Japan's commercial real estate market presents a compelling opportunity. The key dynamics that we believe underpin the outlook are:

• Economic Normalization: Japan has decisively exited three decades of deflation. Wages rose by 3% in 2024, the fastest pace in thirty years, while employment growth continues despite demographic headwinds. The Nikkei 225 stock index has surpassed its 1989 peak, reflecting rising corporate profitability and investor confidence in sustainable growth.
• Rental Growth Trajectory: Commercial rents have risen consistently since 2012 yet are 30% below 1990 peaks, offering catch-up potential due to an improving economic climate. Urban population concentration is driving commercial property occupier demand, while high construction costs are expected to curtail new supply across all sectors.
• Market Pricing and Opportunity: Investment into commercial real estate reached JPY 5 trillion (USD 33 billion) in 2024, the highest since 2007, with 2025 tracking toward JPY 6 trillion. Real estate yields of 3-4% provide a still relatively wide yield spread over risk-free rates, with market pricing underpinned by an upswing in rental levels and limited expected rises in interest rates.
• Real Estate Inefficiencies: Japanese corporate ownership of real estate is substantial, but corporates typically prioritize occupancy over income optimization, resulting in under-rented assets and deferred capital investment. Corporate governance reforms could unlock up to USD 2 trillion in listed company property holdings as more firms come under pressure to dispose of non-core assets. This creates an attractive opportunity for value-add strategies that exploit market inefficiencies.