Sumitomo Mitsui Trust Holdings Inc.’s property unit plans to double assets under management to 500 billion yen ($6.4 billion) in two years as it expects a recovery in Japan’s real estate market.
Sumitomo Mitsui Trust Real Estate Investment Management Co., the real estate arm of Japan’s fourth-biggest bank, plans to increase its assets from 225.8 billion yen as of March 31, said Mitsuo Kimura, president and chief executive officer of the Tokyo-based unit. The company is also considering setting up a private real estate investment trust depending on investors’ demand and will reach a decision by March 2013, he said.
The trust bank’s property arm and an investment unit of Axa SA, Europe’s second-largest insurer, said last month they each started a fund with 5 billion yen to buy office buildings in central Tokyo. The two funds, which may jointly invest in buildings, plan to raise as much as 50 billion yen that will enable them to acquire 100 billion yen of assets, Kimura said.
“I expect the market to recover next year,” Kimura said in an interview in Tokyo. “Japan’s stability has become attractive for the European and the U.S. investors who are seeking a place to invest.”
Office buildings in Tokyo provided a 3.4 percent total return, including rental income and capital value, in 2011, after a 0.5 percent gain a year earlier, according to RREEF, a property investment arm of Deutsche Bank AG. Before that, the market had three straight years of declines, the data showed.
By comparison, total returns for properties in the U.K. fell by half last year after rising as much as 15 percent in 2010, while returns from U.S. real estate climbed for two straight years after posting two annual losses, based on data compiled by RREEF.
Sumitomo Mitsui’s property fund will buy office buildings in central Tokyo that are in the 3 billion yen to 10 billion yen price range, according to the company. The fund targets an internal rate of return of more than 10 percent, it said.
Tokyo’s office vacancy rate in July fell from a record high to 9.3 percent, according to Miki Shoji Co., a closely held office brokerage company.