The real estate sector in Japan has been experiencing a significant boom in recent years, thanks to the country’s ultra-loose monetary policy and the weakening of the Japanese yen. According to Henry Chin, the head of Asia-Pacific research at CBRE, this is a “golden period of Japanese real estate” due to the favorable lending terms, transparent market, and strong fundamentals in the retail and multifamily sector. Multifamily properties, which offer multiple rentable units, have become particularly attractive to foreign investors. This increase in demand has also been driven by the country’s favorable lending terms, with a loan-to-value ratio of 70% and low interest rates below 1%.
The Bank of Japan’s decision to maintain benchmark interest rates at -0.1% has set it apart from other major central banks. While central banks around the world have been raising interest rates to tackle inflation, the Bank of Japan’s ultra-loose monetary policy has allowed the yen to weaken by more than 11% against the U.S. dollar this year. This depreciation of the yen has made Japanese real estate more affordable and attractive to foreign investors.
According to Koji Nato, the Research Director of Capital Markets in Japan for JLL, foreign investor volume in the Japanese real estate market saw a 100% increase in the first quarter of 2023 compared to the previous year. JLL also highlighted in a recent note that real estate deal activity in Japan has been among the strongest globally, with credit given to the interest rate policy for keeping the market resilient. As a result, foreign investors doubled their investment to $2 billion in the first quarter of the year.
Japan’s tourism sector has experienced a solid rebound following the easing of border restrictions. This has led to increased hotel occupancies and investments in the hospitality sector. In July, Japan recorded the highest number of foreign travelers since the start of the Covid-19 pandemic. The limited availability of new hotel rooms in the foreseeable future is expected to drive continued growth in occupancy rates.
Additionally, the greenlighting of the construction of Japan’s integrated resorts in Osaka has given a significant boost to hospitality investments. The integrated resorts, which will include the country’s first casino, aim to attract both international tourists and domestic spending. This development has further fueled the interest of foreign investors in the Japanese real estate market.
The logistics sector in Japan has experienced impressive growth, driven by the strong performance of e-commerce. Distribution centers, warehouses, and other storage facilities have become highly sought after by investors. On the other hand, the retail sector has seen the strongest rental growth, according to CBRE’s Henry Chin. Investors are particularly interested in prime and secondary markets in Tokyo and Osaka, as demand for leases and the return of tourists continue to drive this sector.
Singapore emerged as the largest source of cross-border investments into Japanese commercial real estate in 2023, with $3 billion worth of acquisitions year-to-date. The United States followed with $2.58 billion and Canada with $1 billion worth of investments, according to Knight Frank’s data.
While it is challenging to predict the turning point in the market, Christine Li, Head of APAC Research at Knight Frank, believes that a policy shift due to evidence of broadening inflation could impact investor sentiment. However, Li also highlights that a tightening decision can extend the bullish outlook for Japanese real estate. CBRE’s Henry Chin acknowledges the sensitivity of prices to interest rate hikes and relative pricing of real estate in other countries’ markets but remains optimistic about the future of the Japanese real estate sector.
Foreign investments in Japan’s real estate sector have reached new heights due to the country’s ultra-loose monetary policy and the weakening of the yen. The retail, multifamily, hospitality, logistics, and retail sectors have been the key drivers of this growth. Despite uncertainties surrounding interest rate policies and the potential impact of inflation, the bullish outlook for Japanese real estate remains strong.
Leave a Reply