German fund buys Tokyo office block for $182 mln

HONG KONG, June 2 (Reuters) - German open-ended property fund grundbesitz global has bought a Tokyo office block for around 117 million euros ($181.8 million) at a time when many analysts believe the Japanese commercial real estate market is softening.

The fund bought the Nikko Building, with 7,000 sq m of floor space, from Japanese property firm Yaesu One TMK, according to Deutsche Bank's (DBKGn.DE: Quote, Profile, Research, Stock Buzz) property unit, RREEF, which arranged the deal.

RREEF said the building's prime location, in Nishi Shinjuku district of the Japanese capital, made the building attractive. Grundbesitz global, which gave a total return of 6.1 percent in the year to April 31, now has 18 percent of its 3.5 billion euros of assets in Asia.

"Japan continues to provide many strong investment opportunities and we expect further rental growth in good locations," RREEF's Germany chief executive, Holger Naumann, said in the statement.

"This investment has excellent potential for the fund."

But prices for some Tokyo office blocks are widely expected to weaken this year as banks cut back on the heavy lending that helped fuel a market surge over the last five years.

Amid a global credit crunch, Japan's lenders are becoming more selective, preferring established clients, prime locations and big assets that are most likely to retain their value.

Deutsche Securities analyst Machio Honda believes price falls for second grade and small offices could send yields higher by as much as 200 basis points from about 4 percent now.

The head of property investment for the Government of Singapore Investment Corp recently picked out Japan as one of Asia's most vulnerable real estate markets.