The exterior of the 89-unit multi-family building Luxe Shin, located in Higashiyodogawa ward, Osaka (Photo: QIP)
SINGAPORE (EDGEPROP) - Since Japan relaxed its Covid border measures last October, there has been a surge in overseas visitors, reaching 934,500 in November 2022 — the highest since February 2020, when figures crossed 900,000. International visitor arrivals in Japan had hit 1.37 million by December 2022, and notched up almost 1.5 million in January 2023, according to Japan National Tourism Organization data.
Before tourists arrived, foreign investors had already made a beeline for Japan when restrictions for business travel were eased in March 2022. Singapore-based private equity firm Q Investment Partners (QIP) purchased three rental apartment buildings in 1Q2022 — two in Nagoya and one in Osaka — with a total of 207 rooms. “During Covid, with the inability to travel, we took the view that solid, robust growth in multi-family assets in cities like Osaka and Nogaya, which are 90% occupied, makes them a good investment,” says Peter Young, QIP co-founder and CEO, at QIP’s 2023 investment outlook seminar, held on Jan 18, jointly with JLL and Julius Baer.
In June 2022, QIP launched a Japan-focused US$40 million ($53.6 million) multi-family fund in a joint venture with real estate investment management firm Alyssa Partners. The capital value of the portfolio is now US$50 million. With an average occupancy rate of 93%, the assets are generating an internal rate of return of between 8% and 10%, and an annual yield of 5%. “Since Japan opened up for business travel in March 2022, we’ve already seen an uplift in our valuation,” says Young.
Young: We’re looking to invest in an asset class that is income-generating, and where we can achieve capital accretion through scale (Photo: QIP)
QIP is actively looking for more multi-family properties in Japan, focusing on the key cities of Tokyo, Osaka, Nagoya and Fukuoka. It is targeting a fourth asset to acquire in 1Q2023, and it could potentially be its second property in Osaka.
“Japan may be a shrinking and ageing population, but internal migration has led to growth in major cities,” says Young. “Key regional cities have witnessed a positive net migration trend over the past five years. This is due to the prospect of better jobs in these cities.”
According to data from the Statistical Bureau of Japan, more than half (56.8%) of Japan’s population is concentrated in four major cities: Greater Tokyo (29.6%), Greater Osaka (15.2%), Nagoya (7.6%) and Fukuoka (4.4%). Given its stability, multi-family housing in Japan allows the fund to manage “volatility risk”, says Young.
Foreign investments in Japan from 2018 to 2H2022 totalled US$192.9 billion, according to JLL. “We saw a big bounce-back from 3Q2022 to 4Q2022 of over 100%,” says Pamela Ambler, JLL head of investor intelligence. “Over the last few quarters, foreign investors wanted to get into Japan because of the favourable cost of debt as well as the favourable currency situation with a weak yen. And we do expect that to continue.”
The interior of an apartment at Porta Nigra Chikusa (Photo: QIP)
In 2022 alone, total real estate investments in Japan amounted to over JPY3 trillion ($29.9 billion), down 20% y-o-y. The biggest reason for the decline last year was the dearth of “decent investment opportunities”, says Koji Naito, JLL research director for Japan capital markets.
Naito sees a “revitalisation of investment transactions” in Japan this year. These transactions will be driven by existing owners who want to “dispose of their properties to avoid the increase in financing costs”. With the “narrowing bid-ask spreads” and the increase in financing costs, any price adjustments are expected to be “marginal”, despite the weight of new capital waiting to enter the market, he notes.
Last year, the office sector accounted for 45% of total investment deals in Japan. Sentiment remains positive in Japan’s office sector, as 87% of employees had returned to the office by October 2022. This was “significantly higher” than other major cities such as London or New York City, says JLL’s Naito.
Multi-family assets accounted for 12% of all investment deals transacted in Japan last year. Deal sizes for multi-family assets tend to be smaller than for office and industrial buildings, says Naito. However, in terms of the number of transactions, multi-family properties were the second highest last year, after office buildings.
