Regional Japanese office investments grow by 15% in Q3

Investor interest is still robust in Japan’s office sector.

According to the bi-annual investor survey conducted by the Japan Real Estate Institute in October 2024, expected cap rates in all regional markets remained flat over the past half-year but Nagoya, Sendai, and Sapporo tightened by 10 basis points (bps) on an annual basis.

In a report, Savills said prices remain elevated across most real estate sectors in Japan, and this cap rate compression is a demonstration of renewed interest in Japanese real estate among investors.

Here’s more from Savills:

According to transaction data from MSCI, total investment volume nationwide as of Q3/2024 was around 20% lower than the same period in 2023. Indeed, some investors are currently in a wait and see mode given the potential for gradual interest rate increases in Japan.

However, office transactions in 2024 have exceeded those of the previous year by around 15%, demonstrating that interest is still firm in the Japanese office market, given the sustained recovery of the sector from the pandemic-induced slump. Moreover, the 2024 figures are still preliminary and are expected to increase as more transactions are confirmed.

A handful of large office transactions took place in Japan’s regional markets during the second half of 2024. For instance, a domestic consortium of Chiba Bank, Fuyo General Lease, Daiei Real Estate & Development, and other players acquired World Business Garden in Chiba for a reported JPY68.0 billion, which was the largest reported office transaction outside of Tokyo in 2024.

Elsewhere, Kanden Realty & Development reportedly acquired the former Toyobo Headquarters building in Osaka from Gaw Capital for JPY30.1 billion, while KKR-sponsored Japan Metropolitan Fund REIT acquired JMF-Bldg. Osaka Fukushima 02 for JPY14.6 billion from Mizuho Leasing Company.

Cross-border office investment appears to have made some progress over the past half-year, with some foreign investors having turned their attention back. Furthermore, interest should return more as the office leasing market regains its vigour. Indeed, many prime office properties have been performing well, and some owners may choose to sell their recently filled assets, creating opportunities for investors with conviction.