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Japanese investors targeting Australian commercial property

Japanese investors have actively sought out Australian commercial real estate, while Japan itself has also become a location for international capital flows.

Ray White Commercial Head of Research, Vanessa Rader, said that while transaction volumes for commercial property had fallen overall, Japanese investors had been active.

“Foreign investment into the safety of the Australian property market has followed this same trend, with $11.8 billion changing hands (25.5 per cent of which is from Japanese funds) in the 12 months to March 2024, after peaking at $36.2 billion in the 2021/2022 period, where Japanese investments represented less than 2 per cent of all foreign activity,” Ms Rader said.

Ms Rader said Australia had historically been an attractive commercial property market for offshore buyers to invest in given its “safe haven” status with the long-term stability of Australia’s economic performance. 

“The bulk of investment interest comes to the Sydney and Melbourne markets, however, in recent years we have seen increased investment growth into South East Queensland and Perth,” she said.

“While activity in office transactions has seen some reduction, growth has been significant in the development site and broader residential space, with interest in particular in the multi-family type property which is an established asset type in many nations including Japan, however, interest lies in build-to-rent, student housing, aged-care and high rise residential sites.”

According to Ms Rader, when the Japanese central bank moved to negative interest rates in 2016, interest in foreign commercial property increased as a way for investors to boost their yields.

“We saw an initial spike in investment interest in Australia during this time, before Japanese investors reacquainted themselves with Australian property in more recent times, having an advantage over most of the world, which has had growing interest rates,” she said.

“Japan is known as the world’s largest creditor, which is now set to be tested, as in March, Japan has grown their interest rates into positive territory to combat inflationary pressures and the languishing value of the yen.”

Ms Rader said that while Japan has been keen to invest funds internationally, the spotlight has also been on Japan as an attractive location to invest. 

“Their unconventional monetary policy kept economic growth positive, however, the weakening yen over the last few years enticed international buyers into the commercial property market, resulting in strong appreciation in values across all asset classes during a time of subdued activity around the world,” Ms Rader said.

She said that while the yen remained low against the US dollar, the attractiveness of Japanese investment would stay high. 

“While Germany is tipped to overtake Japan as the greatest creditor in the world, the interest rate story for this region remains compelling with expectations surrounding the economy remaining robust,” she said.

“Investment into Japan is likely to continue with quality expectations surrounding asset classes such as office, retail and hotel, with the development and multi-family sector most likely to benefit given generation changes in household size.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.