Tetsuya Kaneko, head of research at Savills Japan, says: “A series of nation-wide infrastructure improvements and large-scale redevelopment projects should have a positive influence on the real estate market in the long term.” The city has invested in road improvements, new railways and the expansion of Haneda and Narita airports while developers are adding more than 1.5m sq m of new space in Tokyo’s Central Five Wards between 2017 and 2020.

The districts of Toranomon and Shibuya have been going through a substantial redevelopment phase. Developer Mori Building has invested substantially in Toranomon, which will see a new metro station open this year. Meanwhile new office developments such as Scramble Square, have revitalised the district as a tech and innovation hub. Shibuya Stream, developed by Tokyu Corp. is now home to Google, which occupies the top half of the bulding. This is a return to form for Shibuya, which was a hotbed for start-ups in the 1990s.

Meanwhile the Tokyo Bay Area, designated as a strategic area for tourism, conventions and exhibitions, is the location for the Olympic Village, which will be converted to residential and retail space after the games. The area will see new transport links with central Tokyo open this year.

Despite increasing supply in the run-up to the games, low vacancy rates, in concert with solid pre-leasing, resulted in rent growth accelerating in 2019. B-Grade offices – the market where foreign investors are more likely to be involved – saw strong rental growth of 6.8% in 2019. Nonetheless, prime rents are still 70-75% of the previous peak.

Japanese tourism has been on a roll in recent years, with visitor numbers hitting 33.5m last year, having more than tripled over a decade, despite some headwinds in 2019. With subdued visitor numbers in the early part of this year, Japan is highly likely to miss its target of 40m visitors this year. However the Olympics is expected to bring a much wider audience of tourists to the city, which ought to benefit tourism and the hotels sector.

“Regardless, inbound tourism continues to act as a major tailwind, with the increasing spending power of tourists revitalising the hospitality and retail sectors. Furthermore, the success of the 2019 Rugby World Cup demonstrated Japan’s potential as an attractive destination for a wider range of visitors,” says Kaneko.

Japan previously hosted the Summer Olympics in 1964 and invested the equivalent of its national budget on infrastructure in advance of the event, including the world’s first high speed railway, the Shinkansen. The result was a wave of economic growth. Spending for 2020 is more modest, in fact at $12.4bn, these Tokyo Olympics are cheaper than Rio ($14.4bn), London ($14bn) and Beijing ($40bn). Nevertheless, the infrastructure improvements will support Tokyo real estate going forward.

Further reading:
Savills Japan Research

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Tetsuya Kaneko