PGIM becomes more cautious about investing in Japanese real estate amid rising rates
PGIM Real Estate has become more selective in acquiring property in Japan, as rising interest rates are increasing transaction costs. The Japan Times reports, citing David Fassbender, head of PGIM's real estate business in the Asia-Pacific region.
According to him, acquiring assets has become significantly more expensive, and the company factors in the higher cost of debt financing when assessing investments. As a result, PGIM is now selecting properties for purchase more carefully than it did two years ago, Fassbender said.
Competition with government bonds
Fassbender said that the narrowing yield spread between Japanese government bonds and real estate is also raising the bar for new investments. This particularly applies to competitive segments, including office real estate. In his assessment, the historically wide yield gap has narrowed or, in some cases, disappeared.
Japanese government bond yields have risen to their highest level in three decades. The market expects that the Bank of Japan may raise its key interest rate to 1.25% this month. The country's real estate market is under pressure from higher borrowing costs after decades of near-zero rates: homebuyers are facing higher mortgage payments, while developers are dealing with more expensive materials and a shortage of construction workers, leading to project delays and cancellations.
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Data centers and logistics
Despite this, PGIM considers financing in Japan accessible and sees investment opportunities. The company is focusing more on high-growth sectors, particularly data centers, rather than office buildings and multifamily housing, which are becoming less attractive as rates rise.
PGIM plans to invest more than $2 billion in Asia-Pacific real estate in 2026, with at least half of that amount going to Japan. The company currently manages approximately $3 billion in real estate assets in the country. About 50% of the capital PGIM invests in Japan is directed toward data centers; the firm has already invested in two sites near Tokyo and Osaka and is working on acquiring at least one more such facility.
PGIM recently also acquired a four-story logistics facility in Saitama Prefecture. Fassbender linked the segment's appeal to limited supply, high demand, automation, and the development of physical AI.
