While the factors driving capital outflows from Tokyo highlight growing difficulties in the domestic market, Japan’s real estate sector continues to show signs of potential.
In terms of real estate market performance across the Asia-Pacific region, Japan holds the top position. Asia’s second-largest economy is the most substantial, most actively traded, and safest market in the area. According to MSCI data, Japan accounted for 28% of direct investment in Asia-Pacific commercial real estate last year.
Tokyo’s Grade A office vacancy rate averaged 0.7% in the first quarter of this year. JLL reports that rents have increased for nine consecutive quarters, climbing 13.2% on an annualized basis in the most recent quarter. Strong corporate results are fueling robust leasing demand, while supply remains limited due to a significant rise in construction costs and severe labor shortages.
In the residential market, prices for new apartments in Tokyo surged 58.5% last year, the fastest growth rate among 100 global luxury housing markets tracked by Knight Frank. Over the past five years, prime residential prices in Tokyo have risen by nearly 160%, the second-highest rate after Dubai.
Even the hotel sector continues to perform well, despite a 55% year-on-year decline in mainland Chinese visitors during the first four months of this year. A surge in inbound tourism, partly driven by the weak yen—with arrivals from South Korea and Taiwan increasing by 22% and 24%, respectively—helped offset the effects of the diplomatic tensions between Tokyo and Beijing.
Nevertheless, if Japan’s property sector is thriving, why are Japanese investors expanding their presence in overseas markets? Colliers data indicates that Japan’s share of global cross-border commercial property investment has risen significantly over the past year, surpassing its average annual share over the previous five years.
Over the last two years, Japanese investment in Australian real estate has matched the total capital deployed there over the previous 22 years. The residential sector has been the primary focus, particularly Australia’s appealing professionally managed rental housing market, which “aligns with Japanese investors’ familiarity with income-generating residential assets,” according to the 2025 Japan-Australia Investment Report by Herbert Smith Freehills Kramer and the Australian National University.