Japan

"Following the strong rental growth in the previous quarter, the 23W market posted a marginal quarterly rental correction, while the C5W experienced moderate rental growth in Q2/2024. This spring moving season brought a large net increment of over 65,000 people to the Tokyo 23W, while increasing office attendance and recent robust wage growth should also contribute to strong and stable rental demand."

"The branded residence segment has long been a niche one in Japan, and stock has been extremely limited. That said, changing preferences among domestic UHNWIs and greater interest in Japan as a global tourist destination has boosted the profile of the sector. A slew of branded residence developments located in central urban areas have been receiving significant interest, and the segment appears to be going from strength to strength."

"The retail sector has continued improving, especially in areas popular with inbound tourists, and there have been more store openings catering to international visitors. Lukewarm domestic consumption should also improve due to noticeable wage growth. While prime areas are performing very well, some non-prime areas are still struggling, showing some bifurcation in the market. The optimistic market sentiment has led some landlords to eye rental increments, in contrast to tenants who already have had operating margins thinned from rising costs, and this gap in expectations is likely to persist."

"The 23W market kept posting strong quarterly rental growth in Q1/2024. This was supported by positive quarterly net migration, particularly by the foreign population, which continues to increase unabated. Domestic migration is also likely to fare well during this spring moving season. Meanwhile, demand for rental units will continue to be bolstered by those priced out of buying condominiums."

"The Tokyo office market is expected to see further gradual growth in 2024. Average rents and vacancy rates have kept demonstrating positive performance. The large supply from 2023 has been absorbed well and the small supply in 2024 should provide breathing room for further absorption. However, older and less accessible offices continue to face challenges."

"The logistics sector continues to perform well overall, but the large new supply over the past year has loosened the market, with vacancy rates rising as some new properties struggle to fill available floors. The industry will face a number of challenges moving forward, including the sustained influx of new supply and labour regulations that may dampen operations. While prime logistics facilities remain fully occupied and even display rental growth, older facilities with outdated specifications in less desirable locations are expected to keep struggling."

"Japan’s retail sector is experiencing a notable resurgence, with areas that typically cater more towards inbound tourists seeing greater interest among potential tenants for new store openings. Despite the recovery, factors such as rising material and energy costs, on top of labour shortages, may continue to present hurdles for retail operators. As such, while the overall momentum in the sector looks favourable, observers may need to keep an eye on rental levels moving forward."

"The Tokyo office market looks to remain largely stable, with some marginal quarterly rental growth. Vacancy rates remain low and stable overall, and a majority of new major developments have been absorbed with limited issues. That said, bifurcation based on office age and location persists in the market, and large-scale new supply may threaten the current stability."

"Average rents in the 23W have increased slightly over the past quarter but experienced a mild dip on a yearly basis. Net-migration into the 23W has remained positive, and has surpassed pre-pandemic levels due to significant contributions from foreign nationals. Meanwhile, rental growth in the C5W remains stronger."

"Japan’s prospects look to remain relatively bright until 2040, regardless of some prevalent risks. Although demographic conditions are challenging, changes should be gradual and manageable, and Japan is actively exploring new avenues for innovation and growth. In particular, game-changing developments such as Integrated Resort and the Chuo Linear Shinkansen are expected to generate huge economic benefits nationwide, while multiple large-scale mixed-use commercial developments and public transport projects look to improve the urban landscape in Tokyo and beyond. As such, Japan will likely remain a popular destination for overseas capital for the coming decades, particularly given its robust and mature real estate market, and sound and stable fundamentals."