Japan’s logistics real estate market may see some price softening next year as new supply outpaces demand, opening up potential opportunities for new investors to enter the market.

As J-REITS and non-listed core capital from institutions such as Deutsche Bank and Morgan Stanley see opportunities in Japanese logistics amid ultra-low interest rates, the market could potentially soften in 2018, according to Pelham Higgins, from JLL’s Industrial Capital Markets team in Tokyo.

The logistics focused J-REIT Japanese Logistics Fund (JLF) recently acquired two assets—the Yokohama Machida Logistics Centre and the Takatsuki Logistics Centre—amounting to US$246 million (JPY 27 billion). These new acquisitions took the total value of JLF’s portfolio to US$2.44 billion (JPY 268 billion).

“The Yokohama Machida Logistics Centre deal was concluded at a sub-4 percent NOI (net operating income) capitalisation rate (cap rate), and it’s not the only one that has recently traded at this level, which tells me the market might be ready for some cooling,” he says.

“These transactions were not in prime locations and their pricing levels would suggest that the prime Tokyo logistics cap rate currently sits around 3.7 percent NOI, which is now 100 basis points sharper (lower) than where they were in 2007 just before the Global Financial Crisis (GFC).”

According to JLL’s Tokyo Logistics Report for the second quarter of 2017, capital values increased 2.3 percent quarter-on-quarter or 6.9 percent year-on-year in the three months to June, rising for the second consecutive quarter.

JLL expects capital values to rise in the near term, reflecting a continued compression in cap rates as well as intensifying competition arising from new players entering the…

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