Transcription
[CC may contain inaccuracies] I wanted to ask you, obviously, about the elephant in the room when it comes to real estate and rate sensitive industries at the moment. What is your sort of outlook in terms of what we've seen in the West this week from the Bank of Japan and how that potentially plays into the outlook for the broader property and real estate sectors? Does it have sort of downside risks going forward?
So basically, you know, we continue to see Japanese real estate market to be very attractive. And it's not only just the latter half of this year, but just continue to be that. We think if you look at the fundamental of Japanese economy, we're probably the last country to open its border after COVID. So recovery is really just a happening. So if you actually look at the consumer, spending is definitely recovery recovering, backed by strongest wage growth in the last since 1994. You know, corporate investment is increasing. So fundamentals are strong. Obviously, we're paying attention to what BOJ is going to do next. But at this particular moment, real estate market in Japan is very resilient. We did see that initial sell off of a number of the property names when we did get the big news. But obviously the runway to policy normalisation and tightening is quite long. So is this more of a medium to longer term worry for you when it comes to this particular asset class?
You know, I think, you know, it's really hard to predict what Bank of Japan is going to do. What's very important is basically we're prepared for any scenarios. Right. So we construct the global portfolio. For example, 80% of our portfolio is concentrated in strong sectors like logistics, data center hotels, rental housing, which are obviously very stable cash flow with a strong growth trajectory. So in a similar way, we actually do the same in Japan. We're very focused on, you know, data center hotels, rental housing. And one I think a difference from the rest of the world is probably office. You know, I think the office in Japan continue to be very resilient. And if you actually look at the work from home, the latest government study shows it's actually decreasing. So people are actually coming back to the office. So even though the last few months we've seen that downward pressure when it comes to office vacancies as well as rent as well, do you think that is sort of the start of a more nascent recovery?
Yeah, I think, you know, if you actually look at our portfolio, we continue to see very healthy releasing spread. And also, if you actually look at the transaction, Japanese investors remain very focused on, you know, attractive office asset. But here it's very important that where your investment, where you invest matters. So we're not really investing any, you know, office buildings, any cities. We're very focused on cities like Tokyo, Osaka, Fukuoka.
As you alluded to, Blackstone has been such an active player in this field. And in fact, in the ten years through to 2022, there was so, so many deals on the buying side, right? Since then, you've been disposing of a lot of these assets. What's what's in the pipeline? What's your strategy and goal here? Is there a certain sort of amount that you want to hit in terms of sales?
You know, we don't really have set the target. You know, obviously, we're very opportunistic investors. So when we see growth opportunities, we've been very heavily if you actually look at 26, 2020, we have acquired over seven and a half billion dollars of real estate in Japan. Also, as you pointed out, you know, since 2023 or 22, 23, we have sold nearly $4 billion of asset to capitalize on the strong fundamentals.
What sectors are you most bullish on? Hotels probably is our top of the list. If you actually look at the inbound tourism, it's only 70% of pre-COVID level. But if you actually look at the revenue per available room or rent par portfolio, it's all that exceeding 2019 level. We're expecting inbound tourism to recover farther. And so we should benefit from that strong recovery in the sector.
What sort of trends are you seeing? You mentioned obviously the post-COVID recovery and clearly there's still so much inbound travel for Japan. So what sort of trends are you seeing in the types of hospitality and leisure properties in addition to residential as well?
There's a huge travel demand, pent up demand from actually domestic travelers, and we're actually seeing that trends across the country. So we think that trend will continue. And, you know, with inbound tourism coming back, as I said, you know, hospitality market, it will benefit from from that recovery the most.
What the stock levels look like, where are the opportunities and are they plentiful?
Yeah, You know what's interesting in Japan now, because of the corporate governance structuring, a lot of companies used to own a lot of real estate. But these days, because they're very focused on return on equity. So a lot of companies started looking at their balance sheet and start selling non-core real estate assets. We're definitely seeing that trend in the last couple of years and we're definitely seeing that trend just going forward as well.