#Japan #Tokyo #investment growth #JLL #Asia-Pacific

Significant Rise in Asia-Pacific's Commercial Real Estate Investments in Q1 2025

In the first quarter of 2025, the Asia-Pacific region witnessed an astounding growth in commercial real estate investments, recording a remarkable 20% increase compared to the same period last year. The total investment amount reached $36.3 billion, marking the highest level since the interest hike cycle began in 2022. Despite ongoing tariff threats in the region, the growth spanned across various sectors, excluding industrial and logistics, signifying a steady increase in investor activity, which has continued for six consecutive quarters. This trend reflects that investors are making informed decisions grounded in objective fundamental analyses.

Surge in Cross-Border Investments

Additionally, cross-border investment in the Asia-Pacific reached $8.6 billion in the first quarter of 2025, representing a staggering 152% increase from the prior year and the highest amount since 2019. Sectors such as office spaces, logistics facilities, and rental housing attracted considerable attention from overseas investors. Notably, they acquired significant properties in Japan's office and retail sectors, while Singaporean investors expanded their horizons by investing in international office spaces, logistics, and hotels.

Japan itself made headlines with its impressive investment total of $13.7 billion in the commercial real estate market for Q1 2025, again a 20% increase year-on-year. This figure stands as the highest for a first quarter over the past five years. Remarkably, all sectors in Japan showcased positive yield amidst the rising interest rate environment, reinforcing its position as the leading market for foreign investment in the Asia-Pacific region.

As JLL's Asia Pacific Capital Markets CEO, Stuart Crow, highlighted, "The continued growth of investment in the Asia-Pacific region stands as a testament to its strong fundamentals and the market's allure to global investors. Although tariffs may elevate short-term market volatility and temporarily stall large transactions, long-term investors seeking stable returns and higher yields will likely remain unaffected by these transient fluctuations and continue investing in resilient asset classes. We also predict that the Asia-Pacific market will continue to reap the benefits of cross-border investments."

Challenges and Market Outlook

Amidst these challenges, the current landscape presents potential opportunities for investing in commercial real estate (CRE) within the Asian market for both regional and global investors. The impact of tariffs enforced by the U.S. is anticipated to affect individual economies through slowed GDP growth, with markets relying heavily on exports to the U.S., such as Vietnam, Malaysia, and South Korea, facing significant repercussions. Concerns over declining growth expectations and a potential recession could influence leasing and investment activities across all real estate sectors. Furthermore, employment growth will have an impact on office spaces demand, while consumer spending will affect retail sales figures, consequently influencing leasing activity.

The logistics sector is expected to undergo transformations due to reduced trade volumes and adjustments in logistics routes affecting inventory requirements. For instance, warehouses near Nagoya Port in Japan, which handle about 35% of automotive parts exported to the U.S., could face adverse impacts on transaction volumes and activities.

However, underlying structural trends such as the rising e-commerce penetration in the growing middle class still support solid trading within the Asia-Pacific region. Pamela Amber, Head of Investor Intelligence at JLL Asia Pacific noted, "Asian markets that rely on U.S. exports may face downward pressure on their domestic currencies due to pessimistic U.S. growth forecasts and the resulting dollar depreciation. Consequently, this may lead to more affordable real estate opportunities for regions and global investors pursuing investments denominated in U.S. dollars. Furthermore, while some funds face pressures to expand their investment portfolios, the importance of private credit is rising as banks demonstrate a 'flight to quality.' Asset classes such as rental housing and data centers are becoming increasingly attractive options for lenders."

In Japan, the positive momentum in the real estate investment market has persisted, as stated by Koji Naito, Research Director of the Capital Markets Department at JLL Japan. "Japanese real estate continues to be the only market that can secure funds at low costs amidst increasing uncertainty posed by tariffs and other factors. This situation has significantly heightened the interest of cross-border investors towards the Japanese market. With many attractive investment options available, including robust demand for office and logistics facilities, significant rent increases for rental properties, and hotels benefiting from strong inbound demand, it is likely that Japan's real estate investment values will continue on a stable trajectory."

For further insights, please refer to the report available at JLL Research.

About JLL

JLL (NYSE: JLL) is a leading global provider of real estate services in all aspects of the real estate sector. Offering services for various types of properties, including office, retail, industrial, hotel, and residential, JLL’s mission is to guide clients, employees, communities, and the world towards a brighter future under its corporate purpose: "Shape the future of real estate for a better world." With a presence in 80 countries and approximately 112,000 employees, the company's projected revenue for 2024 stands at $23.4 billion. JLL is the corporate name and registered trademark of Jones Lang LaSalle Incorporated.