Connecting global investors to Tokyo’s booming commercial real estate market
Space-starved Tokyo’s commercial real estate market is known as one of the region’s most robust, in-demand and lucrative investment destinations.
Grade A office rents in Tokyo’s five central wards rose 2.4% QoQ and 7.3% YoY in Q2 2019 while vacancy fell to 0.3% by Q2 2019, Savills’ industry report shows1. While global investors are keen on this market, strong connections of global and local banking partners have a key role to play.
In Japan, Tokyo and the Greater Tokyo area are viewed by lenders as the most attractive locations for lending, and office remains the most popular asset type for lending, up from 54% in 2018 to 64% in 20192. Indeed, in the second quarter of 2019, commercial real estate transaction volume rose by 60% YoY to JPY861bn (EUR7.3bn), the fourth highest Q2 total since CBRE’s survey began recording this figure in 20053.
Against this backdrop, it makes The Peterson Group’s acquisition of a portfolio of five office buildings in central Tokyo all the more remarkable. The purchase will enable The Peterson Group, a Hong Kong family-owned private entrepreneurial company and globally renowned investor in real estate, to enter the in-demand Tokyo office market. Further, the properties, which were previously under-rented, have been renovated as part of a strategy to make them attractive to prospective tenants, and generate premium rental income.
The JPY7.25bn (EUR58m) debt transaction was brought to fruition by Societe Generale, which was appointed by IDERA Capital Management on behalf of The Peterson Group to act as Sole Mandated Lead Arranger, Sole Underwriter and Senior Lender.
Japan’s office market is stable and the yield gap (between real estate investments and government bonds) is attractive compared with other parts of the world. In addition, although the capitalization rate is tightening, office rent still has room for growth. As a consequence, a large supply of office space in Tokyo is already almost fully absorbed and it has become very hard for investors to find an office investment opportunity in Tokyo.
Head of Real Estate Finance for Japan, Societe Generale
Given these challenges, the deal highlights Societe Generale's cross-border expertise and the strength of its global teams in delivering transactions across different markets.
This transaction was Societe Generale’s fifth partnership with Peterson overall, including four successful deals in Europe, whilst it was the first in Asia. Societe Generale continues to be the partnership with Peterson to source exciting projects in new areas.
Chief Executive Officer of Peterson Group.
The deal was enabled by Societe Generale's real estate finance team in Japan, which leveraged its local expertise and network to support global real estate investment firm The Peterson Group with IDERA, the Japanese real estate investment management arm of China's Fosun Group, which has been actively implementing its investment model of “Glocalization 2.0” by leveraging growth momentum in China and overseas and aspiring to become a world-class investment group4.
Considering the strength of the office market in Japan, there are significant opportunities for global investors to capitalise on. And, the success of this portfolio financing deal further underlines the importance of joining hands with the right global and local partners to make the most of them.
This deal marks our successful capitalization into Tokyo's vibrant office market. It is the latest example of our ongoing strong partnership with Societe Generale, and we are confident this deal will add significant value to our real estate investment portfolio.
IDERA Capital Management