Press Release

Easy money in China, Japan bodes well for real estate investment

September 24, 2018 — Chicago


"EASY money" has wound up inflating asset prices, including property, in recent years so much that its imminent reversal - with many countries beginning to tighten monetary policy - will hit property investments hard.

Such is the conventional wisdom but this may not necessarily hold true, particularly, certain types of property investments, according to LaSalle Investment Management's (IM) Asia-Pacific head of research & strategy, Elysia Tse.

Firstly, macroeconomics is not the only factor that affects investment in commercial real estate, she said.

Secondly, LaSalle IM still sees investment opportunities, as not all countries are jumping on the monetary tightening bandwagon, citing China and Japan as examples.

In a recent interview with The Business Times, Ms Tse said real estate has proven to be a more stable asset class with less volatility in price fluctuation compared to stocks and bonds. This is because they are a longer-dated asset class rather than one that is traded on a daily or even by-minute basis.

"You have multi-year leases that are tied to income for real estate; that tends to be a lot more stable, and over the last few years, we are seeing institutional investors increasing their allocation to real estate in general, not just in Asia but globally."

More investors are also using real estate as a "shock absorber" to shield against capital market volatility in the fixed income and equity markets.

Ms Tse said the Bank of Japan's recent pledge to keep rates near 0 per cent for an extended period of time, and China's continued easing policy, are all good reasons to invest in real estate in these two major Asian economies.

"We are certainly in a trajectory of an extended period of a gradual interest rate increase environment, and what that means is that capital market driven appreciation is mostly behind us.

"What we are focusing on is creating stable income stream, real estate fundamentals, liquid and large markets, quality assets - so, back to basics, really focused on that asset-level brick-and-mortar for higher returns for investors."

On a micro level, capital appreciation is still possible by identifying undervalued assets and repositioning or redeveloping them, for instance, by changing the tenant mix of existing properties to enable them to command higher rental rates, she said.

In Japan, where near-zero 10-year Treasury bond yields have further boosted the appeal of real estate yield among domestic investors, LaSalle IM favours Grade-B offices in Tokyo, malls anchored by retail tenants dealing in everyday consumables, rental apartments in urban locations and logistics facilities.

In China, the investment firm likes logistics real estate, particularly in Tier-1 cities and their satellite cities, as well as offices in Shanghai. The satellite cities of Tier-1 markets include Kunshan and Changsu, because for the logistics sector, the distribution channel matters more than the actual facility location. The locations need not be prime, but do have to be accessible to transportation systems and be close to large population bases. Also, with assets in Tier-1 cities becoming more expensive, those in satellite cities make a good alternative, Ms Tse said.

Logistics in Asia-Pacific has been a hit with investors this year, backed by e-commerce as a demand driver and limited supply in selected logistics markets.

Ms Tse noted that most of the new supply in the region in the first half of 2018 was snapped up at a much faster pace than anticipated at projected rental levels. On top of that, capitalisation rates have continued to compress because of the strong investor interest, especially in LaSalle's key markets of Japan, China and South Korea.

Comparing yields, she noted that Tokyo Grade-B office yields are about 4 per cent.

In China, fully-leased, fully-occupied logistics centres in Tier-1 cities and their satellite cities can yield 5.25 per cent to 5.75 per cent.

A fully-leased prime Grade-A office building in Shanghai's central business district (CBD) yields about 3.5 per cent and about 3.75 per cent per cent in fringe CBD areas.

Logistics yields in Shanghai generate an additional spread of 150 to 175 basis points over office yields, which is attractive to investors, she added.

Economic fundamentals also fuel the appeal of real estate in these two countries, as China continues to prioritise its quality of growth over quantity and focus on financial market reform, which will likely lead to stable, long-term economic growth with occasional short-term volatility.

In Japan, the low unemployment rate, fiscal stimulus targeting lower-income households and anticipated tax cuts for corporations that offer wage increases are expected to boost retail sales and drive occupier demand for shopping centres.

As for trade fears, Ms Tse believes the ongoing, tit-for-tat Sino-US tariff war will have a limited impact on real estate investment in China and the rest of Asia-Pacific as most property transactions in Asia are primarily domestic transactions.

"It ranges by country, but domestic investors make up 60 per cent to 80 per cent of total real estate transaction volumes in the major Asia-Pacific countries. An additional 10-15 per cent of transaction volume comes from investors within the region.

"The strong real estate transaction volumes from domestic and intra-regional investors are partly because intra-regional trade - post-global financial crisis - has been a primary driver of the Asia-Pacific region's total trade, rather than trades with US and Europe. In other words, the economic connectivity among Asia-Pacific countries partly help to drive real estate investments within the region.

"From that perspective, we expect transaction volumes to remain solid, and that is evidenced by the first half of this year, where transaction volume saw a close to 30 per cent increase compared to the same period in 2017."


As for Singapore, she said the local economy is in "a recovery mode", which feeds into the property sector.

"We are already seeing recovery in the office sector primarily in the CBD; same for the industrial sector. The retail sector, on the other hand, is facing some challenges given competition from e-commerce and suburban retail and neighbourhood centres.

"But even in the worst times, the occupancy rate still averages about 96 per cent, so retail malls are still a relatively stable asset class, although we may not be expecting very strong rental growth in the next two to three years."

Over this period, she projects stable occupancies for the industrial sector and the strongest rental growth to come from the office sector among the three major sectors.

However, she is "not bullish" on Singapore's office sector beyond 2021, partly due to the resultant volatility in occupancy and rentals from the short occupier market cycles of 3.5 years to six years, compared to around 10 years in the United States and United Kingdom.

About JLL Income Property Trust

Jones Lang LaSalle Income Property Trust, Inc. (NASDAQ: ZIPTAX; ZIPTMX; ZIPIAX; ZIPIMX), is a daily NAV REIT that owns and manages a diversified portfolio of high quality, income-producing apartment, industrial, office and retail properties located in the United States. JLL Income Property Trust expects to further diversify its real estate portfolio over time, including on a global basis.

About LaSalle Investment Management

LaSalle Investment Management, Inc., a member of the JLL group and advisor to JLL Income Property Trust, is one of the world’s leading real estate investment managers with approximately $65.0 billion equity and debt investments under management (as of Q1 2020). LaSalle’s diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. LaSalle sponsors a complete range of investment vehicles including separate accounts, open and closed-end funds, public securities and entity-level investments. LaSalle is a wholly-owned, operationally independent subsidiary of Jones Lang LaSalle Inc. (NYSE: JLL), one of the world’s largest real estate companies. For more information please visit

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  • Since there is no public trading market for shares of our common  stock, repurchases of shares by us after a one-year minimum  holding period will likely be the only way to dispose of your  shares. After a required one-year holding period, JLLIPT limits the amount of shares that may be repurchased under our repurchase plan to approximately 5% of our net asset value (NAV) per quarter and 20% of our NAV per annum. Because our assets will consist primarily of properties that generally cannot be readily liquidated, JLLIPT may not have sufficient liquid resources to satisfy repurchase requests. Further, our board of directors may modify or suspend our repurchase plan if it deems such action to be in the best interest of our stockholders. As a result, our shares have limited liquidity and at times may be illiquid.
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