big boost to the economy. The hotel and tourism sectors are being hit,” said Nick Loup, chief executive of Chelsfield Asia, a property management firm focused on acquiring underperforming assets and transforming them into profitable enterprises. “Some small [ hotel and tourism] operators may not sustain their ownership during this difficult period.”
CBRE, the world’s biggest commercial property services company, said although some hotel and retail property deals had been cancelled during the coronavirus lockdown, a few owners were still looking to sell properties to generate cash and strengthen their financial standing.
“We have been seeing growing investor appetite for Japan real estate for the last several years, and this does not seem to have greatly changed even during the Covid-19 pandemic. There are some [investors] who seek bargains, particularly hotels, but there are also others who seek quality assets with stable cash flow,” said Hiroshi Okubo, head of research at CBRE Japan. “The most popular asset class at the moment is logistics, followed by residential.”
There is a mismatch between the expectations of bargain hunters and the relatively small number of forced sellers actually in the market, Okubo said.
Predictions for Japan’s GDP make for depressing reading. In April, the IMF forecast the economy will contract by 4.8% in 2020.
The Bank of Japan (BOJ) sees the economy shrinking between 3% and 5% in the financial year through March 2021. Economists surveyed by Bloomberg predict a contraction of 5.3% for the same period.
BOJ governor Haruhiko Kuroda last week warned that the second-round effects of the coronavirus pandemic could hurt the Japanese economy considerably. But he was “cautiously optimistic” that it will gradually recover from the second half of this year, allowing the BOJ to scale back its crisis-response measures.
In March 2020, the Japanese government launched a fresh one trillion yen ($12.9 billion) emergency package to help businesses battered by the outbreak. A month earlier, the government had introduced a 500 billion yen package of low-interest loans to small and medium-sized companies in tourism and other virus-hit sectors.
Loup believes that a better outlook will emerge in the next six to 12 months when the Olympics — pushed back by a year to July 2021 — becomes a new focus.
“Our underlying theme is a value-added approach. We like offices, mixed use and residential. In Japan residential is a very good theme. Historically it is a very stable market,” said Loup.
Although the number of commercial property transactions fell in the first three months of 2020, the value shot up by 40% from a year ago, to just over one trillion yen. The increase was driven by a handful of bigticket deals, many of which were closed near the start of the year.
For the whole of 2020, Okubo said deal volume is likely to come out lower than last year, mainly because coronavirus lockdowns in other countries are keeping overseas investors from coming to Japan to inspect the properties. The Japanese government’s declaration of a state of emergency from April to May would also make a difference.
“Also, the pricing gap between sellers and buyers is somewhat wide, as there are few forced sellers in the market, contrary to the expectations of some of the buyers who are looking for a discount,” said Okubo. —