Real estate investment appetite remains strong in Japan

The logistics sector is gaining renewed momentum.

In a recent report, Savills said rising interest rates and uncertainty over future hikes have made investors in Japan more cautious. Nonetheless, transaction volumes remain robust, with billion-dollar deals still being announced.

“Japan continues to stand out as one of the most attractive markets in the region,” the report stated.

Here’s more from Savills:

The logistics sector is gaining renewed momentum given the anticipated drop in supply, while demand for modern facilities with advanced features remains stable. Hotels and prime retail assets are performing strongly, driven by increasing tourist numbers. The residential sector remains appealing amid ongoing rental growth, although investors are becoming more selective, mindful of higher funding costs.

Similarly, the office sector has benefitted from consistent rental increases, with both leasing and investment activity steadily recovering. Overall, investment appetite remains strong, particularly among core plus funds, family offices and ultra-high-net-worth individuals.

In Q1/2025, Grade A office rents increased by 1.8% QoQ to JPY34,544 per tsubo, with vacancy tightening by 0.6 percentage points (ppts) QoQ to 1.7%. Steady rental growth and declining vacancies continue to support a positive outlook. A substantial influx of new supply is expected in 2025, particularly from large developments in Minato, but strong pre-leasing activity points to minimal disruption to the overall market equilibrium.

Elevated construction costs are likely to delay upcoming projects as well as suppress future new supply, while robust corporate profits and a tight labour market should drive demand from companies to attract and retain talents, supporting overall stability.