How the coronavirus is affecting different sectors of Japan’s real estate market

The coronavirus pandemic is affecting the various sectors of Japan’s real estate market in different ways. Some segments are booming while others are seeing the worst conditions in recent history.


Logistics facilities have benefitted greatly from the rise in online shopping. A steep increase in the price of warehouses and other related facilities has seen yields drop. In mid-June, CBRE Global Investors sold a logistics portfolio at a 33% premium over their acquisition cost in 2016. But, the overall size of warehouses makes them an expensive purchase, and out of the budget of smaller investors. Logistics REITs have been performing well in recent weeks, with the Japan Logistics Fund hitting an all-time high last week, and increasing 86% from a brief market bottom in mid-March.


In June, the office vacancy rate in central Tokyo’s prime business districts increased for the 4th month in a row, reaching 1.97%. New office space has been performing relatively well but there are signs of some lease cancellations and companies in existing buildings shrinking down their workspace. Others are expanding their office space in order to allow more social distancing between desks. Future demand will depend on how the recent telework trend plays out. The Nippon Building Fund Reit is 39% below its February 2020 high and has only recovered 7% from the mid-March crash. Japan Real Estate Investment  Corporation is down 32% from a February high and up only 11% from the March low.


A closure of showrooms and real estate agencies throughout April and May saw transactions grind to a halt. Japan’s major developers have the funds and financing to weather out any storm and are deliberately limiting supply. Private sellers are also showing restraint with new listings in Tokyo dropping for the 10th month in a row in June. Existing apartment transactions had dropped by 50 ~ 70% in April, with similar 50% drops in May. The good news is that the market freeze seems to have ended. In the second half of June, weekly transactions had recovered and were up 1.7% from the same period in 2019. On a whole, average apartment sale prices, as reported by REINS, have remained stable, while median discounts are sitting at around 1.5%.

Rental apartments

We are hearing and reading various conflicting opinions on the residential rental market, and it requires some more in-depth consideration into its sub-sectors. Cheap housing targeting students has been affected by school closures, while the part-time income that those tenants would have relied upon has evaporated with retail and restaurant closures. The highly competitive furnished short-term rental market targeting travelers is also facing a bleak outlook for the time being as the country remains closed to foreign tourists. For long-term landlords, one positive is that the relatively high cost of moving has meant that many tenants have stayed put. Meanwhile, the average advertised rent in Tokyo’s 23 wards in May saw a 5.4% increase from last year. Comforia Residential Reit is down just 3.5% from its January high and up 76% from the March crash. Nippon Accommodations Fund is down 7% from a February high but up 55% from the March low. Over the past month it has risen by 9.3%.


Although stores and restaurants have now re-opened, shoppers have yet to return to former peak levels. Food and beverage tenants are suffering from reduced revenues and are seeking rental reductions from landlords. With no government-mandated rent moratoriums, tenants have to rely on the kindness of their landlords. The Japan Retail Fund Investment Corporation Reit is 48% below its recent November 2019 high.


Without a doubt, the hardest hit sector in Japan and indeed the world has been the tourism industry. International travel bans have put a halt to any overseas holidays. Many hotels temporarily closed their doors in April and May. Some started to re-open in June but domestic travel remains sluggish. In March, the Japan Hotel REIT dropped 70% from a recent high in January. It has since recovered to about half of its 52-week high.

Tokyo Kantei
The Real Estate Economic Institute
Miki Shoji
Toyo Keizai

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