Japan shines even as APAC property flows suffer second-worst quarter in decade

Despite the second-worst quarter for the regional property market in a decade, institutional investors continue to seek out Japan, beating China as the most favoured location.
Japan shines even as APAC property flows suffer second-worst quarter in decade

Japan continued to attract the largest share of real estate flows from Asia Pacific institutional investors in the first quarter, despite the sector overall recording its second-worst quarter in a decade, according to two recent investors surveys.

The latest Asia Pacific Capital Trends report from MSCI Real Assets released at the end of May showed allocations to Japan in the first quarter of 2024 totalled $9.1 billion, beating China, with $8.3 billion as investors’ favoured location.

“Global investment funds, typically backed by life and pension providers, accounted for the majority of cross-border activity, pursuing a range of sectors and investment strategies from core through to opportunistic with varying return hurdles,” said Andy Hurfurt, director of institutional investment advisory, for Savills in Tokyo.

Andy Hurfurt
Savills Tokyo

Yet total APAC real estate flows fell to $31.3 billion, the second-worst quarter for investor flows since the start of 2014, according to MSCI.

Data on Japan’s resiliency echo figures published in April by JLL in its Asian Pacific Capital Tracker, logging total flows into Japan at $11.billion, ahead of China, with $5.6 billion (the two reports use different criteria to measure eligible deals).

Experts point to a combination of low domestic interest rates, the sector’s strong fundamentals, and a weak currency to explain its current appeal.

James Kemp
Macquarie Asset Management

“Positive migration trends continue to boost population numbers and property demand in and around Japan’s largest cities … we think Japan’s accretive borrowing costs and steady fundamentals continue to support expected returns versus other markets,” said  James Kemp, head of Asia-Pacific real estate, at Macquarie Asset Management in Sydney.


After a poor year in 2023, the first quarter saw Japan’s office deals return, with the acquisition by a Goldman Sachs Asset Management fund, of five floors of an office tower in Tokyo’s Marunouchi district for $281 million in February.

“Japan’s industrial sector also flourished, with multiple major logistics and data centre deals in the quarter. In the multifamily market, a 29-asset residential portfolio was sold to a consortium of offshore investors,” the MSCI report noted.

As global central bank rates remain high, Japan’s low interest rate continues to provide investors with “positive carry”, a phenomenon well-illustrated by Japan’s office sector.

Despite the first interest rate increase for 17 years in March, the Bank of Japan rate remains at just 0.1%.

Real estate yields on grade A offices increased more than 0.5% between September 2023 and March 2024 to range between 2.5% and 3.5%, according to JLL.

Strong yields are supported by the sector’s improving fundamentals. Helped by 85% worker attendance at the office, compared with pre-pandemic levels, by the end of April, vacancy rates for Japan’s office sector stood at just 4% nationally, according to JLL.

The prospect of future interest rate rises has seen yields increase across other sectors, too.

On May 22, the yield on the 10-year Japanese government bond breached 1% for the first time in a decade, reaching 1.05% at the end of May, up from 0.6% at the start of the year.


Japan’s currency has fallen 9.9% against the dollar this year. Hurfurt says this has spurred family office and high net worth individuals, especially those in Singapore and Hong Kong, whose proximity to Japan makes them willing investors.

“[They] see the weak currency as an opportunity to acquire stable, income producing assets in familiar locations at a discount to recent pricing when converted to local currencies, whilst also potentially benefiting from yen appreciation in the longer term.”

Family offices have been key buyers of real estate this year, taking advantage of sell-offs from many institutional investors, according to a survey published by CBRE early in May.


However, Peter Hobbs, managing director of private markets in London at bfinance, many of whose institutional clients are based in Asia, cautioned against investor optimism.

Peter Hobbs

He pointed to low yields by historical measures in many of Japan’s real estate sectors, including the best quality office and logistics assets in Tokyo in the major cities.

And while vacancy rates have fallen in the office sector, they remain high compared with historic levels, particularly in logistics, following a surge of new supply last year, he noted.  

“Japan remains a favoured investment destination given its scale and stability, and deepening challenges elsewhere in Asia, particularly China. But the very low yield levels demonstrate the sensitivity of the market to interest rate policy, and illustrate the need for caution in the market,” he said.

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