Japan real estate: Market trends & corporate asset optimisation

Key takeaways

• Drawing on meetings with real estate executives, leading direct and indirect investors, and research analysts, this report examines the strength of Japan’s property market despite rising interest rates. Key drivers include robust demand, limited and delayed new supply, and corporate asset optimisation, which is creating attractive opportunities for private equity real estate investors and possibly public equity investors.
• Despite rising interest rates, Japan’s real estate investment market is on course to set a record for a second consecutive year.
• Commercial real estate transactions reached ¥6.2 trillion ($39 billion) in 2025, marginally exceeding the previous record set in 2007. Jones Lang LaSalle K.K. (JLL) forecasts a record investment volume of ¥7 trillion ($44 billion) in 2026, supported by strong office demand and corporate asset-light strategies.
• Overseas investors also set a record in 2025, accounting for 34% of transactions and more than ¥2.1 trillion ($13 billion) in value. Investment appetite among domestic and overseas real estate investors and funds remains strong despite higher long-term interest rates. Key supporting factors are constrained new supply, rental growth in urban office markets and the continued sale of prime real estate by listed companies seeking to improve capital efficiency.

Office

Tokyo’s prime office market remains the standout performer. In July 2026, the weighted-average vacancy rate across the city’s five central wards was 2.0%, down four basis points month on month, while asking rents rose 11.4% year on year.

Prime office rents in Tokyo increased 10% year on year to ¥948 ($6) per square foot in December 2025. Rental uplifts at lease renewal have also accelerated, reaching 8–15% at major landlords.

The near-term office supply-demand outlook remains very favourable, although the longer-term picture is more balanced. Capitalisation rates are expected to stay low, supported by increased lending, J-REIT equity issuance and sustained inflows from global investors, including private equity funds.

One notable cross-sector transaction illustrates the convergence of office and residential demand: Canada’s BGO sold a large central Tokyo office building to local condominium developer Goldcrest for approximately ¥100 billion ($635 million). Goldcrest plans to convert the property into luxury apartments.

Residential

Average new condominium prices in the Tokyo metropolitan area rose 63.7% year on year to ¥164.9 million ($1.05 million) in July 2026, reflecting tight supply, elevated construction costs and a greater mix of luxury properties. This followed a 17% increase in 2025.

There are, however, early signs of cooling. Month-on-month growth was broadly flat to slightly negative in June 2026, marking the first decline in 26 months, as higher interest rates and inflation weighed on consumer demand. Even so, demand for detached homes in major cities and for high-end properties should remain firm, while limited supply is likely to support both new-build and pre-owned condominium prices. Brookfield’s reported commitment to invest ¥100 billion ($630 million) in Japanese housing further underscores continued foreign institutional appetite for the sector.

Mitsubishi Estate’s residential land bank comprised 17,317 saleable homes as of December 2025, with completions phased through fiscal 2032.

Retail

Retail real estate is gradually stabilising after years of pressure from e-commerce and inflation, with both rents and asset values showing signs of improvement.

Hankyu Hanshin’s commercial properties in Osaka’s Umeda district should benefit from the city’s economic revitalisation, with demand expected to strengthen as major urban redevelopment projects progress.

Takashimaya is considering options to unlock value from its non-store real estate holdings, including disposals and securitisation. Its domestic property portfolio had a book value of approximately ¥600 billion ($3.8 billion) at end-FY25, with around 80% allocated to stores and 20% to other properties.

Japan Metropolitan Fund reported that rents on new contracts at Unimo Chiharadai are expected to rise by 98.8% from September 2027, highlighting the potential for substantial rental resets in retail assets.

Logistics

Logistics remains a high-conviction allocation for major developers. As of December 2025, logistics assets represented approximately 62% of Nomura Real Estate’s ¥1.1 trillion ($7 billion) property pipeline.

As of March 2025, Mitsui Fudosan managed 6.3 million square metres of office, retail and logistics space. It is also expanding its overseas logistics footprint in markets including London, San Francisco and New Taipei City.

Nippon Express has raised its property disposal target to at least ¥500 billion ($3.2 billion) and intends to sell all investment properties during its current medium-term business plan covering FY24–28.

