Kensho Investment Group has published an exclusive report on the latest developments in the institutional real estate market in Japan. We have used the J-REIT market sector for our analysis, as it ensures a high level of transparency due to the mandatory disclosure of data and transactions. The report goes beyond Tokyo and the Tokyo metropolitan area. We present the situation in seven regional centers in our report, as the institutional market has now expanded far beyond the capital region.
One highlight of our findings: Public J-REITs were less active during 2022 because the disruption of equity markets prevented some public offerings with a reasonable pricing. But private REITs and particularly foreign investors showed strong activity. Foreigners increased their transaction volume by 12% compared to 2021 and had a 44% share among transactions of 10 billion yen and more.
A closer look at Tokyo: J-REITs for office and residential properties have seen similar growth over the past five years, but capitalization rates of office properties have fallen more slowly than those of residential properties. As a result, the gap between the two asset classes has increasingly narrowed. Residential assets of J-REITs in the Tokyo metropolitan area increased significantly, while office assets remained relatively stable. Hence, the average capitalization rate of residential real estate is now lower than that of office real estate.
Traditionally, the rent per square meter is higher for smaller units than for larger ones. However, rent for larger properties has begun to increase more rapidly towards the end of 2022, closing the gap to smaller units. In February 2023, rent per sqm for larger 1-bedroom units overtook smaller studio units for the first time.
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