JAPAN Trends and Developments Contributed by: Hiroshi Niinomi, Koki Hara, Naoto Yamamoto and Atsuo Kyoto, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
The overtime limit employment regulations, which were initiated as part of the work-style reform are considered one of the factors contrib - uting to the difficulty in securing human resourc - es. The regulations came into effect from 1 April 2024, following a five-year grace period for the construction industry. A chronic shortage of human resources and an ageing workforce also seem to be making it difficult to set up long-term business plans for redevelopment projects. Market in Each Asset Type Hotels With the COVID-19 pandemic subsiding, hotel assets appear to be recovering significantly as an investment target due to both the increased willingness of domestic travellers to travel and inbound visitor numbers recovering. The hotel market is booming as hotel demand recov - ers, especially in Tokyo, Osaka, Hokkaido and Okinawa. According to the Nikkei’s real estate market information, one hotel investment deal ranked third among the top ten real estate transactions (by deal size) in Japan in 2024. Office properties The office space vacancy rate in central Tokyo fell to a three-year low in March 2024 and rents have been rising, especially in the major busi - ness districts of Tokyo. Office property transac - tions have also become more active and demand for office space has remained strong. Logistics Investment in logistics facilities, which remained strong in 2023, continued to see consistent demand in 2024. According to the Nikkei’s real estate market information, two of the top ten real estate transactions (by deal size) in Japan in 2024 were logistics facility investment projects.
However, investors seem to be more cautious than before about projects with longer timelines, such as development projects, due to factors such as rising interest rates and construction costs. Data centres With the growing demand for cloud computing, data centres are being developed in Japan and investment in this asset class is also on the rise. There are hurdles to obtaining non-recourse financing at the land leasehold stage for data centres without income generated from a prop - erty and the development of data centres may therefore be conducted through other schemes, such as joint ventures. Activist Campaigns for Real Estate Holdings Activist investors play a significant role in the Japanese market. There were more than 100 confirmed activist campaigns against listed companies in Japan during the first half of 2024, which globally is second only to the more than 170 confirmed activist campaigns in the United States. Listed companies that have held real estate for long periods of time, with resulting bal - ance sheet differences between the book value and market value of the property, representing unrealised gains, have also become targets for activists. Calculation of P/B ratios based on book value may result in a blue-chip company having a high P/B ratio, but if those P/B ratios are reviewed by taking unrealised gains into account, a com - pany can be seen as having room to increase shareholder value. From this perspective, activ - ists are campaigning to maximise shareholder value through the effective use of unrealised profits. In Japan, both real estate companies and companies with core businesses other than real estate, such as railroads, construction com -
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