Before getting into the subject of this article; how Japan’s real estate market has changed since the coronavirus pandemic. Let’s first consider how consumer behaviour has changed as a result of the pandemic. How has your life changed? Do you continue to work remotely or on a hybrid schedule? Do you utilize online shopping more than in-person? Have you travelled recently? How often? Undoubtedly, there has been a major shift in consumer behaviour and market trends are an indicator of this. Let’s examine.
Japan’s Real Estate Market Conditions Immediately Prior and During the COVID-19 Pandemic
Outlook for the Japan real estate market in the quarters leading up to the COVID-19 pandemic experienced healthy growth. Especially in sectors exposed to inbound tourism and investment. Although an imposed consumption tax rate hike in October of 2019 left residents with understandable frustrations. Spirits were still high in anticipation of the up-coming 2020 Tokyo Olympics. Major development projects related to the 2020 Summer Olympics were also coming to a close around this time. The New National Stadium, Olympic Village, Shibuya Scramble Square building, Miyashita Park, and the many sporting venues specifically developed to facilitate the games.
Following the COVID-19 outbreak, preventative measures by the national government started with urging residents to stay home; limit contact with others; and for businesses to reduce operating hours. The shift to WFH (work from home) had now become commonplace. It is worth mentioning that none of these policies were legally enforceable in Japan. But of course, residents cooperated and observed government authorities’ recommendations.
As infections grew, although considerably less than most places globally, and with Japan’s large elderly population. Prefectural and municipal governments declared states of emergency and the national government implementing a hard border. Effectively stopping all inbound/outbound travel. Needless to say, the hospitality industry was hit hard. Despite the government’s economic revitalization campaign for the travel industry, Go To Travel, hoteliers and hospitality assets were in extreme financial distress.
Opportunistic and cashed up investors quickly began underwriting these distressed hospitality assets even with the uncertainty of the COVID-19 pandemic and how soon normalcy would return. Some investors successfully acquired quality assets at big discounts.
Opportunities in Japan’s Real Estate Market during COVID-19
With more people at home, working and/or studying, and going out less, brick-and-motor retail suffered as e-commerce became the go-to marketplace for discretionary consumption with notable increases in necessities as well. To facilitate delivery of these goods, logistic centers were working at capacity. Thus, real estate investment firms began acquiring and renovating existing buildings and/or launching new developments in this sector.
In addition to the previous paragraph, the cultural shift to remote work was clearly a direct threat to office assets as well. With an at-home workforce and uncertainty of when the pandemic would end, many corporate lessees questioned what justifications there were to renew their office leases.
Perhaps as a result of people staying home and considering how to make most effective use of their space, the storage facility sector saw strong performance throughout the pandemic – offering high yields and stable cashflow to investors.
Emerging from the Pandemic
Residential has proven to be, and really always has been, a very resilient asset class. Of course, trends in economic activity in the local area and demographics are certainly variables that can have heavy impacts to this sector. Regardless though, people need a place to live and multifamily residential in particular has been a preferred choice for investors.
One residential submarket, co-living facilities/serviced and shared apartments, which are somewhat novel to Japan, or at least initially failed to meet market adoption, have finally started to gain traction following the pandemic, and some firms with institutional backing have gone all in on this sub-market.
Hospitality has probably been the single strongest asset class emerging from the pandemic. As borders began to reopen and people cooped up at home were ready for fresh scenes and new experiences. Inbound travel quickly reached required highs, with one month beating the previous. In fact, the national government and news outlets began reporting on over-tourism during Q3/Q4 of 2023, where current infrastructure simply could not support the influx of inbound travel. Investments in these products during the pandemic have most certainly provided lucrative returns.
Although unrelated to the pandemic itself, the emergence of new technologies and further digitization of resources inherently demands the facilities that can physically store such data – as such, capital commitments in data center investments have surged since reopening of international borders.
Changes in consumer behavior and work culture have persisted and may have long-term implications, particularly on office and retail. Even since society returned to normal, or entered the new normal, office and retail have experienced negligible growth. Begging the question, how much demand for large floor plate office and retail will there be in coming years?
A Bonus Factor Fuelling Investment in Japan’s Real Estate Market
This bonus factor is actually the culmination of a few points that make Japan such an attractive market for real estate investments. In fact, Japan has been assessed as the preferred destination for cross-border investment for the last 5 straight years. The combination of a weak yen, low-interest rate environment, domestic asset appreciation, and Japan’s renowned social and political stability, creating an unprecedented opportunity for astute real estate investors in probably the only bull real estate market globally.
Now is the perfect time to leverage the opportunities offered by the Japanese real estate market. With Housing Japan guiding you along the way, your venture into real estate is bound to be rewarding.
Outlook
Residential is poised to maintain its preferred status as asset class of choice for investment. Especially among those investors seeking steady long-term cashflow. The enduring appeal to residential lies in its resilience, providing a stable foundation for investors even in dynamic market conditions. As urbanization and demographic shifts persist, the demand for quality housing remains robust, creating a promising landscape for those looking to secure reliable returns. At Housing Japan, we recognize this demand and offer tailored solutions that align with both the evolving dynamics of the real estate industry and our clients unique investment needs.
Recap
| Period | Sufferers | Thrivers |
| During the pandemic | Office Retail Hospitality | Industrial/Logistics Residential (multifamily) |
| Emerging from the pandemic | Office Retail *marginal growth | Hospitality Industrial/Logistics Residential (multifamily) |
| Outlook | Office Retail *uncertainty remains as consumer behavior has changed and continues to evolve | ESG implemented assetsResidential (multifamily, co-living, student housing, and assisted living) Hospitality Lifesciences (medical, R&D) Infrastructure (green power) Industrial/Logistics (shipping facilities, datacenters etc.) |
About Housing Japan
We are a Tokyo-based full-service real estate brokerage, specialized in the luxury residential market catering to foreign clientele, providing outstanding results since our establishment in 2000. Services we provide include sales, investment sales, property management, and development. HJ Group Companies include HJ Asset Management, Resort Japan, Trunk Room Tokyo, and Ken’s Place.
