Strong outbound commercial real estate (CRE) investment appetite from Japan has targeted Australia so far in 2024, with the country on track to overtake the United States as the greatest recipient of outbound CRE investment flows for the first time in at least 10 years.

Year to date, Japanese investment in Australian CRE assets has reached US$1.76 billion, surpassing the US$1.31B recorded for the United States. Speaking at a Cushman & Wakefield event in Tokyo last week, the global real estate services firm’s Head of Capital Markets, APAC Gordon Marsden said that while the US and European markets remained front-of-mind for Japanese investors, especially given recent interest rate adjustments, their actual deployment of capital signalled something different. 

“The appetite for outbound investments from Japanese investors has surged in recent years, particularly since 2023, as they seek higher yields and diversification. Notably, the APAC region has emerged as a beneficiary, with Australia, India, and Southeast Asia attracting significant interest thanks to strong economic and population growth, higher yield returns, and promising long-term capital growth prospects.”    

According to data from MSCI, in 2023, Japanese investment in Australia soared to US$1.92 billion, up from US$913 million in 2022. Notably, the investments from Japan in 2023 and 2024 YTD are more than double the total investment made between 2014 and 2022, further underscoring Australia's increasing attractiveness to Japanese investors.

Cushman & Wakefield’s International Director & Head of Capital Markets, Australia & New Zealand Josh Cullen said:  “Over the past 30 years, the Australian economy has demonstrated remarkable resilience, standing out as one of the most robust performers globally. Over the next decade, Australia is projected to experience some of the highest GDP and population growth rates among mature economies. With economic conditions expected to improve by 2025 and interest rates reaching an inflexion point, the commercial real estate market in Australia is poised for a period of accelerated value growth.” 

Cullen said the market was seeing rising demand for industrial assets as investors sought the growth opportunities offered by Australia’s still-nascent e-commerce market and its structurally undersupplied logistics market.

“In addition, Australia's multifamily (Build-to-Rent) market investment thesis is supported by record-low vacancy rates and a limited dwelling supply projected until 2027. Although rental growth has stabilized following substantial increases, residential assets in Sydney and Melbourne continue to be top investor choices in the Asia Pacific region. Moreover, the supply and demand dynamics of purpose-built student accommodation remain favorable, with rental rates reaching record highs,” Cullen said.  

Elsewhere in the region, India and Southeast Asia have also seen increased Japanese investment, said Marsden. 

“Japanese CRE investment in India reached a record $784 million in 2023, following strong investment in both 2021 and 2022, and there are other signs of strengthening ties between the two countries. Bilateral trade has been increasing since 2020—reaching US$22.85B in 2023-24, up from US$15.33B in 2020-21—and Japan currently accounts for around 7 percent of India’s foreign direct investment inflows.

“In Southeast Asia, Singapore, Vietnam and Thailand have been among other top destinations for Japanese investors in recent years, and we expect to see increasing interest in markets such as Malaysia and Indonesia as investors look to their strong GDP and population growth prospects heading towards 2030,” he said.