Japan seems to be finding its way back on the radar screens of international real estate investors after a prolonged period of doldrums on the back of the 2008 financial crisis and the Japan-specific earthquake and nuclear-scare of last year.

 Goldman Sachs, one of the houses with an early interest and feet on the ground in Japan, recently launched a several $100m private REIT for investing mainly in Tokyo offices. Aviva Investors, helped by the local real estate firm Secured Capital raised more than $200m for a similar strategy targeting prime office in the Japanese capital. Sumitomo Mitsui Trust Research Institute issued a survey on privately placed real estate funds in Japan, reckoning the total private fund market has a volume of $225bn as of the end of 2011. Office comprises the largest sector of invested assets at 28%, closely followed by residential (25%) and retail (20%). The survey indeed supports the notion that capital-raising is starting to pick up again. After a dearth in fund launches in the aftermath of the financial crisis, 2010 had seen a strong increase, only to be cut short by the Great East Japan Earthquake of March 2011. Now volumes are picking up again, but having learned from past mistakes, investments have lower leverage, longer investment periods and higher target internal rates of return.

 Anyone who has visited Tokyo recently will have noticed the building activity in the centre of the city around Tokyo station and several new large office properties have come on line recently or will be in the coming months.

 Early this year saw the completion of the Marunouchi Eiraku Building and nearby Palace Building, both owned by the developer Mitsubishi Estate and offering the latest in earthquake proof, superbly finished and user friendly premises. Japan Post meanwhile is building its new head office, the JP Tower, right in front of Tokyo station. The old structure, which housed the Central Post Office dating back from 1931 is preserved with the 38-storey glass structure rising out from within the white stone base.

 Residents of the Japanese capital are looking forward to the re-opening of the Tokyo Station Hotel in the autumn. This will complete the restoration project of the station building which started in 2007 to bring the red-brick building back to how it was designed and originally built in 1914. The hotel will try to regain the place it had in the 1950’s and 60’s as one of the most prestigious home to guests from around the world.

 All this will add to the new feel of the Marunouchi area augmenting earlier projects such as the two Maru-buildings, the Oazo project, the Park Building and the revamp of the NakaDori street, which, to the credit of Mitsubishi Estate’s planners and developers, has turned into a miniature Champs’ Elysees, home to the Peninsula Hotel and uncountable brand-shops, restaurants and coffee-shops.

 Next in line is the opposite, Yaesu, side of the station, where earlier this century the twin-towers of GranTokyo were built on the South-end and North-end of the station’s edge. Construction is continuing to link up the two towers via a walking bridge, but the fact that this column is written proves that the office premises are fully functional! Otherwise the Yaesu-side is still relatively underdeveloped, with the exception perhaps of the Coredo premise, but also here new redevelopments are underway, this time by Mitsubishi’s rival developers Mitsui Fudosan and Sumitomo Realty and Development.

Typically new office supply is an enemy of the real estate investor looking for stable rental income from fully occupied office buildings. But judging from the re-entry of some of the larger international institutions, they seem to think the Tokyo office market is attractive despite of the new supply coming on-line.

 Indeed the prime office supply pipeline for 2012-2013 at 13% of existing stock is not much higher than Singapore, while current vacancies at 3.5% are as low as they can get. Absorption for new office space is expected to be good as tenants move to buildings with ever higher earthquake resistance standards. Yields on prime office buildings meanwhile are at 3.6%, more than 250bps above the 10 year JGB rate while asset values on leased buildings are currently below replacement costs. In addition, after a prolonged period of flat to lower rents and asset values, recent numbers suggest the market might be bottoming and we find ourselves in the early stage of what could be an upward cycle. All this is just looking at the averages disguising the trends driving property demand on a more localised basis.

 The upscaling of Marunouchi as an area has now clearly established it as the super prime part of town. Where in the previous decade the rise of areas such as Roppongi (Roppongi Hills, MidTown), Shinagawa/Osaki, Shiodome or Akasaka might have given the impression that the center of gravity was shifting, clearly Marunouchi has retaken the lead. High quality tenants will be willing to pay the premium rents and fill up the newly added square meters of floor space, leaving both the occupiers and the investors financing the developments and operations of these buildings better off.

 Oscar Volder CFA is Head of Institutional Sales at BNP Paribas Investment Partners Japan