One of the two properties purchased in Nagoya was the 56-unit Porta Nigra Chikusa, completed in 2019 (Photo: QIP)
JLL sees multi-family properties continuing to be a favoured asset class among investors in 2023. About 70% of multi-family property transactions have been concentrated in the Tokyo Metro Area. Together with the Osaka Metro Area, they made up 90% of such transactions last year.
Apart from multi-family, another asset class that has been gaining the attention of investors is senior housing, says JLL’s Naito. “Japan is already an ageing society, so demand is strong,” he adds. “Student housing and co-living sectors are still in the early stages.”
The investment focus in 2023 is expected to be on the regional cities of Japan as yields in Central Tokyo have “compressed significantly” across all sectors, notes Naito. “Some investors have started to invest in regional cities, especially in multi-family properties, since the leasing demand is very similar to Tokyo and very stable,” he points out.
A case in point is QIP’s portfolio. Its existing property in Osaka is located in the Higashiyodogawa ward. Known as Luxe Shin, it was built in 2017 and has 89 units. It is just one stop from Central Osaka and near stations of major train lines: the Midosuji Line, the main subway line in Osaka; the Tokaido Shinkansen connecting Tokyo and Hiroshima; and lines connecting to Osaka prefecture.
The interior of one of the 62 units at the multi-family property Porta Nigra Osu, located in Naka ward (Photo: QIP)
The two properties in Nagoya purchased by QIP are the 62-unit Porta Nigra Osu, completed in 2018; and the 56-unit Porta Nigra Chikusa, completed in 2019. Both properties are in Naka ward, the city’s largest commercial district, within walking distance of Nagoya University Hospital and mass transit stations. “We’re looking to invest in an asset class that is income-generating, and where we can achieve capital accretion through scale,” says QIP’s Young.
Before entering Japan early last year, QIP had already invested in five purpose-built student accommodation (PBSA) properties in the UK. Four of them are operational, namely Straits Manor in Sheffield, with 284 beds; Straits Village in Nottingham, with 300 beds; Straits Meadow, with 198 beds; and 65 London Road in Edinburgh, with 76 beds. The fifth property is located in Egham, a university town 31km west of central London, which has been operational since 2022/2023. All five properties are operational and fully occupied.
In February last year, QIP sold two of its PBSA projects at 61-63 London Road and 65 London Road in Edinburgh for a total of GBP40 million ($64.3 million) to a core-plus fund it manages. The property at 61-63 London Road was held for 21⁄2 years, and saw net annual returns of 18%, while the property at 65 London Road was held for 11⁄2 years, with net annual returns of 19%. QIP also exited its PBSA property in Egham last year. Held for 11⁄2 years, it generated net annual returns of 28%.
The 88-bed PBSA scheme at 26-34 Merrion Street in Leeds was acquired by QIP last November and is scheduled to be operational by 2024/2025 (Photo: QIP)
QIP’s latest PBSA acquisitions in the UK include a 350-bed scheme at 2 St James’ Boulevard in Newcastle. Purchased last December, it is scheduled to open in 2025/2026. The other is the 88-bed PBSA scheme at 26- 34 Merrion Street in Leeds. Acquired last November, it is scheduled to be operational by 2024/2025.
Founded seven years ago with just three staff, QIP is headquartered in Singapore. Today it has 24 staff, with QIP and its principals managing more than US$1.2 billion worth of real estate investments. The firm has US$430 million in total assets under management. “As we grow, we want to vertically integrate our business, and have our people on the ground,” says Young.
In the US, the firm has a 132-unit co-living/ multi-family residential development at 633 S LaSalle in Chicago which it acquired in 3Q2018. Presently under development, it is scheduled to be operational by 2025. the development management of the co-living business will be overseen by QIP Development Group, in conjunction with its local joint venture partner. “While there are opportunities in the US, our focus is on the UK and Japan,” says Young.