How Japan’s real estate sector is generating opportunities for institutional investors
Back in the 1980s, investors used to talk in hushed tones about how the value of land in the square mile around the royal palace in Tokyo exceeded that of the whole of California. This was, of course, the time when Japan represented a ‘new paradigm’, when its executives were said to be finely honing 100-year plans informed by medieval samurai strategy manuals.
We’re firm believers that if anyone tries to sell you an investment thesis premised on how to defeat multiple sword-wielding assailants in a rice paddy – for those interested, Miyamoto Musashi’s Book of Five Rings has the details – you show them the door. If they mention the phrase ‘new paradigm’, you should double-lock it once they have exited.
Japan, economically and based on its reputation, has never fully recovered from the ensuing downturn. Nevertheless, it remains the world’s third largest market, with a wealth of investment opportunities. Japanese stocks have served investors well over the past few years; in line with the S&P 500 and well ahead of the main UK and European indices. Japanese corporate profits have expanded by more than half, with margins at multi-decade highs, since it became clear Shinzo Abe would become prime minister near the end of 2012. “Yet,” points out the Financial Times, “Japanese companies, relative to earnings, are no more expensive than they were during the doldrums of the early 2000s.”1
Japan’s real estate sector, despite being the region’s largest, has been rather under the radar. We believe the market offers institutional investors such an opportunity, particularly in the direct retail space.
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