SAVILLS Investment Management is set to launch a new fund in Japan and is seeking an asset management license in China as part of its efforts to expand its platform in the Asia-Pacific.
The launch of the new Japan fund coincides with the relocation of Savills London-based chairman and global chief executive officer (CEO) Justin O’Connor to Hong Kong where he has assumed the position of CEO for Asia-Pacific (APAC).
In China, Savills is seeking joint venture (JV) partners and working on securing an asset management license that will allow it to undertake renminbi-denominated deals for domestic investors in second-tier and third-tier cities. The firm is currently in talks with two potential JV partners which O’Connor declined to disclose in an interview with The Asset.
“Given current pricing, the supply cycle and further interest rate hikes, we do see some selective opportunities across China. Office demand in Shanghai has been slowing on the back of new supply entering the market. As more tenants move to emerging submarkets, rental growth in decentralized areas should outperform that of the CBD (central business districts),” O’Connor says.
In Japan, the new fund aims to raise US$500 million in investible funds, mostly from European investors seeking opportunities in APAC.
“The Japanese office market remains healthy, and Tokyo continues to appeal to investors in view of its robust fundamentals and positive yield spread relative to other global gateway markets,” O’Connor says.
The new Japan fund to be launched in the coming weeks follows the success of its Greater Tokyo Office Fund which raised about US$200 million last year. Savills also won two mandates to invest in Japanese real estate equaling US$600 million in 2017.
The new fund will also look at investment opportunities outside of Tokyo as well as in other major cities in Japan. In the retail sector, for example, Savills is looking to benefit from improving consumer confidence and record tourism flows that are supportive of retail sales.
“Tenant demand for retail space remains robust in Tokyo and Osaka, although prime rental growth is likely to be muted given how much rents have exceeded pre-financial crisis levels, now up over 30%,” O’Connor says.
Savills is also eyeing opportunities in Japan’s housing market which remains upbeat and an investor sector of choice due to its high occupancy levels and stable rents, although assets are now harder to source.
But although the Japanese real estate market still provides opportunities, O’Connor says overall returns may be lower than they used to be because of increasing competition among asset managers doing business in Japan.
“Returns used to be in the mid-teens but they have dropping in recent years. Now they are at about the low-teens level,” O’Connor says.