Vehicles travel along a highway past commercial and residential buildings in Tokyo, Japan, on Wednesday, Feb. 8, 2023.
Bloomberg | Bloomberg | Getty Images
Foreign investments into Japan’s real estate sector have been thriving in the past year, fueled by a weakened Japanese yen due to the country’s ultra-loose monetary policy sustained by the central bank.
“Japanese real estate is currently in a golden period,” said CNBC’s Henry Chin, CBRE’s head of Asia-Pacific research.
Chin added that Japan’s real estate market benefits from the country’s transparent system and strong fundamentals in the retail and multifamily sector. Unlike single-family properties, multifamily properties consist of buildings or complexes with more than one rentable unit.
Japan’s favorable lending terms, including a loan-to-value ratio of 70% and a low lending cost of around 1%, have also contributed to the increased demand in the property sector, according to Chin.
Foreign investor volume saw a 100% increase in Q1 2023 compared to the previous year.
Koji Nato
LL’s Research Director of Capital Markets in Japan
Furthermore, the Bank of Japan’s decision to maintain benchmark interest rates at -0.1% distinguishes it from other major central banks that have raised rates in an attempt to control inflation. As a result, the Japanese yen has weakened by over 11% against the U.S. dollar this year.
“Foreign investor volume saw a 100% increase in Q1 2023 compared to the previous year,” said Koji Nato, JLL’s Research Director of Capital Markets in Japan, in an email to CNBC.
According to JLL, real estate deal activity in Japan has been one of the strongest in the world, with foreign investors doubling their investment from the previous year to $2 billion in the first quarter of this year. CBRE’s latest data also shows a 45% increase in total foreign investments into Japan’s real estate market in the first half of 2023 compared to the same period last year.
Hotels or offices?
The resurgence of Japan’s tourism sector and the easing of border restrictions have led to increased hotel occupancies and hospitality investments, according to Knight Frank. In July, Japan recorded the highest number of foreign travelers since the Covid-19 pandemic.
“Given the limited availability of new hotel rooms in the foreseeable future, the upward trend in occupancy rates is expected to continue,” noted Knight Frank.
In addition, the approval of the construction of integrated resorts in Osaka, which will include the country’s first casino, has boosted hospitality investments. These projects aim to attract both international tourists and domestic spending.
The logistics sector in Japan has also experienced significant growth, driven by the strong performance of e-commerce, added Knight Frank. This sector encompasses distribution centers, warehouses, and other storage facilities.
CBRE’s Chin remarked that the retail sector is seeing the strongest rental growth, with investors showing interest in prime and secondary markets in Tokyo and Osaka, where the demand for leases is returning along with the resumption of tourism.
Who is investing?
According to Knight Frank’s Head of APAC Research Christine Li, Singapore is the largest source of cross-border investments into Japanese commercial real estate in 2023, with acquisitions worth $3 billion so far this year. The United States comes in second with $2.58 billion of investment, followed by Canada with $1 billion, based on data from Knight Frank.
Will the flow of investments continue?
A view of the historic Shinchaya Inn on the Nakasendo Way on November 7, 2022 in the post towns of Magome, Japan.
David Madison | Getty Images News | Getty Images
“In the short term, investor sentiment can be dampened by tightening measures,” predicts Li, although she emphasizes that a policy shift due to evidence of broadening inflation could extend the positive outlook.
Chin from CBRE acknowledges the difficulty of predicting the turning point but remains optimistic, stating, “We expect to see continued capital deployment into Japan in the coming quarters.”
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