Defence property submarket may emerge in China-Japan dispute

Defence properties may become an interesting submarket in Japan should the country's political relations with China continue to worsen, cross-border real estate investors have been told.

The suggestion was made by panellist Peter Hobbs, senior director at IPD during PropertyEU's Investment Briefing on Japan which was held at the London offices of law firm SJ Berwin in early November. 'I wonder, for instance, where the defence market in Japan is located geographically and where within Tokyo specifically. If things deteriorate then maybe that is a submarket to get interested in.'

'It is the reality. If there's a European Union breakup then defence is the right stock to be in,' Hobbs added.

He was responding to an audience member who said the rising tension between the two big Asian neighbours would not go away soon and may deteriorate further. Investors need to understand what is going to decide what risk profile to assign to Japan, he said.

China and Japan are currently locked in dispute over the ownership of five islands in the East China Sea. There has been a degree of flexing of military muscle on both sides. Japan has held a joint naval exercise with the US, while China announced it had carried out the successful landing for the first time of a domestically built jet fighter on its first aircraft carrier. China plans to add two new aircraft carriers to its fleet within a few years.

Richard Barkham, head of global research at Grosvenor, said that investors in the region only expect this kind of tension to increase. 'Behind it is all is the non-Chinese nations sheltering under the American military blanket, and China is flexing its military muscles, so you can expect to see a lot of these things over the next 10 or 15 years. I think it is just a part of a re-alignment of military power in the region,' he said.

Ryuhei Mori, head of global marketing at real estate company Xymax Corporation, played down the impact of the crisis, saying that Chinese investors remained keen to do business in Japan. Recently, China's sovereign wealth fund CIC teamed up with its counterpart in Singapore to acquire $1.6 bn (€1.2 bn) worth of logistics facilities in Japan.