Investor interest in Japan’s regional office market remains robust, with a notable 15% increase in office transactions during the third quarter of 2024, compared to the same period in 2023. Despite a broader nationwide decline in overall real estate investments, the office sector shows signs of resilience, fueled by continued recovery post-pandemic.
According to the Japan Real Estate Institute’s bi-annual investor survey conducted in October 2024, capitalization rates (cap rates) for regional office markets have remained stable over the past six months. However, cities like Nagoya, Sendai, and Sapporo experienced slight tightening, with cap rates dropping by 10 basis points annually. This reflects growing investor confidence in Japan’s regional markets, signaling sustained interest in the country’s real estate sector.
Savills, in its latest report, noted that while property prices across various sectors in Japan remain elevated, the tightening of cap rates highlights a renewed demand for Japanese real estate, particularly in regional offices.
Despite a nationwide decrease of about 20% in overall real estate investment volumes by Q3 2024, many investors continue to watch the market closely, anticipating potential interest rate increases in Japan. However, the office market has been an exception, with transaction volumes for the year already surpassing those of 2023 by approximately 15%. The data, still in preliminary form, is expected to grow as more deals are finalized.
The latter half of 2024 has witnessed several significant office transactions in Japan’s regional markets. Notably, a consortium of domestic investors, including Chiba Bank, Fuyo General Lease, and Daiei Real Estate & Development, acquired the World Business Garden in Chiba for ¥68.0 billion. This marked the largest reported office transaction outside Tokyo this year. Additionally, Kanden Realty & Development purchased the former Toyobo Headquarters building in Osaka for ¥30.1 billion, and the KKR-backed Japan Metropolitan Fund REIT acquired the JMF-Bldg. Osaka Fukushima 02 for ¥14.6 billion.
Cross-border investment in regional office properties has also seen some improvement, with foreign investors beginning to re-enter the market. As the office leasing sector continues to recover, demand for prime office spaces is expected to rise. Many well-performing office buildings are now fully leased, creating potential opportunities for investors seeking to purchase high-quality assets from owners who may be looking to sell.
As Japan’s regional office markets continue to show resilience, the outlook for the sector remains positive, with both domestic and international investors closely monitoring emerging opportunities.
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