Corporate real estate optimisation and private equity

A defining structural theme in Japan’s real estate market is the large-scale divestment of corporate-owned property, whereby listed companies are selling high-quality assets to improve capital efficiency.

KJRM Holdings, KKR’s Japanese real estate management subsidiary, plans a substantial expansion in acquisitions of corporate property disposals and estimates the addressable market at ¥450 trillion ($2.8 trillion). KJRM’s real estate holdings have increased by 20% to approximately ¥2.53 trillion ($16 billion)

Since 2024, overseas investors have completed several transactions exceeding ¥200 billion ($1.3 billion), attracted by the prospect of rental growth and opportunities to enhance the value of corporate real estate.

At the company optimization level, the following notable transaction occurred in the last few years.

IHI sold almost Y200bn ($1.3 billion) of real estate in Kanagawa, Toyosu (Koto-ku) over the last five years, including the disclosed sale for the fiscal year ending March 2027, recycling the proceeds into its highly successful aero engine business, defence & space, energy (nuclear) and shareholder return.

Mitsubishi Estate is pursuing capital recycling through asset sales. In March 2025, for example, it sold a commercial property in Tokyo’s Shinjuku ward for ¥29 billion ($180 million) and redirected the proceeds towards expansion of its development pipeline.

In March 2025, the Yamato Group completed sale-and-leaseback transactions for four properties, including its head office. It continues to review its wider portfolio to improve capital efficiency and enhance corporate value.

A REIT collaboration model is also emerging. Under this approach, sponsor-led corporate real estate carve-outs create growth opportunities for REITs, often through sale-and-leaseback proposals designed to strengthen corporate balance sheets.

Case Study: Sapporo Holdings’ Landmark Sale to KKR and PAG

One of Japan’s most prominent recent corporate real estate divestments is Sapporo Holdings’ sale of its property subsidiary - which includes Tokyo’s prestigious Yebisu Garden Place complex—to a consortium led by KKR and PAG Investment Management.

Announced at the end of 2025, the transaction is structured in three stages: 51% in June 2026, 29% in June 2028 and the remaining 20% in June 2029. The initial closing generated approximately ¥290 billion ($1.8 billion) of cash inflow for Sapporo, including loan recoveries, and a one-off pre-tax gain of roughly the same amount.

Across all three tranches, total pre-tax cash proceeds are expected to reach approximately ¥470 billion ($3.0 billion).

The leased assets had a reported fair value of ¥403 billion ($2.6 billion) as of March 2025 and had been classified on Sapporo’s balance sheet as long-term investments since December 2017.

Further corporate real estate transactions

A second major transaction is emerging at Sankei Building, the real estate subsidiary of Fuji Media Holdings, which was reported in June 2026 to be the subject of bids valuing it at approximately ¥1 trillion ($6.3 billion). More than 15 parties submitted first-round proposals, including KKR and Goldman Sachs. Four bidders advanced to the second round: Blackstone; Bain Capital; BentallGreenOak (BGO), a Canadian global real estate investment manager; and Seibu Holdings, a major domestic rail and hospitality group.

Sankei Building has a diversified portfolio of premium offices, hotels, residential properties, logistics centres and nursing homes. Financial sponsors such as Blackstone or Bain Capital may therefore partner with specialist local developers to manage, reposition or separate business lines after an acquisition.

The second round of bidding is expected to conclude sometime in October, giving the remaining bidders time to complete their asset valuations.

*) all US dollar values are based on ¥158/$.

**) in bold listed companies

Glossary

Capital recycling: The process by which companies sell existing property assets and reinvest the proceeds into new developments, business expansion or shareholder returns.

Sale-and-leaseback: A transaction where a company sells a property it owns and simultaneously leases it back, freeing up capital while retaining operational use of the asset.

Capitalisation rate (cap rate): A measure used to assess a property's income-producing potential, calculated by dividing net operating income by the property's market value.

Corporate real estate optimisation: The strategic management of property assets to improve capital efficiency, enhance shareholder value and support long-term business objectives.

J-REIT (Japanese Real Estate Investment Trust): A listed investment vehicle that owns or finances income-producing real estate in Japan and distributes most of its earnings to investors.