Japan is one of the richest, most financially flush countries on the planet, and Japanese investors have historically been some of the most shrewd and active players in international finance. But roughly two-and-a-half years into the COVID-19 pandemic, the Land of the Rising Sun has found itself outdistanced as a cross-border funding source, at least in terms of commercial real estate, by countries it had previously outspent by hundreds of millions of dollars.
Consider that in the year ending in second-quarter 2020 — just as the full impacts of the pandemic began to be felt on U.S. soil — capital sources with Japanese roots put $1.73 billion into U.S. commercial real estate, according to data from MSCI Real Assets. At the time, that put Japan in seventh place among foreign sources of capital into the states. It ended 2019 fifth on the same list, and one year prior, it finished seventh as well.
The pandemic, of course, slammed the brakes on nearly every country’s international investments, and Japan was no different. The nation’s investors slashed their dollar volume by 53% year over year in 2020 before amplifying their pace in 2021 by 92%.
This year, Japanese companies have stayed relatively muted in their activities. As of this past May, there had been no new transactions in 2022 in which a Japanese real estate investment trust had acquired U.S. property, according to legal-research firm Chambers and Partners. And in the four quarters ending this past June, no Japanese companies or trusts rank among the top 25 cross-border buyers, per MSCI. One Japanese firm (sprawling global construction company Kajima Corp.) was No. 12 among the top foreign sellers of American assets.
During this same period, Japan was No. 12 among all countries for capital placed in U.S. commercial real estate, according to MSCI. Compared to the year ending in June 2021, spending from Japanese investors was up 108%, but this growth paled in comparison to other countries, including Australia (up 625% year over year), Mexico (up 355%), the United Arab Emirates (up 296%) and France (up 131%).
Granted, some of Japan’s tumble down MSCI’s rankings are admittedly fluky: Norway, for example, moved into 11th place due to massive deals involving only two properties. Still, after relative consistency in pre-pandemic days, Japan’s descent over the past two years may raise some eyebrows.
Notably, Japan’s slide as a real estate investment well has occurred even while the country has seen a boom in outbound mergers and acquisitions. Two Japanese tech giants formalized monster deals last year as Hitachi closed a $9.6 billion acquisition of U.S. digital engineering firm GlobalLogic, while Panasonic doled out $7.1 billion for supply chain tech company Blue Yonder. The Japanese appetite for putting capital into U.S. resources obviously remains, but thus far in the post-pandemic period, it hasn’t yet manifested in the realm of real estate.
Such patterns have made it somewhat hard to read the near-term future of cross-border real estate spending from Japan. A CBRE survey conducted in December 2021 identified North America as the most attractive deployment destination for Japanese real estate investors in 2022, although that has yet to bear meaningful fruit.
Japanese capital is clearly extant and fluid, although the focus currently may be elsewhere. Kajima Corp., for instance, is looking beyond planet Earth. This past July, the company announced a joint vision with Kyoto University to build a rotating habitat on the moon. ●
