Japan Commercial Real Estate Market Trends

Published on October 31, 2025 and written by Cyril Jarnias

In an ever-evolving global economic context, Japan’s commercial real estate market stands out with its unique dynamics and compelling investment opportunities. As the country navigates through demographic and economic challenges, demand for flexible and technologically advanced spaces continues to grow. Emerging trends, such as increased adoption of green technologies and integration of digital solutions, are profoundly reshaping the commercial landscape and attracting renewed interest from international investors. This article explores how these factors converge to shape the future of commercial real estate in Japan, offering an in-depth look at the adaptation strategies implemented by industry players to remain competitive in a globalized market.

Overview of Japan’s Commercial Real Estate Market Trends

Key Trends in Japan’s Commercial Real Estate Market

1. New Construction and City Comparison

In 2025, the supply of new commercial real estate properties is active in Japan, primarily centered around Tokyo, Osaka, and Nagoya.

• In Tokyo, large mixed-use buildings are planned in Minato-ku Shibaura, and vacancy rates remain at low levels (for example, less than 5% on average in Tokyo’s five central wards).
• In Osaka, despite massive supply of Class A office buildings planned from 2022 to 2027, occupancy rates are also high and rental levels are maintaining.
• In Nagoya, the planned opening of the Chuo Shinkansen high-speed rail line ensures stable demand for offices, with vacancy rates expected to fall to around 3%.

2. Government Policy and Market Impact

The government promotes urban redevelopment and infrastructure improvements to support market revitalization. Additionally, in terms of monetary policy, with the Bank of Japan’s lifting of negative interest rates and a slight rate increase, the market benefits from a stable capital flow environment.

However, there are regional disparities in real estate investment amounts, with growing interest from foreign investors in Osaka properties, highlighting a shift toward secondary cities.

3. Technological Innovation and Property Management

Adoption of real estate technology (PropTech), including:

• Smart locks
• Remote management (IoT)
• Virtual tours
• Electronic contract systems

Furthermore, new technological innovations such as AI-based price prediction models and 24/7 chatbots are also being observed.

4. Changing Tenant Demand

Since COVID-19, companies show increasing interest in hybrid office environments to attract talent. Conversely, for commercial facilities, a phenomenon of returning to downtown concentration and a wave of new mall openings continues. Tourism recovery is marked by increased foreign company entry into the hotel sector.

5. Economic Dynamics: Interest Rates, Inflation, and Major Industry Demand

Despite rising long-term interest rates (currently around 1.2%), real estate market sentiment is improving. Strong corporate earnings are driving increased demand for functional office spaces aimed at retaining talent, although oversupply of logistics facilities is concerning in some regions. However, the rental market is improving overall.

6. COVID-19 Aftermath and Recovery Status

Although the percentage of returns to the office has slowly recovered from its reduction during the pandemic, some sectors (including retail) continue to feel the impact of the rise in online services. Conversely, recovery of operations in tourist facilities such as hotels is notable.

From these elements, we can see the importance of proposing solutions to overcome challenges in Japan’s commercial real estate sector and developing timely growth strategies.

Office Price Evolution in Major Cities

Observing office price trends in major Japanese cities, significant fluctuations have been observed in recent years due to the impact of the novel coronavirus and economic factors. Below, we will discuss price fluctuations and factors in the Tokyo, Osaka, and Yokohama markets.

1. Tokyo

Office rents in Tokyo’s five central wards (Chiyoda, Chuo, Minato, Shinjuku, Shibuya) temporarily declined after 2020 but are now on a recovery path. In February 2025, the average rent is 20,481 yen per tsubo, representing a 3.56% increase compared to the same month the previous year. Additionally, vacancy rates are also improving and currently stand at 3.94%.

This recovery is attributed to economic reopening and improved corporate performance. However, with continued massive supply, intensified competition between certain areas is also expected.

2. Osaka

In Osaka, rising vacancy rates and declining rents persisted from 2020 to 2022, affected by the novel coronavirus and massive supply. However, since 2023, the market has gradually begun to recover. According to the latest data, in Osaka’s six main districts, the average rent is 12,230 yen/tsubo (slight increase compared to the previous year) and the vacancy rate is 3.75%.

This stabilization is influenced by expanding demand, particularly from technology-related companies, and by local government support policies.

3. Yokohama

In Yokohama, interest in the office market has also increased in recent years. Development projects are underway, primarily in the Minato Mirai 21 and Kannai districts, but temporary increases in vacancy rates are at risk due to new supply increases. However, contract rents are currently holding firm, and trends of expanding demand, including improved facilities in certain areas, are being observed.

