Metropolitan areas ranked 2nd in the world for real estate investment in Jan-Mar, Strangeness due to continued easing
According to the global real estate investment by city compiled by Jones Lang LaSalle (JLL), a leading real estate service provider, in January~March 2023, Japan‘s metropolitan area (Tokyo, Kanagawa, Chiba, Saitama Prefectures) increased by 26% y/y to $4.8 billion (approx. 660 billion yen). By city, it ranked second in the world after Los Angeles in the US, up from 14th in the same period in 2022.
It was the first time in eight quarters that the metropolitan area was ranked second or higher. As interest rates rise in Europe and the US, foreign money is flowing into the country, procuring yen with low interest rates and investing in real estate.
JLL compiled the data for offices, hotels, and logistics facilities around the world. Of the total amount of real estate investment in Japan, investments by foreign investors doubled year-on-year to $2 billion, accounting for 30% of the total. Investment in office buildings in urban areas and large logistics facilities in the suburbs was active. Investments by domestic investors increased 31% to $6.8 billion.
Chief Analyst Manabu Taniguchi noted, “In contrast to Europe and the US, where interest rates have been raised, Japan, which maintains an accommodative monetary policy, is a rare market that foreign investors are very interested in.” The interest rate for procuring yen is low, making it easier to secure the difference between the yield expected from real estate investment and the yield on real estate investment. The depreciation of the yen is also making it easier for foreign investors to invest in Japan.
The leader by city was Los Angeles, with $5.7 billion in investments. Third place was London, England, and fourth was Shanghai, China. New York, which ranked first in the same period last year, dropped to fifth place as investors refrained from buying and selling in the wake of falling real estate prices. Another factor is the worsening environment for raising funds due to the emergence of financial instability caused by a string of bank failures.
On Japan’s outlook for the full year 2023, Manabu Taniguchi says, “We expect a slight over-20% increase from the previous year, to about 4 trillion yen.” It expects that investment in office and logistics facilities will continue to drive overall investment from April to June and beyond. The fact that the change of governor of the Bank of Japan in April did not result in any change in monetary policy has also contributed to a sense of security for real estate investment. The focus of attention is on how much supply of properties will be supplied by redevelopment projects in central Tokyo and other areas.