Japan’s internal market is strong and resilient and continues to grow. In 2024, real estate transaction volume increased by 22 percent to USD 68.1 billion compared to the prior year. This growth was important, as it occurred in the face of global economic volatility and the difficulties of the COVID-19 pandemic.
During the pandemic, many Japanese corporations sold a large number of non-core assets (e.g. headquarter buildings) to recycle capital to their principal business lines. It opened new doors, in particular in the office segment. Meanwhile, e-commerce was undergoing exponential growth, propelling demand for logistics properties and spotlighting data centers within the investor mood. Interest in resilient and scalable assets intensified during macroeconomic disruptions.
In 2024, Japan’s total real estate transaction volume was driven by more than 50% of industrial (including data centers and logistics) and hospitality, and multi-family residential assets. These sectors are today well regarded as value accretive, being underpinned by demand dynamics and changing occupier behaviour.
This stability is reinforced by the further cap rate patterns. Tokyo’s prime office cap rate is now a low 3.0%, one of the lowest globally, behind only Hong Kong at 2.8%. Notably, Tokyo’s cap rates have bottomed out and in recent quarters, especially have been falling below pre-COVID levels, which is unheard of across major cities. Japan’s low interest rate environment has largely supported this anomaly.
Monetary Policy, Rate Environment, and Currency Advantage
The Bank of Japan (BOJ) has been in a low interest rate policy for decades to combat decades of deflationary pressure and slow economic growth. Central banks around the world raised rates; the BOJ chose stability over sudden change. The concern for Japan’s small and medium-sized enterprises (SMEs), which constitute 99 percent of all businesses, are responsible for around 50 percent of GDP, and contribute about 70 percent of national employment, is what underlies this strategic restraint. These firms are so dependent on cheap borrowing, and sudden rate hikes could ruin this key economic sector.
But in 2025, the BOJ started to normalise rates cautiously, with strong corporate earnings, inflation and wage growth. By February 2025, short term rates had turned up to 50 basis points and, long term, to more than 150 basis points. These adjustments have not been enough to bring Japanese rates to the level of peer economies. For example, at Japan’s December 2024 rate compared to America’s, the gap was 300 basis points; by early 2025, it had narrowed slightly to 270 basis points.
The Japanese yen has been significantly weakened by this persistent interest rate differential against the U.S. dollar, in particular. In January 2020, the exchange rate was 108 yen per dollar, and by February 2025 it was at 151 yen. The yen has nearly halved in value compared with pre-Abenomics levels of 76 yen per dollar in January 2012.
This has made Japanese assets more attractive to foreign investors due to such a steep currency decline. Currency play or currency hedging is especially applicable here, as many investors are viewing this as a strategic moment to increase exposure to Japanese real estate at a favorable exchange rate.
At the same time, tourism has made a strong recovery, with a record number of international visitors coming in 2024. The swift recovery of the hospitality sector and the demand for hotel properties were stimulated by the weak yen, making Japan a more affordable destination.
Tokyo’s Office Market Defies Global Trends
Tokyo’s office sector is different from many Western markets where demand has collapsed post pandemic. Before the pandemic, vacancy rates for Grade A office space in the Central Business District (CBD) of Tokyo were less than 1%. The rates peaked at 4.9% in 2023 as companies rethought office usage, but have since fallen to 2.3%, a far lower level compared to global standards.
Disruptions related to the pandemic were cushioned by limited new office supply during 2020–2022. Even with new developments that are predicted to come in the next years, vacancy rates are expected to stay subdued. Instead, this strength is largely due to a cultural and strategic return to office-centric work environments in Japan.
High-quality, amenity-rich workplaces are becoming more commonplace as a means to attract and retain top talent in Japan’s giant corporations. Today, office space no longer has to be only a functional essential; it can be highlighted as a differentiator in the competition. Additionally, the demand for centrally located office spaces remains high as Tokyo’s urban population continues to grow.
This strong performance of the office sector is in marked contrast to markets such as the United States, where structural changes to remote and hybrid types of working have undermined traditional levels of office occupancy. Tokyo remains a dynamic market where strong demand and a positive long-term outlook have prevailed for investors in the office asset class.
Japan’s real estate landscape, both domestically and globally, presents itself as resilient and attractive. Tokyo is still king of global investment rankings, and the local volume is driven by key sectors: industrial, hotel and multifamily. Japan has a low-rate environment and a historically weak yen, attracting foreign capital
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