Japan saw a modest real GDP decline but robust nominal growth in 1H 2024, supported by strong corporate profitability, tourism growth, and a tight labour market. While BOJ hiked interest rates slightly to 0.25%, rates are still deeply negative in real terms, with further increases likely to be limited. Japan is expected to maintain positive real growth of 0.8% pa over 2024-29, driven largely by private consumption, business investment, and exports.

Residential rents and occupancies were stable or rising over 1H 2024, whilst new condo prices rose further in Tokyo and Osaka, underpinned by net migration inflows, foreign demand, and limited supply. Hospitality and retail assets were bolstered by tourist spending. Average hotel room rates reached new highs, though labour shortages continued to limit occupancy gains. High street retail vacancies fell across most key streets, while rents were stable or rose over 1H 2024.

Barring any major spikes in global uncertainty, we expect investor demand for quality retail, multifamily and hotel assets in Tokyo and key regional cities to remain resilient given attractive demand and supply fundamentals, cash-on-cash yields and favourable lending conditions.

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