Nippon Prologis REIT Inc., a real estate investment trust set up by the world’s largest owner of industrial buildings, surged 24 percent in its Tokyo trading debut amid expectations for growing demand for warehouses.
The REIT, run by San Francisco-based Prologis, rose to 682,000 yen from the initial offer price of 550,000 yen at the close of trading in Tokyo. The REIT raised 100.3 billion yen ($1 billion) through an initial public offering earlier this month, the company said.
Nippon Prologis’s IPO follows that of competitor Global Logistic Properties Ltd., partly-owned by the Government of Singapore Investment Corp., which raised about $1.3 billion in December through going public in Tokyo. Japan’s distribution centers are rebounding from record high vacancies in 2009 amid increased demand for modern storage facilities, according to broker CBRE Group Inc.
“The performance of Nippon Prologis shows market expectation of the REIT market,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo. “Prologis’s price gains will lead to higher prices for all other J-REITs.”
Nippon Prologis will use the proceeds to buy 12 warehouses worth 173 billion yen from Prologis, which is responsible for supplying properties to the trust, the sponsor said in a statement on Jan. 10. The trust also has the exclusive negotiation rights to buy eight more properties owned by Prologis. The warehouse owner will retain at least 15 percent of Nippon Prologis and manage the REIT, it said in the statement.
The Tokyo Stock Exchange REIT Index has gained 11 percent so far this year after it had the biggest annual increase of 34 percent in 2012. GLP J-REIT, which began trading on Dec. 21, has gained 21 percent in less than two months amid expectations for increased demand for distribution centers.
The outlook for Japan’s REIT and property market is “very positive” said Chairman Hamid Moghadam in an interview in Tokyo.
“For the next couple of years, there’s going to be great opportunities for the J-REIT market and for Japanese real estate taking advantage of the liquid form of investment which are the J-REITs,” he said.
The vacancy rate in warehouses in Tokyo has declined to 3.7 percent in the fourth quarter of 2012 from a peak of 20 percent in September 2009, according to CBRE. The asking rents for logistic properties rose to 6,140 yen per tsubo in the second half of last year, the highest since at least 2005, CBRE said. One tsubo, a standard measure of property area in Japan, is 3.3 square meters, or 35.5 square feet.
“The market is not going to grow very much, but the supply of modern logistics space, which is what we focus on, is going to grow a lot,” Moghadam said. “The modern stuff is going to take share away from the older less competitive properties, so that’s where we choose to focus.”
Industrial spaces returned 6 percent on average for the year ended October, more than double that for office buildings, according to London-based Investment Property Databank Ltd.
“The pace of growth, especially, for e-commerce has gained significant momentum, becoming a tremendous driver of logistics demand,” said Junichi Taguchi, managing director of CBRE’s Industrial Services division in Japan. “With growth in online retailer delivery networks expected to grow significantly in the future, we forecast a solid leasing market for logistics properties through 2013.”
To meet rising demand, Mitsui Fudosan Co., the country’s largest developer by sales, said Jan. 17 it plans to invest 200 billion yen in warehouses in Japan over five years. Mitsubishi Estate Co., the second largest, last year announced plans on developing two warehouse projects with partners in Tokyo Bay and Kanagawa prefecture.