ULI Survey Ranks Tokyo, Jakarta, and Osaka as Top Real Estate Investment Markets in Asia

Japan remains a favored country for real estate activity in Asia, with Tokyo and Osaka ranked first and third, respectively, in terms of investment and development prospects for next year, according to Emerging Trends in Real Estate® Asia Pacific 2015, a real estate forecast jointly published by the Urban Land Institute and PwC.

Rainbow Bridge, in Minato Ward, Tokyo, Japan. (Wikimedia Commons)

Rainbow Bridge, in Minato Ward, Tokyo, Japan. (Wikimedia Commons)

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Real estate markets throughout Asia are expected to remain resilient despite weakening economic fundamentals throughout 2015, as capital continues to flow into the industry from a variety of investment sources, both domestic and international, according to Emerging Trends in Real Estate® Asia Pacific 2015, a real estate forecast jointly published by the Urban Land Institute (ULI) and PwC. Japan remains a favored country for real estate activity, with Tokyo and Osaka ranked first and third, respectively, in terms of investment and development prospects for next year.

Download: Emerging Trends in Real Estate Asia Pacific 2015

The Japanese government’s massive economic stimulus plan—Abenomics—which has catalyzed property purchases, has played a significant role in keeping Tokyo as a top market for 2015, and in catapulting Osaka to the top from its near-bottom ranking just two years ago. “If an abundance of liquidity has been the most pervasive factor influencing Asian real estate pricing and capital flows over the last several years, it is appropriate that Japan, the country most responsible for much of that liquidity, should again prove the most popular destination in the region,” says ULI Japan Chairman Hiroo Mori, executive vice president of Mori Building Co. Ltd. in Tokyo.

Emerging Trends provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of 385 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers, and consultants.

The top five investment markets for 2015 are as follows:


  • Tokyo (ranked first for investment and development)—While ongoing credit easing is allowing “plenty of room for markets to run,” the report points out that Tokyo’s attraction “lies not only in its prospects for asset price inflation, but also in its status as a gateway city featuring . . . low levels of perceived risk.”
  • Jakarta (ranked second for investment and development)The city’s appeal is predicated on Indonesia’s booming economy as well as on strong asset price growth over several years. In general, real estate prices remain low compared with those in other large Asian cities. One issue of concern: The market remains opaque, with interviewees expressing concern about the land title process and the court system.
  • Osaka (ranked third for investment, fourth for development)—Osaka is benefiting from the fierce competition for assets in Tokyo, with many investors being pushed into Japan’s secondary markets. Much of its product oversupply—particularly in the office sector—was absorbed over the past year, and vacancies are continuing to decline.
  • Sydney (fourth for investment, third for development)—High yields and a mature economy are drawing international investors to Sydney, which, combined with substantial participation from Australia’s pension and wholesale funds, is creating tough competition for properties. The city is experiencing strong interest in development, specifically in conversions of older office stock into residential units.

  • Melbourne (fifth for investment, fifth for development)—Melbourne is perceived as offering an environment similar to Sydney’s. There is a significant emphasis on development, an abundance of capital seeking investments, and attractive yields (despite some compression).

Across the Asia Pacific region, the industrial/logistics sector is by far the most popular property type for investment prospects for the coming year. According to the report, the appeal of this sector reflects “chronic shortages of logistics capacity in most markets and the relatively higher yields still offered by logistics plays.” The hotel sector also received high ratings, due to a boom in tourism in many markets. The office sector continues to be regarded as a safe investment; but enthusiasm for the housing and retail sectors has declined.

Overall findings from the report include the following:


  • Investors are opting not to buy. Transaction volumes across Asia fell 24 percent year-over-year in the third quarter of 2014, compared with significant gains in the United States and Europe. Although much of the decline is due to fewer land sales in China, transactions have dropped in other Asian markets with the notable exception of Australia.
  • Product scarcity is prevalent. The shortage of investment-grade assets across the region is compounded by growing volumes of capital held by local institutions and the lack of incentive to sell, given that relatively little commercial real estate is held by investment funds that tend to recycle their assets into the market after a few years.
  • Investors seek other asset classes. With core product both expensive and hard to source, investors are looking for alternative strategies. This includes value-add deals and, in general, more-complicated asset management situations, and finding specific types of assets that may have been left behind by the market.
  • Investors are wary of secondary locations and assets. Given the lack of trust in the current market, most investors prefer to remain in gateway cities, where they have more confidence in the resilience of pricing and liquidity. This applies especially in Australia. In China, many buyers are avoiding secondary locations because of a spate of overbuilding. Japan is the exception, with competition from local real estate investment trusts (REITs) forcing investors to branch out to cities other than Tokyo.
  • Emerging markets are losing some appeal. Fast-growing markets such as the Philippines and Indonesia remain on investors’ radars, but the attraction has dimmed somewhat this year as investors become cautious over the potential for capital outflows in the wake of upcoming U.S. interest rate hikes.
  • Investors are increasingly willing to adopt development risk. Forward-funded and build-to-core strategies are popular, especially in Australia. In Japan, however, development is less attractive given increased construction costs.
  • At present, strong asset prices are in marked contrast with weak rentals. Occupational markets are weak in many markets, especially in Australia and Japan. Many investors project that the contrast between prices and rentals will shift, with returns based more on stronger rental fundamentals than on soaring prices.

Trish Riggs is a public relations consultant and freelancer with Keadle-Riggs Communications. Riggs was a senior vice president with the Urban Land Institute from 2005 to 2019.
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