Tokyo is an anomaly to Japan’s declining population trajectory; Japan’s population is projected to fall from about 127 million to about 87 million by 2060. In comparison Tokyo’s population has been steadily increasing by an annual average of about 48,000 since 1997.
According to data collated by the Tokyo Metropolitan Government, as of July 2015 13.47 million people live in Tokyo Prefecture, an increase of 1.01% since the beginning of the year. Tokyo attracts both young Japanese people (from the rest of Japan) and foreigners alike. As of January 2015 Tokyo’s foreign population size was 417,442. Meanwhile Japan’s overall population shrank by 0.08% (2014-2015) with Japan’s current population about 126.81 million.
As Tokyo’s population continues to increase, the number of households will also increase. The Tokyo Metropolitan Government projects the number of households in Tokyo’s 23 wards to increase by 200,000 from 4.7 million currently to 4.9 million by 2030. At the same time the type of household occupancy is expected to change; the number of smaller-sized households (2 people and single parent households) is projected to increase. Tokyo will be at the forefront of this change in household occupancy (2 people and single parent households), with Tokyo’s 23 wards expected to account for >20% of this growth.
What does this mean for Tokyo’s rental property market?
Tokyo’s mid-market rental property market is saturated; limited supply and huge demand means increasing rent prices. Since mid-2013 Tokyo’s rental market has experienced a steady increase in rent prices. The Central 5 wards (Chiyoda, Chuo, Minato, Shibuya and Shinjuku) are Tokyo’s most in demand areas, and therefore have the highest rents at JPY4164/sq. m. According to Savills rental apartment buildings operated by J-REITs in Tokyo’s 23 wards had a vacancy rate of 3.6% in 2014.
What does this mean for investors?
Tokyo’s demographic trends have created a favourable market for institutional and individual investors looking to invest in property solely for rent. The forecast for continued population growth in Tokyo provides stability in demand for smaller-size households making Tokyo a stable property market to invest in. As well rent prices are set to continue to increase, guaranteeing investors stable rental income yields for the foreseeable future.