Investors are expecting lower rental yields from office and residential assets in Tokyo. According to the Japan Real Estate Institute’s investors survey published on November 2022, the expected rental yield on Class A office space in Tokyo’s Marunouchi and Otemachi district was 3.2% as of October 2022, down from a 3.3% expected yield in April.

This is the lowest expected yield since the Institute began collecting data in 1999. Back in April 1999 they were as high as 6%, before dropping below 5% in 2005. Expected yields have been in the 3% range since 2015. Expected yields were down 0.1 points in Toranomon (3.5%), Roppongi (3.6%), Konan (3.7%), and Shibuya (3.6%).

For the residential buildings in Tokyo’s Jonan area that contain primarily small, studio apartments, the expected yield dropped below 4% for the first time since record-keeping began. Similar declines in expected yields were seen in regional cities, as well.

Ginza’s high-end retail sector had an expected yield of 3.5% as of October 2022, showing no change from April. Yields have been in the 3% range since 2015. In 2004 they were in the mid 5% range before dropping to 4% in early 2007. 

With the country resuming domestic travel and with foreign tourism resuming in October, the expected yield on hotel properties dropped for the first time in a year in anticipation of a recovery. In Tokyo, the expected yield was 4.5%. It had been as high as the mid 6% range in the early 2010s. Kyoto had an expected yield of 5.0%, down from a 5.1% yield in April 2022.

95% of the respondents indicated that they plan to carry out new investments in real estate, a one point increase from the April 2022 survey.

While many countries are facing increasing interest rates, the Bank of Japan has continued its policy of monetary easing, sustaining low rates. These conditions have continued to make domestic real estate an attractive proposition for institutional investors, both domestic and foreign.

Source: Japan Real Estate Institute, November 2022.