GIC’s Deputy Chief Investment Officer of Real Estate, Goh Chin Kiong, and Head of Real Estate, Japan, Ken Sugimoto discuss why Japan remains an attractive market to achieve good, long-term, risk-adjusted returns.

Real estate in a challenging investment landscape

As investors continue to grapple with today’s challenging environment, real estate has emerged as an important source of portfolio diversification and inflation hedging. GIC had the early mover advantage of having invested in real estate since the 1980s and expanded our portfolio to Asia in the 1990s. Today, we are among the world’s top real estate investors, with a globally diversified portfolio and on-the-ground teams in ten of our offices.

The firm’s Deputy Chief Investment Officer of Real Estate, Goh Chin Kiong, highlighted that getting good absolute returns in this challenging environment is no easy task. Going forward, maintaining price discipline, focusing on good quality assets, and rebalancing the portfolio will be crucial.

Bright spots in Japan’s real estate market

While many investors are attracted to Japan due its low interest rates and depreciating yen, GIC sees opportunities in the Japan real estate market primarily because it is deep and liquid.

GIC has been investing in Japan since the 1990s and intends to continue finding good opportunities on a risk-adjusted basis. In real estate, GIC has a diversified portfolio spanning major property sectors including hospitality, logistics, residential, and office.

For example, in 2022, GIC acquired 26 properties from Seibu Holdings [1] in what GIC Head of Real Estate, Japan, Ken Sugimoto described as a “unique opportunity to acquire a sizable portfolio of high-quality assets located in prime locations throughout Japan and work with one of the largest and most established domestic hotel operators in a long-term tailwind sector.”

“Given Japan’s strong domestic tourist market throughout the Covid-19 pandemic, as well as the increasing demand for global travel, we believe these assets are well-positioned to generate resilient returns,” he added.

Logistics is also an attractive sector for GIC, with the firm having acquired six logistics facilities from Blackstone earlier this year[2]. The assets were developed by leading Japanese real estate developer Daiwa House Industry and are a testament to our confidence in the sector, with its growth driven by robust performance in e-commerce and third-party logistics businesses. The portfolio provides stable and diversified income streams with attractive growth potential, which is well-aligned with GIC’s long-term investment horizon and approach.

“It is a good addition to our Japan portfolio as we continue to focus on tailwind sectors such as hospitality and logistics,” Goh said.

In a separate transaction in July, GIC acquired another logistics facility in Yatomi City, part of the Greater Nagoya metropolitan area, also developed by Daiwa House Industry [3].

“These investments are just a few examples of what we have already done in Japan. We continue to see significant bottom-up opportunities that can generate stable returns over the long-term and look forward to growing our portfolio in the region,” said Sugimoto.

A long-term partner

As investors increasingly search for opportunities in Japan, the competition will certainly become tougher. Sugimoto shared that GIC’s strong track record will play a key role in sourcing attractive deals.

As companies seek to restructure, transition, or expand geographically, it can be beneficial to have a supportive investor like GIC with a long-term mindset, global perspective, capital flexibility, on-the-ground team, and strong networks.

— Ken Sugimoto, Head of Real Estate, Japan, GIC

Goh added that real estate is a very local business, so working with leading corporates and operators to source, manage, and operate assets will be crucial moving forward. In fact, it is such partnerships which have helped GIC to grow a substantial portfolio in the country thus far.

GIC also looks to value-add with its partners, especially those who are similarly long-term orientated. For example, the properties which GIC acquired from Seibu Holdings will continue to be operated by Seibu Prince Hotels Worldwide (SPW), and the team intends to work closely with them to increase the portfolio’s value over time.

“We are working with [SPW] to lay out what we want to do with each property, starting with the biggest assets. We intend to work with [SPW] to make these changes in such a way that it brings joy to the people who are going to come and stay with us,” explained Sugimoto.