In a very interesting and potentially significant transaction reported in the Nikkei Fudosan Market Joho on October 24th and originally announced on October 13th, the UK insurer Prudential’s related real estate fund M&G Real Estate will purchase an office building in Tokyo and a portfolio of 12 residential buildings located throughout Japan from a Zymax SPC. Although no purchase price for the portfolio was announced, the Nikkei Fudosan reports that the purchase price is expected to total about 16 billion yen.
The residential portfolio transaction is interesting because only three of the 12 buildings are located in the three major metropolitan regions of Tokyo, Osaka and Nagoya. In fact, none of the remaining buildings in the portfolio are located in the next three largest metropolitan regions of Fukuoka, Sapporo and Sendai but instead are located in mid-sized as well as relatively small urban regions. The transaction is significant because it represents a major foray by a foreign investor into smaller real estate markets in Japan. As such this transaction appears to signify a maturing of the current real estate cycle as the market enters a phase where liquidity for assets in smaller urban regions increases. It is clear that M&G Real Estate is seeking higher yields and it is likely going forward that other investors, noting the relatively low yields in the Tokyo market, will begin migrating outside of the Tokyo real estate market.
The transaction also included the purchase of the KR Toyosu Building, an office building located in the Toyasu district of Tokyo’s Koto Ward east of the city center. KR Toyasu was completed in 1991 near the end of the bubble era. At the time of completion the building was relatively isolated but in recent years the surrounding area has seen considerable development and much more development will take place nearby in the future. The building has a total of 22,802 m2 of gross floor area and it has seven floors and one basement floor.
The table below lists out the 12 buildings in the portfolio and includes the building name, location, building size and number of floors. Note that all of the below buildings were constructed in 2007 or 2008. The buildings are listed in order of relative ranking. I have ranked the buildings in the portfolio based on the region’s size the building is located in and the access the building offers to its region’s center:
| Building Name | Location | Building Size (m2) | Floors |
| AS Residence Chiyoda | Aichi Prefecture, Nagoya | 3,297 | 6 |
| AS Premium Minatocho | Chiba Prefecture, Funabashi | 1,096 | 10 |
| AS Premium Omotecho | Okayama Prefecture, Okayama | 2,147 | 12 |
| AS Premium Kobe Nishi | Hyogo Prefecture, Kobe | 1,494 | 9 |
| AS Premium Sekiyakineicho | Niigata Prefecture, Niigata | 3,297 | 6 |
| AS Residence Yokkaichi | Mie Prefecture, Yokkaichi | 3,407 | 14 |
| AS Premium Ritsuin Koen | Kagawa Prefecture, Takamatsu | 1,336 | 11 |
| AS Premium Kotobukimachi | Oita Prefecture, Oita | 3,335 | 12 |
| AS Premium Umamachi | Nagasaki Prefecture, Nagasaki | 2,305 | 9 |
| AS Premium Ekiminami Honmachi | Saga Prefecture, Saga | 1,984 | 10 |
| AS Premium Hotakubo | Kumamoto Prefecture, Kumamoto | 3,336 | 10 |
| AS Residence Otsu Katada | Shiga Prefecture, Otsu | 3,090 | 10 |
For those readers interested, below is further detail on the location of each building in the portfolio. As in the above table, buildings are listed in order of ranking based on location quality. Please note that I consider that there is relatively little difference between buildings ranked 6 through 9 on the list. For the reader’s convenience, I have included a map of Japan which includes the location of each city in the portfolio:
- AS Residence Chiyoda
AS Residence Chiyoda is located in Nagoya city the center of Japan’s third largest urban region. The building is located in the Chiyoda district of Naka Ward and is about 300 meters from Kamimaezu Station (two station stops from Sakae Station and Nagoya’s traditional center) and is about 700 meters from Tsurumai Station (three station stops from Nagoya Station and Nagoya’s modern center). This appears to be the best located building in the portfolio.
- AS Premium Minatocho
AS Premium Minatocho is located near the Tokyo Bay waterfront about 22 kilometers east of central Tokyo in the Chiba Prefecture city of Funabashi. The building is located about 900 meters from Funabashi Station, a major rail station which provides good access to central Tokyo. While the building is some distance from this station, the access to central Tokyo suggests that this is the second best located building in the portfolio.
- AS Premium Omotecho
AS Premium Omotecho is located in Okayama city, a city with a population of 714,212 (registered population as of September 2014) and is located about 150 kilometers west of Osaka. The building is located in the Omotecho district of the city’s Kita Ward near the heart of the city’s central business district. Based on the city’s size and the building’s central location, this appears to be the third best located building in the portfolio.
