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Japan Real Estate Market Outlook Report

03/04/2025

Tokyo emerged as the world’s top investment market in 2024, while potential interest rate hikes might impact market liquidity in 2025.

Koichiro (Ko) Obu

Head of Real Estate Research, Asia Pacific

Hyunwoo Kim

Property Market Research

AMID SLOWER GROWTH, REAL ASSETS MAY BE THE REAL DEAL

IN THE NUTSHELL

As sustained and stable inflation is expected to continue, Bank of Japan could continue its rate hike cycle, from the current 0.5% to 1.0% or higher by the end of 2025.
Tokyo’s commercial real estate transactions reached US$ 34 billion in 2024, a 50% increase year-on-year, emerging as the world’s top investment market for the first time in 15 years.
J-REIT index declined 17.4% in total over three years, reflecting the global interest rate hikes and economic uncertainties. The dividend yield rose to 5.0% in December 2024, reflecting a wide spread of 3.8% over long-term bond yields.
Office vacancy rate in Tokyo fell to below 4% level, supported by a return to office, while Grade A office rents rebounded 13% year-on-year. In Osaka, the office vacancy rate dropped to 4.0% while rents increased 1-2%.
Logistics vacancy rate in Greater Tokyo remained elevated at 9.8% with Ken-O-Do area reaching 15.4%. Logistics supply is expected to significantly decline from 2026 onwards, due to rising construction costs and break-even rents.

1 / Macro Economy and Investment Market

Despite ongoing global trade tensions, Japan’s real GDP growth is projected to rebound to 1.2% in 2025, up from 0.1% in 2024 with the recovery driven by a gradual pickup in private consumption and wage growth^[1]. The Bank of Japan’s Tankan Survey revealed that the Diffusion Index (DI) for non-manufacturing industries in December 2024 reached its highest level in 34 years, and a seven-year high for the manufacturing industries. However, concerns over the escalating tariff war have dampened future sentiment.^[2]

Core-CPI excluding fresh food prices rose to 3.2% in January 2025, up from 2.0% a year ago, primarily driven by rising labor costs and commodity prices. The sustained and stable inflation provides the central bank room to continue its rate hike cycle, from the current 0.5% to 1.0% by the end of 2025, driving the long-term bond yield above 1.5% in March 2025.^[2]

The preliminary prime office appraisal cap rate figures in Tokyo remained flat at around 3.2% in the last eight quarters through to the fourth quarter of 2024. Meanwhile, the office yield spread in Tokyo — the difference between the average cap rates and 10-year bond yields — narrowed by 40 basis points dropping from 2.5% in the fourth quarter of 2023 to 2.1% in the fourth quarter of 2024. Despite this decline, the Tokyo’s yield spreads remains significantly higher than other major markets including New York (1.3%), Sydney (1.6%) and London (0.5%).

Japan Real Estate Market Outlook Report

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083266_8 (04/2025) (04/2026)

Japan Real Estate Market Outlook Report

IN THE NUTSHELL

1 / Macro Economy and Investment Market

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