Tokyo’s residential sector has experienced a robust performance in 2024, and industry experts predict that this upward trend will extend into 2025. According to a report by Savills, rental growth was observed across all wards in the city’s 23 Special Wards (23W) during the fourth quarter of 2024, driven by strong demand.
The driving force behind this growth has been the city’s sustained net migration, with foreign nationals making up approximately 90% of the net migration between September and November 2024. While Japanese migration remains significant, it is largely concentrated during the peak spring moving season, unlike the more evenly distributed inflow of foreign nationals throughout the year, the report notes.
Savills further highlights several key factors contributing to the market’s resilience:
Shift in Work Trends: As businesses scale back remote working policies, demand for housing in proximity to central business districts is anticipated to rise. This demand will be supported by strong wage growth, particularly in larger companies. On the other hand, suburban areas will continue to attract tenants, particularly those who work from home or families in search of more spacious living environments.
Cost Pressures on Housing Supply: Rising construction and land costs have limited housing availability, particularly for sale condominiums, which has led to higher prices in the for-sale sector. This price increase is expected to push more prospective buyers toward the rental market, further driving rental demand.
Wage Growth Dynamics: Wage increases, particularly for larger corporations, have bolstered the overall economic climate. However, the report also points out that smaller businesses, particularly small and medium-sized enterprises (SMEs), will face pressure to match these increases. The survival of weaker SMEs may become more challenging, potentially leading to consolidation within the sector.
Despite a generally positive outlook, Savills underscores the importance of a detailed submarket analysis. Demand is expected to remain strong for prime locations, particularly those near key transportation hubs. In contrast, areas with less favorable access to transport could experience weaker demand, leading to a continued bifurcation within the market.
With strong demand and tight supply, Tokyo’s residential rental market is poised to continue its upward trajectory into 2025.
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