The recent rise in interest rates is challenging Japan’s real estate investment, according to Oxford Economics. The firm expects the Bank of Japan to raise its policy rate to 1.75 percent by April 2027, while the 10-year Japanese government bond (JGB) yield has risen to around 3 percent, its highest in three decades, signaling firmer inflation expectations.
“Entry pricing for prime Tokyo offices remains exceptionally tight,” said Amelie Delaunay, head of Asia Pacific real estate economics at Oxford Economics. “Broker evidence suggests cap rates are around 3.1 percent, against a 10-year JGB yield of roughly 3 percent. That leaves a spread of only 10 basis points to 15 basis points — one of the thinnest cushions in the modern history of the Tokyo office market.”
Underwriting assumptions will need to allow for higher exit cap rates as discount rates and funding costs pose greater downside risks. Oxford Economics forecasts steady yield expansion during the next
