In 2024, global inflation continues to intensify, and interest rates remain high in most countries. Compared to Europe and the United States, Japan’s economic recovery has been stable, with relatively less impact from the pandemic. Coupled with long-term low-interest-rate policies, Japan’s real estate market has performed remarkably well. Unlike many regions worldwide experiencing sluggish housing markets and rising office vacancy rates, Tokyo and Osaka’s real estate markets have stood out.
Looking ahead to 2025, Japan’s real estate market may exhibit a trend of “rising momentum coexisting with regional divergence.” The regional differences in residential and commercial real estate markets will further widen, significantly impacting investors’ decisions. From a global perspective, Japan’s high-priced properties remain relatively low, indicating substantial growth potential. Therefore, in 2025, Japan’s real estate market will continue to be highly attractive globally, with the market remaining active.
Market Divergence Dynamics: Tri-Polarization Intensifies
The divergence in Japan’s real estate market is becoming increasingly evident, presenting a “tri-polarization” pattern:
- Core cities see soaring prices: Demand in key areas like Tokyo and Osaka remains strong, driving continuous price increases;
- Most regions stabilize: Housing prices in some medium-sized cities remain stable or show a steady decline;
- Declining demand in local cities: Some regions experience falling prices and demand due to population loss.
This divergence trend is expected to intensify further in 2025. Core cities will continue to attract investor attention due to their economic vitality and high demand, while the recovery of local city real estate markets will rely more on policy support and innovative measures.
Core Areas Continue to Rise
As of September 2024, Japan’s housing prices increased by 4.5% year-on-year, up from 3.8% in August, indicating that prices are still on an upward trajectory. The Tokyo metropolitan area, in particular, has seen significant price increases for new and second-hand apartments. For example, in June 2024, new apartment prices in the Tokyo area rose by 17.0% year-on-year, while the second-hand apartment price index increased by 7.9%. According to the “International Real Estate Price and Rent Index” released by the Japan Real Estate Research Institute in November 2024, Tokyo and Osaka ranked among the top 15 global cities in terms of office price volatility, office rent volatility, and apartment price volatility over the six months ending October 2024.
Since the COVID-19 pandemic, Japan has been among the first to resume office work. The average vacancy rate in Tokyo’s central five wards dropped below 5% for the first time in August 2024, the first such occurrence since January 2021 during the pandemic. As of November 2024, the average vacancy rate in Tokyo’s central five wards was 4.16%. Even after falling below 5%, the vacancy rate continued to decline, and average rents also rose.
Apartment prices in Osaka City have continued to rise, especially in core areas. In 2024, new apartment prices in Osaka City increased by approximately 5%-7% year-on-year. The price increase for second-hand apartments was slightly smaller, around 3%-5%. The office vacancy rate in Osaka City was about 8.1% in the first half of 2024, slightly higher than the previous year but still lower than in some major global cities (e.g., London, New York). In core business districts like Umeda and Minamihorie, the office vacancy rate was lower, around 5%-6%, indicating continued high demand for office space. Despite a slight increase in vacancy rates, Osaka’s office market remains stable overall. Osaka’s apartment price volatility also ranks among the highest globally, reflecting sustained market demand.
According to reports from Japanese real estate research institutions, despite rising vacancy rates, Osaka’s real estate market remains highly attractive to investors. Over the next two years, with Japan’s economic recovery and increased participation from international investors, the market is expected to maintain relatively stable growth.
Amid global economic turbulence, Japan’s real estate market continues to attract significant investor interest as a “safe haven.”
Potential for Foreign Capital Inflow
Despite rising interest rates, Japan remains one of the easiest countries globally to raise funds. With low office vacancy rates and significant apartment price increases, Japan will maintain an attractive investment environment in 2025. Additionally, as mentioned earlier, Tokyo and Osaka lead major global cities in office price volatility, office rent volatility, and apartment price volatility. However, compared to other countries, Japan’s real estate rents and prices remain relatively low.
