Here’s a rundown of Japan real estate investment market’s Q3 performance

The industrial sector remains attractive for investors.

According to a report from Savills, TOPIX increased moderately in Q3/2023 at 1.5% quarter-on-quarter (QoQ). Indeed, interest in Japan remains elevated among international investors, who are expecting economic growth based on wage growth as well as strong corporate performance. 

Although the TSE J-REIT index decreased marginally by 0.1% QoQ, the stabilised credit market and the improved outlook for the office sector will likely provide some stability in the market. 

Here’s more from Savills:

The logistics sector retains its magnetic appeal for investors, undeterred by noticeably elevating vacancy rates. Simultaneously, the residential sector continues to bask in the limelight, especially following some price adjustments. The sound leasing performance of the office sector in Japan is likely to augment its outlook going forward, despite some pessimism. 

Elevated demand from inbound tourists has led to substantial performance increments in the hotel industry, further enticing investors and operators. Likewise, the retail sector is witnessing a surge in interest, driven by robust inbound demand. Suburban malls may also see heightened attention given the attractive and stable yields available. 

Credit markets are exhibiting tangible signs of stabilisation and are poised to catalyse a surge in transaction volume in the foreseeable future, underpinned by an array of diverse market perspectives and global exposures. 

In Q3/2023, rental changes in the Grade A office market were nominal, increasing by 0.1% QoQ to JPY32,410 per tsubo. Meanwhile, vacancy softened moderately by 0.8ppts QoQ to 3.4%. A majority of changes in vacancy over the quarter can be attributed to a handful of properties that are dealing with large-scale vacancies. 

Nonetheless, vacancy rates for Grade A offices remain low overall. Tenant relocations have picked up in earnest and many new modern developments in particular have been largely absorbed with limited issues.