What was the largest industrial investment deal in Japan so far this year?

It was an acquisition of 105,00sqm of land in Osaka for around USD417m.

Preliminary data aggregated by Real Capital Analytics (RCA) show investments in Japan across all sectors have been slow, with total investments in 1H/2022 around 22% lower than 1H/2021. 

Savills says the logistics sector experienced a similar downturn, with investments in 1H/2022 falling 55% compared to the same period in the previous year. Furthermore, this data is still preliminary and investment volumes will likely increase as more transactions are announced throughout the year. 

Here’s more from Savills:

In the logistics sector, 2022 has seen a few notable transactions, primarily between active domestic players. The largest big-ticket announcement was that of Sumitomo Life Insurance, SMFL Mirai Partners, Japan Post Real Estate jointly acquiring 105,000 sq m of land in Osaka, expected to be used for the construction of a logistics facility, for an estimated JPY 60 billion (approx. USD 417m). 

Other significant transactions include Mitsubishi Estate Logistics REIT acquiring a co-ownership interest in two logistics facilities in Kanagawa for JPY45.8 billion, and Dai-ichi Life Holdings and Prologis acquiring the Japan Oi Soko facility in Tokyo for JPY16.1 billion. 

Furthermore, Kenedix recently carried out a large real estate Security Token Offering (STO), which was backed by a logistics facility with an asset size of JPY14.6 billion. A new player like this may have a different investment angle and provide further liquidity in the market. 

International investors have been relatively quiet in the Japanese industrial market, with only a few small-scale transactions taking place so far in 2022 due to limited opportunities. For instance, US investor Invesco acquired the 26,000 sq m GLP Fukusaki facility in the Greater Osaka region in March.

In addition, Hong Kong-based Gaw Capital Partners announced its intention to further expand its presence in the data centre market in Japan through the acquisition of the Fuchu Building in Tokyo in April. Gaw will incorporate the Fuchu Building into its plans to redevelop the adjacent Meito Sangyo Building, which it acquired in 2021, and construct a larger carrier-neutral Tier III data centre. Despite limited opportunities and the slow start to the year, more international capital enters the Japan logistics sector. 

Nonetheless, market participants should closely monitor the market sentiment. There is a robust appetite for logistics facilities present in the market, which is likely to see new benchmark cap rates. However, the global inflationary environment has put additional cost-related pressures on logistics tenants that already operate on thin margins, probably making it more difficult for landlords to raise rents. The 30th biannual market sentiment survey conducted by Ichigo Real Estate Service appears to echo this viewpoint, with more than half of respondents anticipating capital appreciation, but with only around 20% expecting rents to increase.

Furthermore, investors will need to take note of the risks of potential interest rate increments that may materialise by next Spring and the impacts that they will have on yields. Indeed, the previously popular stable long-term lease model may become less desirable in the rising interest rate environment, and the industry could see a shift toward leases that are of shorter term in hopes to mitigate the risk of diminishing yield spreads.