Japan

"The retail sector continues to build on previous years' positive momentum, supported by sustained inbound tourism growth and strong tenant demand. Luxury goods continue to anchor retail consumption, but consumer demands are gradually shifting towards unique, experiential products and services. Government efforts are underway to direct inbound tourism towards regional destinations, boding well for local retail as visitors venture beyond major cities. "

"Japan’s retail sector continues its positive performance into 2025. Strong demand has been witnessed for store openings along premier streets in Tokyo and across regional markets, and availabilities are currently extremely low in such locations. Inbound tourism has gone from strength to strength, and elevated inbound spending should further buoy retail sectors moving forward, although performance may largely depend on respective submarkets’ ability to attract inbound visitors. In the meantime, strong wage growth should bode well for domestic consumption."

"Tokyo’s ultra-luxury residential market has seen heightened interest, especially with the successful launch of multiple developments over the past few years. Due to limited supply and stock, units that originally struggled to gain traction now fare well, while popular units have seen significant price increments against original sales prices. Demand for ultra-luxury residences should remain high on the back of a growing number of UHNWIs in Japan and the Asia Pacific region. Given the limited supply towards 2030, this market is expected to remain strong and will be ready to welcome major developments in years to come."

"The 23W residential market sustained its positive momentum over the quarter, with most wards recording robust quarterly rental growth, driven by tight demand and supply fundamentals. It is highly likely that average rents in our monitored portfolio appear higher than the reality and seasonality accelerates this momentum, but this should be a good indicator of the current hot market."

"Prospects for the retail sector look strong, with vacancies generally on a declining trend, and strong rental growth observed in prime areas. Inbound tourists continue to play an important role in shaping the market, especially for luxury and high-end retail. That said, non-prime areas have not seen similar levels of success, and vacancies in such areas are visible. On another note, the strong performance of high-end retail has spread to tourist hotspots, which could be areas with great potential for future growth."

"Improvements continue unabated and appetite for office space remains firm. This has contributed to rental growth, and raises the prospect of the uneventful absorption of incoming space. However, some weaknesses persist, with a few completions struggling to gain traction. In addition, high construction costs appear to be delaying relocations and development projects."

"The 23W residential market has extended its growth after a brief pause in the previous quarter, with most wards recording quarterly rental increments. Net migration into the 23W remains positive, and has surpassed historical records. Meanwhile, subdued supply and strong wage growth provide greater confidence for continued rental growth."

"Overall demand in the logistics sector remains sound, but high levels of new supply in recent years have kept vacancies on a rising trend. In addition, many challenges, including global uncertainties, labour shortages, interest rates, and construction costs, have kept many players on their toes. That said, the logistics market is evolving, with strong fundamentals in a longer-term timeframe. In the interim, prime logistics facilities with modern amenities in accessible areas should continue to perform well, although older facilities in less convenient areas are likely to face challenges."

"As recently as three decades ago, Japan was extremely successful, but its recent performance has become rather subdued. The declining population, and the abruptly weakened currency in recent years have raised some concerns regarding the prospects of the economy and real estate market. Nevertheless, looking ahead at the next ten years, Japan looks poised to normalise itself, and the economy and real estate market are likely to fare well in turn."

"The Tokyo office market has seen consecutive quarters of improvement, suggesting that the market has firmly transitioned to a recovery phase. Firm office demand levels are supported by moderate amounts of new supply in 2024. Looking ahead, 2025 will bring significant new supply, but pre-leasing appears encouraging. Bifurcation is expected to persist, largely influenced by location and age."