- AS Premium Kobe Nishi
AS Premium Kobe Nishi is located in Kobe in the Zenkai Minami district of the city’s Nishi Ward about 15 kilometers from the Kobe city center area. The building is located about 150 meters from Ikawadani Station providing access to locations in and near the Kobe city center area. A number of universities, including Kobe Design University, the University of Hyogo, the Kobe City College of Nursing and the University of Marketing and Distribution Sciences are nearby. Based on this location in the Osaka metropolitan region, its reasonable rail access to the Kobe city center and the nearby cluster of universities, this appears to be the fourth best located building in the portfolio.
- AS Premium Sekiyakineicho
AS Premium Sekiyakineicho is located in Niigata city, a city with a population of 804,561 (registered population as of September 2014) located on Honshu’s west coast about 275 kilometers north of Tokyo. The building is located about 800 meters from Sekiya Station which in turn is two station stops from Niigata Station and central Niigata. The building appears to be the largest residential building in its local area. Based on the city’s size and the building’s rail access to the city center, this appears to be the fifth best located building in the portfolio.
The next four buildings appear to have little difference in their location qualities.
- AS Residence Yokkaichi
AS Residence Yokkaichi is located in Yokkaichi city, a city with a population of 312,734 (registered population as of October 2014) and is located about 35 kilometers southwest of Nagoya. The building is located in the heart of the city on the city’s main street Chuo Dori about 350 meters from Kintetsu Yokkaichi Station, one of the city’s major rail stations. Although the location is excellent, the small city size reduces the attractiveness of this building.
- AS Premium Ritsuin Koen
AS Premium Ritsuin Koen is located in Takamatsu city, a city with a population of 420,758 (registered population as of October 2014) and is located about 140 kilometers southwest of Osaka. The building is located in the city’s Nakanocho district near Chuo Dori, the city’s most important commercial street. There is very little apparent difference between this location and that of AS Residence Yokkaichi.
- AS Premium Kotobukimachi
AS Premium Kotobukimachi is located in Oita city, a city with a population of 478,500 (registered population as of September 2014) and is located about 120 kilometers southeast of Fukuoka and about 400 kilometers southwest of Osaka. The building is located in the city’s Kotobukimachi district on the west side of the city center area. There is very little apparent difference between this location and the previous two buildings.
- AS Premium Umamachi
AS Premium Umamachi is located in Nagasaki city, a city with a population of 436,893 (registered population as of September 2014) and is located about 100 kilometers southwest of Fukuoka and about 550 kilometers southwest of Osaka. The building is located in the city’s Umamachi district about one kilometer east of Nagasaki Station, the city’s main rail station. This location can be described as near city center. There is little apparent difference between this building’s location and that of the previous three buildings.
10. AS Premium Ekiminami Honmachi
AS Premium Ekiminami Honmachi is located in Saga city, a city with a population of 235,738 (registered population as of September 2014) and is located about 50 kilometers south of Fukuoka and about 500 kilometers southwest of Osaka. The building is located in the Ekiminami Honmachi district in the city’s central area and is 300 meters south of Saga Station, the city’s main rail station. Although the building’s location within Saga city is excellent, the city’s relatively small size reduces the building’s relative attractiveness.
11. AS Premium Hotakubo
AS Premium Hotabuko is located in Kumamoto city, a city with a population of 734,711 (registered population as of September 2014) and is located about 90 kilometers south of Fukuoka and about 500 kilometers southwest of Osaka. The building is located in the city’s Hokakubo district about 6 kilometers from Kumamoto Station, the city’s main rail station. The nearest rail station, providing direct service to Kumamoto Station, is about 1100 meters away. The building is located alongside the Kumamoto-Higashi Bypass, a major highway that skirts the city center areas. This does not appear to be a high quality location for a residential building. As a result, the building has received a low ranking among the portfolio’s buildings. It is, however, entirely possible that this location is of higher quality than what can be perceived from viewing a map.
12. AS Residence Otsu Katada
AS Residence Otsu Katada is located in Otsu city, a city with a population of 342,818 (registered population as of October 2014) and is located about 20 kilometers northeast of Kyoto. The building is located at the city’s northern edge about 15 kilometers north of the city’s center on the Nishi Oumi Highway (Route 161) and is about 300 meters from Katada Station, a station providing rail service to the city center. While the local area appears to be a small city in its own right, the location is still relatively insignificant. The combination of small city size and relatively remote location within the city suggests that this location is the least attractive among the portfolio’s buildings.
Information for this piece was taken from an article in the Nikkei Fudosan Market Joho dated October 24th and from a press release by M&G Real Estate dated October 13th. Population figures for most recent available registered population were taken from the respective web sites for each city.
The map of Japan was taken from the website www.permaculturemarin.org.
The author of this piece may be contacted at john@sapient-japan.com.
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