A new dawn for Japan commercial real estate

After three decades on the throne, Japan’s Emperor Akihito has handed power over to his son, marking the end of the Heisei era. The Reiwa Era has begun. New eras are traditionally a time when the Japanese reflect on the past in order to gauge what may lay ahead. For many in commercial real estate, these reflections will linger on the market crash in 1992, the Asian Financial Crisis of 1997, zero interest rates, an aging population, natural disasters and a nuclear meltdown. But for the future of the industry, perhaps nothing is as important as considering the ramifications of the 2008 financial crisis. Before the crisis, foreign investors had flocked to Japan, which was viewed by European and U.S. investors as one of the best buying opportunities in the world. When Lehman Brothers filed for bankruptcy in September 2008, it was initially regarded as “a fire on the other shore” that would only have a trivial impact on the Japanese economy. But the country subsequently found itself mired in a recession that would last longer than anywhere else in the world. Liquidity dried up as foreign investors retrenched to their home markets. Memories of the sharp drop in the prices and number of transactions remain fresh today. If the Japanese real estate market is to avoid a repeat of the past, it will need to grow into a market that foreign investors cannot afford to leave. Foreign investors account for about 35 percent of Tokyo’s real estate investment market. With its shrinking population and an economy with little prospect of high growth, Japan’s market needs more overseas capital. In this environment, transparency is key. Japan commercial real estate transaction volumes have totaled around 4 trillion yen since 2013, according to JLL data, far smaller annual growth than comparative international markets with greater transparency. Improving the transparency will significantly contribute to attracting more foreign investors.