The Rising Appeal of Multifamily Investments in Japan’s Real Estate Market
For real estate investors eyeing opportunities in Japan, the term "multifamily" has gained significant traction in recent years. Notable transactions, such as BlackRock’s acquisition of a multifamily asset in Tokyo alongside Dash Living in July, and Goldman Sachs’ purchase of an $80 million portfolio of eight residential properties in the Greater Tokyo area in September, underscore this growing interest. Multifamily properties, which refer to buildings housing multiple residential units for rent, are becoming a focal point for investors seeking stable returns in a fluctuating market.
Multifamily: A Key Sector in Real Estate Investment
Multifamily residential assets are one of the major sectors that investors consider, alongside office buildings, retail properties, logistics, and hotels. The multifamily sector is characterized by its ability to provide rental housing in a single building, catering to a diverse tenant base. Despite its potential, statistics from a CBRE report reveal that investment in the living sector—including student housing, co-living spaces, serviced apartments, multifamily, and senior living—only accounted for 6% of Asia Pacific (APAC) investors’ portfolios from 2019 to 2024. This figure starkly contrasts with the 44% allocation seen in the United States, highlighting a significant gap in investment focus.
Shifting Investment Trends Amid Economic Uncertainty
As geopolitical uncertainties loom and the post-pandemic recovery remains fragile, investors are increasingly turning their attention to alternatives with stronger fundamentals. The multifamily sector is emerging as a preferred choice, with the CBRE report indicating that it has accounted for approximately one-third of investors’ preferred assets in 2024, a notable increase from fewer than 15% in 2021. This shift reflects a broader trend of seeking stability in a volatile economic landscape.
The Impact of Tourism on Rental Growth
One of the key drivers of rental growth in Japan’s multifamily sector is the booming tourism industry. As of August this year, Japan welcomed over 24 million overseas visitors, nearing the pre-pandemic record of 31.8 million in 2019. The government aims to attract 60 million visitors annually by 2030, which is expected to bolster local consumption and contribute to Japan’s economic recovery. Jing Dong Lai, CEO and CIO of M&G Real Estate Asia, emphasizes that this influx of tourists creates short-term stay opportunities for multifamily asset owners.
According to Richard Orbell, director of investment properties at CBRE Japan, the average market rent growth across Tokyo has surged to about 5% over the past year, significantly higher than the historical average. This growth is particularly noteworthy given that rental increases were only around 1% per annum during the pandemic. The hospitality sector is also reaping the benefits of tourism, with hotel transaction volumes in Japan rising by approximately 50% in the first half of 2024 compared to the previous year.
Understanding Demand Dynamics
The demand for multifamily assets is further fueled by a changing mindset among Japan’s young working population. M&G’s Lai notes that more than half of residents in major Japanese cities opt to rent rather than buy properties, primarily due to soaring property prices in urban centers like Tokyo. A recent Reuters report highlighted that Tokyo has one of the widest housing affordability gaps globally, where a 60-square-meter apartment costs 15 times the salary of a skilled worker.
Additionally, the return of high-end manufacturing activities, such as Taiwan’s TSMC opening a chip fabrication plant in Kumamoto, is expected to drive demand for residential assets. This trend is complemented by Japan’s position as a leading market for data center capacity, as noted by Moody’s Ratings.
Stability and Liquidity in Japan’s Real Estate Market
Japan’s real estate sector is recognized for its stability and liquidity, attracting both domestic and international investors. The presence of numerous domestic players, including asset managers, insurers, family offices, and real estate investment trusts (REITs), contributes to this robust market environment. Unlike neighboring markets like Australia and South Korea, where interest rates are rising to combat inflation, Japan has maintained steady capital costs, making it an attractive destination for investment.
Hines, a US-based real estate investor, has made significant inroads into the Japanese market, acquiring or developing nearly 500,000 square meters of real estate assets valued at over $1.7 billion. Jon Tanaka, Hines’ country head for Japan, emphasizes that Japan offers deep liquidity and favorable financing conditions, driving positive capital inflows across various asset classes.
The Multifamily Sector: A Resilient Investment Choice
The multifamily sector stands out as one of the most resilient and institutionalized residential markets of scale in Asia. Hines’ research indicates that a diversified allocation, including Japan, historically reduces downside volatility and enhances risk-adjusted returns in a global portfolio. Factors such as healthy demand, supply constraints, and a slowing development pipeline are expected to support strong rental growth momentum in the coming years.
Greg Hyland, head of capital markets for APAC at CBRE, reinforces the notion that Japan remains the largest and most dominant market for multifamily assets. The sustained interest from foreign investors further cements Japan’s position as a prime destination for multifamily investment, especially when compared to neighboring markets like Australia, China, and South Korea.
In summary, the multifamily sector in Japan is rapidly evolving into a sought-after asset class, driven by favorable economic conditions, a growing tourism industry, and shifting demographic trends. As investors navigate the complexities of the real estate landscape, multifamily assets present a compelling opportunity for those looking to capitalize on Japan’s unique market dynamics.