As the global economy gradually recovers, the attractiveness of Japan’s real estate market is increasing. The low-interest-rate environment and stable investment returns make Japanese real estate a key target for international investors. In particular, capital inflows from other Asian countries and regions have significantly increased.
According to the Nikkei Shimbun, in 2024, investors from China, South Korea, and Singapore significantly increased their purchases of high-end residential and commercial properties in Japan’s major cities. At the same time, some international hedge funds and institutional investors have begun to focus on real estate markets in Japan’s local cities, especially those with growth potential due to policy support.
However, some believe that foreign investors, particularly Chinese investors, may sell off real estate in large quantities in 2025, which could impact the market. Nevertheless, this prediction requires more data to support. Overall, Japan’s real estate market is expected to continue its upward price trend in 2025, but regional divergence and policy adjustments will significantly influence the market.
Population Decline Drives Regional Declines; Green and Tech as New Breakthroughs
While core city real estate markets perform strongly, Japan’s overall population decline remains a major factor affecting the future real estate market. According to data from Japan’s Ministry of Internal Affairs and Communications, Japan’s total population decreased by approximately 0.5% in 2024, with the aging trend continuing to intensify. Population decline has led to insufficient demand in some local cities, with falling housing prices becoming increasingly evident. This phenomenon has also exacerbated the divergence in regional real estate markets.
To address this issue, the Japanese government has begun exploring technology and innovation-driven solutions. For example, smart city projects are being promoted in regions with declining populations, aiming to attract young people back by introducing digital infrastructure and remote work facilities. Additionally, some local governments have partnered with private companies to launch attractive settlement plans, such as providing housing purchase subsidies and tax incentives, to alleviate the sluggishness in local real estate markets.
Environmental Optimization and Technological Innovation Impact on the Market
The Japanese government is expected to continue implementing strict real estate tax policies to address vacant property issues and encourage developers and homeowners to convert vacant properties into rental housing or redevelopment projects. Furthermore, with increasing environmental awareness, green housing and energy-efficient buildings will become important market trends, and the government may provide tax reductions or subsidies for green buildings and eco-friendly homes.
For example, Sapporo City in Hokkaido has launched a “Zero Carbon Housing Subsidy Program,” providing up to 2 million yen in financial support to families purchasing energy-self-sufficient homes. These measures not only enhance the vitality of the real estate market but also strengthen the integration of real estate and environmental policies.
Although the Bank of Japan has begun to gradually raise interest rates, the increase is modest, with short-term rates potentially rising by only 50 basis points to 0.75%. Since commercial real estate financing rates remain below 2%, the impact on the market is expected to be limited, and investors and homebuyers can still adapt to this change.
The development of real estate technology (PropTech) in 2024 has brought new momentum to Japan’s real estate market. Virtual property tours, blockchain-based real estate transactions, and AI-driven property management tools are gradually becoming mainstream. According to the Nikkei Shimbun, a Tokyo-based startup named Housetech raised over 5 billion yen in 2024, with its virtual property tour platform surpassing one million monthly visits.
This trend is also emerging in local cities. Some property developers in Nagoya have begun using AI algorithms to predict market demand, optimizing the design and pricing strategies of new residential projects. This technology-driven innovation is seen as a crucial way to improve market efficiency and enhance investment attractiveness.
Dual-Track Development as the Future of Japan’s Real Estate
Overall, Japan’s real estate market in 2025 will exhibit a “dual-track” development. On one hand, housing prices in major cities like Tokyo and Osaka may continue to rise; on the other hand, the recovery of local city markets will depend more on government policy support and the implementation of innovative measures. The continued inflow of foreign capital is also expected to further boost market confidence.
However, climate change and population aging remain two significant challenges hanging over the market. If these long-term structural issues cannot be effectively addressed, the sustainable development of Japan’s real estate market will face significant challenges. At the same time, green buildings and technological innovation are expected to become new breakthroughs, injecting fresh growth momentum into Japan’s real estate market.
