Why Tokyo’s residential market will remain robust in the near term 

Further rental growth is expected in the coming quarters.

In a report, Savills said the Tokyo 23W (23 wards) residential market appears to be going from strength to strength in the post-pandemic state, and observers should anticipate moderate and consistent growth in rents moving forward. 

“This stable performance is underpinned by Tokyo’s sound fundamentals, particularly strong net migration, a large proportion of which can be attributed to sustained inflows of foreign residents. Furthermore, the spring moving period should provide further momentum to this trend, and will likely elevate the rental residential market to new highs,” the report said.

Here’s more from Savills:

A notable paradigm shift in the post-pandemic has been the transition to greater levels of office participation, which has encouraged the growing net migration of residents to the 23W - a reversal of the trend observed during the pandemic. This partly explains the notable growth in rents and drop in the number of available units across all submarkets in the 23W in Q1/2024, with high income young singles likely comprising a large proportion of the demand for units in central wards, while the popularity of peripheral wards has largely been sustained by families and those on more modest incomes. 

With the influx of residents into the 23W, the demand for residential units has naturally increased in tandem. The for-sale condominium market has also experienced significant price increases over recent years, due to a combination of limited supply and strong demand. This situation has priced many residents out of buying, forcing many to turn to the rental market. 

With positive net migration into Tokyo set to continue for the meantime, and workers increasingly returning to their offices, this trend will likely continue, leading to further growth in the rental residential market. Furthermore, the notable rental growth seen recently should insulate landlords from the elevated maintenance and repair costs, as well as greater refinancing costs due to anticipated interest rate hikes. 

Overall, the 23W residential market is renowned for its stability, and the post-pandemic setting has brought about a new era of growth in the market. Japan has reached a stage of nominal inflation, which implies at least consistent nominal rental growth going forward, and hopes are also high that this year’s round of spring wage negotiations will bring further salary increases for a wider proportion of the working population. 

Certainly, the market might experience some temporary rental corrections, especially after the recent strong growth. That said, the strong momentum should herald further rental growth in the coming quarters, which raises the overall prospects of the sector.