In the fourth quarter of 2023, the investment volume in commercial real estate in Japan declined significantly by 57% year-over-year, amounting to JPY 660.0 billion. This downturn, largely attributed to a high comparative base set in Q4 2022, when the notable transaction of Otemachi Place occurred for JPY 440.0 billion, was compounded by a sharp 78% year-over-year decrease in foreign investments. Overseas investors maintained a cautious stance throughout the year, a trend that began to solidify in mid-2023.
Examining the breakdown by asset categories, the residential sector emerged as a notable outlier with a robust 50% year-over-year increase in investment volume, reaching JPY 187.0 billion. A substantial contributor to this surge was the acquisition of a portfolio comprising 20 properties by a Japanese Real Estate Investment Trust (J-REIT), totaling JPY 46.9 billion. Similarly, the retail sector also experienced a significant uptick, recording a 48% year-over-year rise to JPY 115.0 billion.
Looking at the full-year 2023 data, the overall investment volume exhibited a modest 3% decline compared to 2022 figures, primarily influenced by a substantial 28% reduction in foreign investment. Within specific asset categories, transactions in the office segment reported the most pronounced decline, plummeting by 43%.
Insights gleaned from CBRE’s latest investor sentiment survey in Japan indicate a cautious outlook for 2024. The survey revealed a 6-percentage-point decrease in the proportion of investors intending to increase their acquisition volumes compared to the previous year’s survey. Conversely, those planning to boost their sales volumes saw a 9-percentage-point increase. This shift underscores a discernible dampening in investor appetite for property acquisitions moving forward.
In summary, while the commercial real estate sector in Japan navigated through a challenging landscape marked by substantial year-over-year declines in investment volume, certain segments such as residential and retail displayed resilience amidst broader market pressures. The diminished foreign investment and cautious investor sentiment, highlighted by CBRE’s survey findings, suggest a cautious approach prevailing among market participants as they strategize for the upcoming year.
