F
oreign investors have long played a crucial role in Japan's real estate market. As the country's population continues to decline, it is essential to develop a sophisticated real estate market to attract inbound investment and sustain economic growth.

    The Japanese government expects inbound investment to drive real estate development moving forward. In many transactions sponsored by foreign investors, a special purpose company (SPC) purchases property using financing with securitisation structures.

    This article provides an overview of the real estate market for inbound investments by asset type.

    Hotels are recovering as an investment target due to increased domestic travel and a recovery in inbound visitors. The government has placed more focus on the tourism industry, aiming to invite luxury resort hotels and developers to open in all 35 national parks in Japan by 2031.

    Office building prices have remained relatively stable in Japan compared to Europe and the US, contributing to a stable level of investment. However, rising vacancy rates have led to stagnation in office investment.

    Residential property is attracting attention due to its relatively stable operation, particularly in Tokyo and other core regional cities. Opportunistic investors are taking advantage of low rents compared to global rent levels in other mega cities.

    Logistics assets saw a significant acceleration in investment during the pandemic due to e-commerce expansion. Investment remained strong in 2023, with new funds being launched, focusing on strengthening supply chains.

    Data centres are being developed in Japan, driven by growing demand for cloud computing and IT technology advancements. However, hurdles exist in obtaining non-recourse financing at the land leasehold stage without income generated from a property.

    Redevelopment projects are also crucial in Japan's real estate market, particularly in metropolitan areas. The Urban Redevelopment Act promotes greater use of urban land and facilitates renewal of urban functions. However, redevelopment projects face challenges such as increased project costs due to construction material price increases and human resource shortages.

    A special purpose company (SPC) scheme is being used to finance part of the project costs through real estate securitisation structures. This involves high difficulty levels due to the need for knowledge of real estate liquidation schemes and redevelopment projects.