Tokyo residential market poised to extend momentum into 2026

Foreign inflows and fixed-term leases are expected to support rental growth.

Tokyo’s residential market delivered another year of strong performance in 2025 and is expected to maintain its upward trajectory into 2026, according to a report by Savills.

In Q4/2025, rental growth extended across the majority of Tokyo’s 23 wards (23W), reflecting firm leasing demand and resilient market fundamentals.

Migration Trends Continue to Support Rental Demand

Net migration into the 23W remained elevated on both a quarterly and annual basis.

Savills noted that while net inflows of foreign nationals offset outflows of Japanese nationals during the quarter, domestic migration is expected to remain robust, particularly during the traditional spring moving season when relocation activity peaks.

In the interim, continued foreign national migration — a segment with a relatively high propensity to rent — is expected to provide sustained support to the leasing market.

C5W to Benefit from Wage Growth and Office Return

In recent years, fixed-term leases — which allow landlords to adjust rents upon contract expiry — have become increasingly prevalent, particularly within the Central Five Wards (C5W). Savills highlighted that this shift in leasing structure has supported stronger rental growth in prime central locations.

Housing demand in the C5W is also expected to strengthen further as companies continue encouraging employees to return to the office. At the same time, upcoming wage negotiations are likely to provide an additional tailwind for rental affordability among skilled professionals.

Conversely, households that have not experienced meaningful wage growth, as well as families seeking larger and more affordable accommodation, are likely to gravitate toward peripheral wards. These outer areas continue to offer relatively greater headroom for rental growth.

Tight Supply to Sustain Market Balance

Tokyo’s position as a global city — attracting both domestic and foreign residents — is expected to underpin ongoing resilience.

Persistently elevated construction and land costs are likely to keep new supply constrained, maintaining a tight supply-demand equilibrium across the 23W. Savills expects rental growth to remain broad-based as a result.

Investment Implications: Location Remains Key

From a homebuyer and investor perspective, rising renovation costs are influencing tenant preferences. As refurbishment expenses increase, the rental premium between newly completed properties and refurbished older stock has narrowed, driving greater renter interest in newer assets.

For value-add investors, Savills emphasised that location remains critical. With renovation costs broadly similar across properties, well-located assets are better positioned to capture stronger rental growth and long-term capital appreciation.

Outlook: Steady Growth Ahead

Overall, Savills expects Tokyo’s residential market to remain resilient in 2026, supported by sustained migration, structural demand drivers and constrained supply.

While affordability pressures may shape demand patterns between central and peripheral wards, the broader trajectory for Tokyo’s 23W residential market remains positive heading into the new year.