For real estate investors looking at the Japanese market, “multifamily” is a word that has been appearing more often in recent years. For example, in July, BlackRock acquired a multifamily asset in Tokyo together with Dash Living; and, Goldman Sachs was reported to have acquired a portfolio of eight residential assets in the Greater Tokyo area in September for $80 million.
Multifamily residential is one of the major sectors that real estate investors consider, in addition to office buildings, retail properties, logistics and hotels. The term multifamily refers to a single building that accommodates multiple residential units for rent, sometimes also known as rental housing or a multi-dwelling unit.
Statistics from a CBRE report suggest that from 2019 to 2024, investment in the living sector, which includes student housing, co-living, serviced apartments, multifamily and senior living, only accounts for 6% of Asia Pacific (Apac) investors’ portfolios, much lower than that of investors in the US, which is at 44%.
The living sector remains nascent in Asia because of a traditional focus on other lucrative assets such as office buildings, industrial and retail assets.
While as geopolitical uncertainties prevail, post-pandemic recovery weakens, and cost of capital remains high across Asian markets, investors are increasingly looking at alternatives with stronger fundamentals – the living sector, or multifamily assets, to be more specific.
“Multifamily has become the most sought-after asset class in Apac,” claims the CBRE report, citing that it has accounted for around a third of investors’ preferred assets in 2024 to date. The portion was fewer than 15% in 2021.
Rental growth
According to Jing Dong Lai, chief executive officer (CEO) and chief investment officer (CIO) for M&G Real Estate Asia, rental growth is one of the key aspects of buying Japanese living sector assets, including multifamily.
A booming tourism sector is bringing short-term stay opportunities for multifamily asset owners. Japan recorded over 24 million overseas visitors as of August this year, approaching the full-year record of 31.8 million in 2019. The country aims to attract 60 million visitors a year by 2030.
A growing inflow of tourists from markets including South Korea, mainland China, Taiwan and Hong Kong, has contributed to local consumption and Japan’s post-pandemic economic recovery, driving positive changes in Japan’s consumer spending, said Lai.
“For residential investments over the course of the last 12 months, the average market rent growth across Tokyo has been about 5%, significantly higher than the historical average,” said Richard Orbell, director, investment properties, capital markets, at CBRE Japan. The growth level was only around 1% per annum during the pandemic.
He added that asset classes such as hotels are also benefiting from the tourism growth story – hotel transaction volume in Japan was up around 50% during the first half of 2024, when compared to a year ago.
Another consideration for residential and hotel assets is their higher rates of occupier turnover, according to Orbell. This provides investors with greater flexibility to adjust and react to market conditions. However, most Japanese leases adopt a traditional structure, where tenants have the sole right to terminate contracts, which, limits landlords’ ability to adjust rents.
On the demand side of story is a shifting mindset of a young working population, according to M&G’s Lai. M&G is UK-listed and manages around $41 billion in global real estate sectors, of which around a quarter of is in Asia. In Japan, its portfolio consists of 61 residential assets.
“More than half of the residents in major Japanese cities rent instead of buying properties,” he pointed out. This is due to rising property prices in Japanese mega cities such as Tokyo. Reuters reported that the city has one of the world’s widest housing affordability gaps, where a 60 square metre apartment costs 15 times that of a skilled worker’s salary.
Lai also pointed out that certain high-end manufacturing activities are coming back to Japan – for example, Taiwan’s semiconductor giant, TSMC, opened its chip fabricant plant in Kumamoto, and is expecting a second one to begin operation by end of 2027; and according to Moody’s Ratings, Japan is one of the largest Asia markets in terms of data centre capacity.
“These would drive demand not only for residential assets in Japan, but also for logistics properties,” Lai commented.
Stability and liquidity
Japan is home to one of the most stable and liquid real estate sectors in Asia, according to several investors. This is mainly due to the number of domestic players, including asset managers, insurers, family offices and real estate investment trusts (REITs). In recent years, international investors have also been entering the market.
On the other hand, the cost of capital in Japan has remained steady, especially when neighbouring markets such as Australia and South Korea have been hiking interest rates to battle inflation.
Hines, a US-headquartered real estate investor, has acquired or developed nearly 500,000 square metres of real estate assets across six Japanese cities, valued at over $1.7 billion, according to Jon Tanaka, the company’s country head of Japan.
He told FA that compared to other Asian markets, Japan is offering deep liquidity and attractive financing conditions across the sector, and that is driving positive capital inflows across asset classes.
“We did a study at Hines and found that a developed Asia allocation, including Japan, historically reduces downside volatility and strengthens risk-adjusted returns in a global portfolio,” Tanaka said, adding that the multifamily sector remains one of the most resilient and only institutionalised residential market of scale in Asia, echoing a promising rental growth perspective.
Healthy demand, supply constraints, as well as a slowing development pipeline are factors Tanaka cited that could support a strong rental growth momentum.
Greg Hyland, head of capital markets, Apac, at CBRE, remarked: “Japan is still the largest and most dominant market for multifamily assets, where interest from foreign investors remains very high, compared to neighbouring markets such as Australia, China and South Korea.”
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