Tokyo’s Commercial Property Market Is on Top of the World

Tokyo had the largest commercial real estate market in the first quarter of 2014, the first time the Japanese capital has topped an ongoing survey of the world’s major cities launched a decade ago.

 

Driven by a surge in international interest, total commercial property transactions in Tokyo jumped 71% to $10.1 billion from the same period last year, leaping above New York and London, according to Jones Lang LaSalleJLL -0.15%, a Chicago-based real-estate services provider.

After two decades of almost constant price falls since the collapse of Japan’s asset bubble in the early 1990s, Tokyo land prices rose in 2013. Bolstered by a successful bid for the Olympic Games in 2020, the property market has been warming up as Prime Minister Shinzo Abe’s pro-growth economic program and the Bank of Japan"s8301.TO +0.98% aggressive monetary stimulus help stoke confidence in the economy.

“Investor sentiment toward Tokyo both from within Japan and around the world is much more positive now than it has been for many years,” said David Green-Morgan, global capital markets research director at Jones Lang LaSalle.
Total global volume rose 26% to $136 billion with transaction volume for commercial real estate in the Big Apple estimated at $6.9 billion, and London registering $6.3 billion in property trades.

Shigeo Hirayama, head of research at Urban Research Institute Corp., a Japanese real estate research and consulting firm, said resurgent interest in the Tokyo market and rising real estate prices are also encouraging greater supply these days, helping increase the overall volume of transactions in the market.

“Because property prices are on the rise, they can expect higher prices than before,” he said.

He said the prospect of higher rents is also prompting some occupants to buy the properties they are renting.

Office rents across different sizes and types of properties are expected to stop declining and start rising gradually, according to the latest report from Cushman & Wakefield, another U.S.-based real estate firm. Many analysts say investors will increasingly look beyond central Tokyo for good property investments as interest in Japanese real estate grows.

Big transactions boosted Tokyo’s standing last quarter, including AXA Real Estate’s buying of Nakano Central Park East, an office property, and Mizuho Bank’s purchase of Otemachi Tower, an office building in central Tokyo.
One quarter of all purchases in Tokyo involved overseas money with European and other Asian investors forming the bulk of foreign interest, according to Jones Lang LaSalle.

Tokyo was the only city in Asia to make the top 10 list, with economic cooling measures in China having a negative effect on investor sentiment in the region.