Japan Real Estate Deal Volume Fell 3.4% in 2024 as Foreign Investors Pulled Back: C&W

Real estate transaction volume in Japan fell 3.4 percent to JPY 8 trillion ($51 billion) for the 12 months to the end of November 2024 compared with year-earlier levels as foreign inflows into the market eased, according to Cushman & Wakefield.

Acquisitions by foreign investors in Asia’s second-biggest property market fell 5 percent year-on-year during the period, the consultancy said in a report, citing information from data provider MSCI and Japan’s Association for Real Estate Securitization.

Foreigners reduced their market share to 14 percent from a peak of 27 percent in 2020 as global funds opted to reallocate proceeds from Japan in anticipation of rate cuts in other markets, per the report. Acquisitions by private companies dipped 13 percent year-on-year, reversing the trend of large sale-leaseback deals seen in 2023.

In contrast, acquisitions by REITs jumped 3 percent year-on-year, driven by corporate transactions such as the merger of Advance Logistics Investment Corporation and Mitsui Fudosan Logistics Park Investment Corporation into a single $3.8 billion trust.

“Elsewhere, retail investors are increasing demand for multi-family, retail and hotel properties, as more funds move toward tokenising these assets for retail distribution,” Cushman & Wakefield said.

Hotels Stay Hot

By segment, hotels drove transaction volume during the 12-month period with a 36 percent surge, followed by apartments with a 30 percent jump as demand grew in Japan’s living sector, according to the report. Volume fell in logistics (down 21 percent) and retail (down 19 percent) on concerns over excess supply in Greater Tokyo.

“Although prime urban properties continued to attract strong demand, the limited availability of properties for sale led to stagnant transaction volumes,” Cushman & Wakefield said.

Major transactions in the second half of 2024 were led by US private equity titan Blackstone’s acquisition of the Tokyo Garden Terrace Kioicho commercial complex from Seibu Holdings for $2.6 billion, with the deal marking the largest-ever real estate buy of a foreign investor in Japan.

Big-ticket hotel trades included TPG Angelo Gordon and Kenedix’s buy of the 882-room Grand Nikko Tokyo Daiba for JPY 106 billion, in the year’s biggest hospitality deal in Japan, and Singapore sovereign giant GIC’s sale of the Hilton Fukuoka Sea Hawk to Mizuho Leasing for JPY 70 billion.

GIC also featured in the period’s largest single-asset logistics deal, with the $801 billion fund picking up a four-storey shed, DPL Yokohama Totsuka, from Daiwa House for JPY 58 billion.

Cap Rates Mixed

Cushman & Wakefield said capitalisation rates were mixed in 2024, with lower rates seen in CBD office buildings meant for own use and apartments that attracted larger retail funds. Higher cap rates were tracked for older buildings with refurbishment needs.

Despite income returns hovering around 4 percent, capital returns remain below the inflation rate at less than 1.5 percent, according to the report.

“In the office sector, capital returns have turned negative due to the large upfront capital expenditures required by value-add funds,” the consultancy said. “Nonetheless, large unrealised gains, equivalent to 20 percent of book value, continue to provide a sufficient financial buffer against refinancing risks.”