JAPAN - Japan continues to dominate core Asian real estate despite the emergence of investible real estate markets in more volatile regional economies.
Stuart Webster, head of global property at New Star Asset Management, told IPE Real Estate:
"If you're investing in Asia, Japan is a very strong place to be. You can't rule it out. It's still the second-largest economy in the world and, after a decade of decline, it's recovering."
Webster pointed to the fact that Japan still has a positive yield gap. "That's an edge when we buy in this market," he said.
However, he pointed out the fund manager's interest in Japan - having only begun to invest earlier this year - was concentrated in specific markets and sectors, notably office space in some Tokyo wards and retail in major cities such as Fukuoka, in the south.
"You can have good investments in bad areas and bad investments in good areas," he said.
His comments came after the fund manager's $60m acquisition of the new ‘Urban Building' in Tenjin, Fukuoka's retail district.
"We bought it to get diversification and robust income. We're looking for solid returns, not opportunistic ones," said Webster.
"It was a combination of everything - the building, the tenant and the location." The tenant in question is Tsutaya, a Japanese version of Borders, complete with Starbucks concession.
Fukuoka is a trade gateway to South Korea and Shanghai. It also has the youngest population of any major Japanese city and the highest population growth - a demographic trend forecast to continue for the next quarter-century. Webster cited as acquisition drivers the city's rising population, in contrast to that in the rest of the market, along with limited supply.
Fukuoka land values are reported to be rising at 12—13% - quadruple the national rate.
But despite a focus on the region's most mature market, Webster did not rule out eventual investment in China out for investment. However, he cited continuing issues over control of land and market volatility. "It just isn't suitable for this fund," he said.
"I doubt that we'll change our view in the near future. It's the same as us not investing in Moscow. Politically, it's too volatile. You could see moves by Putin to freeze Western investment. It's just too risky."
Elsewhere across the Asian region, Webster said the fund was interested in "certain positions only" as the New Star team believes China is "still too volatile".