Interest rates are now at record lows and the Japanese Yen has depreciated significantly. As a result exports, the stock market and tourism have seen significant boosts. However, overall economic growth is still sluggish.

QE and low borrowing rates have resulted in a very active real estate investment market, with strong growth in volumes since 2012. Capital values have also accelerated across all markets and sectors.

Rents have picked up, and despite a flat 3Q15, this year Tokyo is expected to achieve relatively strong growth rates in the office sector.

Given the weight of capital targeting Japanese real estate, yields are now at historic lows, but further moderate yield compression is likely. The spread between Grade A office yields and 10 year government bond yields is still some way off previous peaks.

The long-term sustainability of Abenomics is still uncertain, given that structural reform has yet to gather significant pace. However, monetary policy is expected to continue to bolster the real estate market in the short to medium term. The low hanging fruit may have already gone, but investors continue to show strong interest across all sectors and spreads remain favourable. 

The paper includes analysis on each real estate sector along with some key observations on the outlook for investors into Japanese real estate.

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