Orix Life Insurance sees an opportunity to invest in Japanese properties with inflation-linked rents as rising repair costs put pressure on owners of older buildings, senior director Masakuni Taka told Tuesday’s Mingtiandi Tokyo Forum.
Asked where he would put a hypothetical JPY 10 billion ($63 million), Taka said he would favour properties with rents tied to the consumer price index. Such leases are still rare in Japan, he said, adding that he would like to back asset managers who can negotiate them with tenants.
While new Tokyo offices are setting the pace for rent growth, repair estimates at some older buildings Orix Life holds are already difficult to justify at current rents, Taka said. He expects those costs to put pressure on landlords to raise rents and could see some owners selling if they cannot absorb the expense.
“When I ask what I’d want most in Japan right now, it’s assets whose leases are CPI-linked,” Taka said at the Yardi-sponsored event.
Hunting for Rent Growth
Taka said rising rents had outweighed the impact of higher interest rates on the assets he oversees. More clarity on where rates will peak could make it easier to step up investment next year, he said.
Orix Life’s Masakuni Taka speaks during the Mingtiandi Tokyo Forum (Image: Mingtiandi)
At last year’s Tokyo Forum, Orix Life’s Keisuke Okano said the insurer was seeking domestic real estate returns of 5 to 6 percent or higher, up from a previous threshold of 4 percent, as rising borrowing costs pushed it towards value-add investments.
Cabot Properties’ Yu Nishimura sees room for rents to rise at compact urban warehouses that serve consumers in large metropolitan areas. Household spending and e-commerce give Cabot a clearer view of demand than logistics tied to decisions about where to locate factories, he said.
“The reason, in a word, is predictability,” Nishimura told the audience of nearly 200 senior executives.
Boston-based Cabot announced its first Japanese acquisition in February, picking up a fully occupied warehouse in Osaka prefecture’s Minoh with 20,502 square metres (220,682 square feet) of space.
Suburban Strategy
UIB’s Hiroshi Takizawa sees opportunities in large suburban warehouses near expressway interchanges. As logistics companies consolidate and tighter overtime limits constrain trucking capacity, he said, modern facilities can help larger operators consolidate their networks and handle more volume with fewer workers.
The Macquarie-backed platform helped bring UI Boustead REIT to the Singapore Exchange in March. The S$973.6 million ($762 million) IPO gave UIB’s development funds an exit route for assets in Japan and Singapore.
Takizawa said well-located warehouses are already seeing rent growth and he expects leasing performance to diverge further.
“Even if area vacancy is 15 percent, some properties are 100 percent let and others only half let,” he said.
Mixed-Use Logistics
L Catterton Real Estate’s Taku Yamaumi used the JPY 10 billion question to propose adding offices or shops to the kind of last-mile logistics projects Cabot targets. He said the combination could make better use of urban sites.
Yamaumi recalled working on a development that paired a Costco store with a logistics park. He said the uses complemented each other from the development stage and the project won local acceptance.
Offices at L Catterton’s Ginza Six in Tokyo and Quartz Shinsaibashi in Osaka are performing well outside traditional office districts, Yamaumi said. In 2023, the fund manager backed by French luxury goods giant LVMH invested alongside Hulic and other Japanese partners in the Shinsaibashi development, which combines shops, a hotel and offices.
Yamaumi expects tenants to pay closer attention to what each building offers as office rents rise.
“Overall, rents have risen so far, but from here buildings will be judged one by one,” he said, adding that how people experience the workplace can help determine which offices they choose.
In retail, spending by overseas visitors is holding up as travellers from the US, Taiwan, Hong Kong and elsewhere in Asia help offset a sharp drop in Chinese tour groups, Yamaumi said. He expects such spending to hold up barring a large currency swing.