Japan is unique in an Asia Pacific sense in that it has a very deep, liquid and intuitional multifamily real estate market. Japan has more traded multifamily real estate than the rest of the Asia Pacific region combined, and Tokyo is the most traded multifamily city in the world outside the USA. The case for investing into the housing market in Japan has also continued to firm over the past few years, with population growth into central Tokyo, high job security and early signs of wage growth all supporting an improvement in occupancy rates to 97% (Tokyo 23 wards). Despite strong labor market fundamentals, rental growth has been very modest, offering future upside potential in a low volatility sector.
Interest in multifamily investment has continued to grow from both domestic and foreign investors, as many see the attractive returns on offer teamed with highly favorable financing terms. Core yields on Tokyo multifamily assets are at a 100-150 bps premium to the office and retail markets, with yields in central areas generally around 4.0% to 4.5%. Financing costs are generally below 1% fixed on 5-7 year terms, providing for cash on cash yields often above 10%.
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