Key Fluctuation Factors

• Economic and Policy Factors: Many regional revitalization policies have advanced to recover from the novel coronavirus aftermath.
• Technological Innovation: Workstyle reforms accompanying telework diffusion—adoption of hybrid models—are causing a transformation of needs toward more flexible office use.
• Domestic and International Demand: Maintaining high appetite from financial sector investors and expected acceleration of international inbound flows.

The possibility of decreased international competitiveness or market saturation remain challenges. However, it’s important to focus on implementing strategic plans to maintain location appeal long-term.

Strategies Adopted by Companies Facing Market Dynamics

Strategies adopted by Japanese companies in the commercial real estate market are strongly influenced by factors such as economic fluctuations, demographic changes, and technological evolution. Let’s analyze their specific content.

1. Response to Economic Fluctuations

In Japan, while interest rate increases are expected until 2025, real estate prices and rents are maintaining stable levels. In the office sector particularly, the share of investments is increasing and many new properties are available. In this context, many companies seek to improve profitability by increasing rents and reducing vacancy rates.

As competition between investors intensifies, Japanese companies are actively developing value creation strategies through upgrading older buildings or changing usage purposes.

2. Demographic Structure and Changing Demand

With the baby boom generation becoming elderly, investment opportunities in senior facilities and redevelopment projects are expanding. Conversely, in regional areas, downward pressure on prices due to oversupply is observed.

In urban areas, demand for housing for young people and that for high-end housing by wealthy foreigners remains strong, and we’re witnessing the development of new housing forms such as shared houses or design apartments.

3. Technological Innovation and Sustainability

The adoption of advanced technologies such as AI, IoT, and blockchain to improve operational efficiency and digital transformation of real estate management is becoming widespread across the entire market. Adoption of sustainable buildings is also being encouraged.

For example, Obayashi Corporation is also focusing on projects suited to new technologies, such as increasing demand for data center construction, and aims to gain competitive advantage in this field.

Success Examples and Trends

In the Minato area (Roppongi, Akasaka, Azabu), integrated urban redevelopment projects like the Toranomon-Azabudai project have contributed to improving area value. In Shibuya ward, there’s a trend of massive investment in flexible offices as location centers for IT startups. This ability to flexibly adapt to regional characteristics can be considered a trend.

Relationship with Government Regulation

Thanks to government policies promoting facility investments, measures for older buildings, and public subsidy systems, many real estate operators benefit from support. However, they also feel the constraint of applying certain strict regulations, such as strengthened environmental standards.

Short-term challenges remain, such as reducing office vacancy rates and resolving succession problems in regions. Medium to long-term, increases in eco-friendly urban projects can be expected.

Impact of International Trends on Japan’s Real Estate Sector

Key International Trends Influencing Japan’s Commercial Real Estate Market

1. Impact of Global Economic Policies and Interest Rates

Global monetary policies have a direct impact on Japan’s commercial real estate market. For example, interest rate cuts by the U.S. Federal Reserve (FRB) and policy changes by the European Central Bank (ECB) promote capital movements, thereby increasing investment flows toward Japan. On the other hand, interest rate hikes by the Bank of Japan have complex impacts on domestic and international investor appetite.

In a high interest rate environment, real estate loans and construction costs increase, but growing interest in real estate investment as an inflation hedge is also observed.

2. Cross-Border Capital Movements

Due to geopolitical risks and supply chain reorganization, many foreign companies and institutional investors are strengthening their entry into the Japanese market. Massive foreign investments are particularly notable in semiconductor-related facility development projects and data centers.

Additionally, capital redirected from Asian countries like China is flowing into the Japanese market, often chosen for its stable legal system and transparent transaction environment.

3. PropTech and Technological Innovation

In the PropTech (real estate technology) field, technologies like AI, IoT, and big data analytics are being used, leading to improved real estate management efficiency, cost reduction, and construction of new revenue models. These technological innovations are deploying rapidly globally, with adoption examples in Japan, such as smart office building projects.

A concrete example is an office building project in Osaka equipped with an AI-driven air conditioning management system. Such initiatives contribute not only to improved energy efficiency but also to increased competitiveness.

Comparison Between Japanese Market and Other Asian Countries

The Japanese market has an advantage in terms of stability and transparency compared to other Asian countries. However, it faces the long-term challenge of an aging society, which poses problems for creating new demand. Conversely, countries like China and Singapore, while showing high economic growth rates, face challenges related to market volatility and geopolitical risks.

Foreign direct investment (FDI) continues to expand, with positive effects expected particularly in the hotel sector and logistics infrastructure.

Attractiveness for Foreign Investors

Under the yen depreciation trend, the effect of reduced real estate purchase costs is encouraging more foreign players to enter the market, but there are also concerns about possible short-term capital outflows depending on how this situation evolves.

Considering these factors, the importance of developing strategies to maintain competitiveness is becoming an urgent necessity.