JAPAN Trends and Developments Contributed by: Hiroshi Niinomi, Koki Hara, Naoto Yamamoto and Serina Nakano, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
Issues in relation to increased development costs In addition to the increased scale of development projects, various other factors also increase develop - ment costs. The main factors are considered to be the soaring cost of construction materials due to global inflation and the weakened yen, as well as the diffi - culty in securing human resources. The employment regulations on the overtime limit, initiated as part of the work-style reform, are considered one of the fac - tors contributing to the difficulty in securing human resources. The regulations came into effect from 1 April 2024. A chronic shortage of human resources and an ageing workforce also seem to make it diffi - cult to set up long-term business plans for redevelop - ment projects. In fact, some redevelopment projects are being suspended or forced to revise their original plans due to rising construction costs. Market in Each Asset Type Hotels The hotel market is booming as hotel demand con - tinues to grow, especially in Tokyo, Osaka, Hokkaido and Okinawa. Accordingly, investment in hotels con - tinues to be a significant portion of Japan’s real estate transaction market. Office properties Investment in office properties remains robust, driven by large-scale transactions, including the largest real estate deal of 2025, valued at approximately JPY400, as well as multiple other transactions exceeding JPY100 billion, supported by the continued rise in office rents. Office property transactions are becom - ing increasingly active, and demand for office space has remained strong. Logistics Investment in logistics facilities, which remained strong in 2024, continued to see consistent demand in 2025. According to the Nikkei’s real estate market information, three of the top ten real estate transac - tions (by deal size) in Japan in 2025 were logistics facility investment projects. However, investors seem more cautious than before about projects with longer timelines, such as development projects, due to rising interest rates and construction costs.
Data centres With the growing demand for cloud computing, data centres are being developed in Japan and investment in this asset class is also on the rise. There are hurdles to obtaining non-recourse financing at the land lease - hold stage for data centres without income generated from a property and the development of data centres may therefore be conducted through other schemes, such as joint ventures. Recently, overseas investors have also been acquiring and developing data cen - tres. Activist Campaigns for Real Estate Holdings In recent years, activist investors have further increased their presence in the Japanese market. Major activist investors put approximately JPY890 bil - lion into Japanese equities in the first half of 2025, and are on track to set a new record this year, surpassing 2024, when annual investment exceeded JPY1 trillion. Listed companies that have held real estate for long periods of time, with resulting balance sheet differ - ences between the book value and market value of the property, representing unrealised gains, have also become targets for activists. Calculation of P/B ratios based on book value may result in a blue-chip company having a high P/B ratio, but when unrealised gains are taken into account, the company may appear to have room to increase share - holder value. From this perspective, activists are cam - paigning to maximise shareholder value by effectively utilising unrealised profits. In Japan, both real estate companies and companies with core businesses other than real estate, such as railroads, construction com - panies, manufacturers and service companies, hold large amounts of real estate with unrealised gains due to long-term holdings. Moreover, a significant number of listed J-REITs have net asset values below 1.0, making them attractive targets for activist campaigns, given the consider - able potential to enhance investment unit value by more effectively utilising existing real estate assets. Given the recent increase in this type of activism, there seems to be an increasing need to consider ways for Japanese companies to enhance the syn - ergy between their real estate holdings and their other business endeavours and to make more sophisticated
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