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Japan's Aeon REIT surges 8% on debut

Shares of Aeon REIT, the first Japanese Real Estate Investment Trust to contain an overseas asset, surged 8 percent on their debut on Tokyo's Stock Exchange on Friday, underscoring demand for Japan's property sector.

The REITs of one of Asia's biggest retailers climbed to 113,500 yen ($1,121) per share, by mid-morning in Asia, versus the issue price of 105,000.

This is Japan's third-largest REIT IPO this year, raising 94.5 billion yen ($956 million).

Aeon has said the IPO was designed to capitalize on the recovery in Japan's property market and secure funds for expansion. It's the first of its kind in Japan, because it contains exposure to overseas assets, including 16 assets in Japan and one in Malaysia.

(Read more: Japan's quarterly commercial real estate sales soar 78%)

Aeon shopping center
Kiyoshi Ota | Bloomberg | Getty Images
Aeon shopping center

CEO and President of Aeon REIT Management Kenji Kawahara told CNBC that there were plans to further expand the overseas exposure within the REIT offering.

"In 2014 and 2015, Aeon's shopping centers in ASEAN and China will come on board. Once those properties have built a track record in 2016 and 2017, we will start incorporating more overseas properties," he said, adding that the firm was looking to buy properties in Indonesia, Cambodia and Vietnam.

(Read More: Asia's commercial property deals set for record year)

Aeon, which is Japan's single-largest shopping mall developer and operator, has benefited from the renewed interest in real estate since Prime Minister Shinzo Abe put in force his radical plan to overhaul Japan's economy earlier this year.

Kawahara told CNBC he was optimistic that property prices would rise in the near future in Japan, following a government survey last month which showed land prices have this year seen the smallest decline since 2008.

"Abenomics is fanning inflation so there is considerable expectation that commercial rents will rise in central Tokyo," Kawahara said.

"However, there is [still an] underlying concern about the decline in Japan's population, so if I were to talk about areas outside of Tokyo, I would think it's neutral to slightly positive," he added.

(Read More: Real estate funds no longer living on Easy Street)

Asia's commercial real-estate investment market is thriving this year. Transactions in Asia Pacific over the first three quarters have reached $89.6 billion, up 25 percent on year and are expected to reach $110 billion by year end.

According to property research firm Jones Lang LaSalle, demand from Japan has comprised a fair chunk of this fresh demand. Deals in the third quarter climbed 139 percent on year, amid interest from both domestic and offshore investors.

However, competition remains strong in the Asia Pacific region, with many other players, including Hong Kong conglomerate Cheong Kong, striving to gain a piece of the burgeoning market.

Kawahara said he planned to tackle heightened competition in Indonesia, for example, by branching out into city suburbs, rather than focusing on city centers, where commercial real estate markets are already saturated.

"Our model is centered more around the suburbs, just like we succeeded in Japan. We know motorization is spreading quickly in Indonesia so we are planning to encompass larger areas, where people can easily get to by car," he added.

(Read More: More pain to come for Singapore REITs?)

Japanese publicly traded real estate trusts raised $4.9 billion in the first eight months of the year, Reuters data showed, almost three times more than the same period last year.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.