On February 8th, we at Nippon Tradings International published our annual summary and projections for the Japan Real Estate Market in 2021 to 2022.  

Below are some excerpts from the report with the link to the report at the bottom of this article.

When Crises Becomes the Norm

Various work and lifestyle trends that may have been deemed temporary, are now being cemented as routine. Japan’s landscape is no different in this regard– although, similar to many of its Asia-Pacific neighbours, the effects here vary, both in character and in intensity, in comparison to the Western world.

However, the fact that Japan, as opposed to many of its neighbours, has been far slower in re-opening its borders…has put a damper on the country’s economic prospects.  Surprisingly these lacklustre economic prospects have done little, if anything, to property prices in most industry segments.

“Flight to Safety” Mentality Holds & Intensifies

As is always the case, the perception of Japan as a safe haven in times of crisis has held firm in 2021, and, if anything, has been further increased.  

This mentality has led to a gamut of large global entities investing or declaring their intention to invest in Japan, and more specifically in Tokyo, via active purchases, expansions of existing portfolios, and the setting up of large funds targeting Japanese property throughout 2021 and, to date, in the first month of 2022 as well.

CBD Focus Slowly Declines, Hub-and-Spoke Model Slowly Expands

While transaction volumes in Tokyo (-8%) and Nagoya (+8%) remain relatively stable, Osaka (-29%) & Yokohama (-33%) volumes have dropped significantly, according to PWC/ULI, and remarkable gains in volume have been recorded in Chiba (+34%) and Saitama (+68%!!!).

With the ever-increasing need for a larger residential footprint, to accommodate home offices and far more time spent at home by all family members, the ability to rent or purchase a larger home with a smaller expense out of central metropolitan city wards is fast becoming a reality which investors and developers are well aware of. 

Population trends also reflect this reality, with central Tokyo resident numbers decreasing by approximately 1%, and the largest numbers of departing residents being in the 0-49 age group.

Prices Hold Firm

Property values have held firm.  Central Tokyo values have, in fact, continued to increase, to the point that new residential condos are now forecast to top their pre-1990s bubble peak.

The reason for this is believed to lie firmly in the preference to focus on stable and reliable cash flow, as opposed to the trend in previous years, to prioritise higher yields whenever possible.

This also explains the continued popularity of residential assets, which have risen to 36% of total investments from 20% in 2020. Over 60% of this total comes from overseas investors.

Hospitality - a Source of Opportunistic Deal-Making

The hotels sector has, in all likelihood, been the hardest-hit across the entire region – in Japan specifically, the huge influx in inbound international tourism pre-pandemic has led to a hotel construction boom that couldn’t have happened at a worst time.

Investors, however, remain extremely bullish on hospitality property prospects, with optimism regarding the reopening of borders running high, and with hotels being the largest source of distressed deal opportunity, in a market otherwise largely shielded from foreclosures.

Further Reading

Japan's Real Estate Property Market in 2021-2022 - Annual Summary & Projections (Nippon Trading International; February, 2022)