These are the tailwinds for Tokyo’s residential leasing market 

The prospects are bright despite the temporary pause in Q2.

This spring moving season has been a welcome development for the market. According to Savills, net migration between March and May 2024 has exceeded that of the same period in 2023, as well as the pre pandemic level. 

In particular, the foreign national population has been comprising a growing proportion of this net population growth, which looks to become an ever larger driver of demand in the sector. 

Here’s more from Savills:

Several factors look to be tailwinds for the Tokyo residential leasing market moving ahead. Firstly, companies in Tokyo appear to continue phasing out flexible work arrangements, leading to higher office attendance. With this shift, a greater emphasis will likely be placed on smaller units that are more cost effective, rather than requiring large residences for creating home offices. 

Furthermore, workers will likely choose locations with better connection and easier commutes to central districts, hence bolstering rental demand in more centrally located submarkets, with the C5W market seeing sustained rental growth over the quarter. 

Secondly, recent robust wage growth in Tokyo is positive, off the back of record corporate profits over the past year, and real wage growth is likely to become positive soon. Moreover, heightened for-sale condominium prices will likely divert some new demand towards the rental market, raising the prospects for sustained rental growth. 

Admittedly, while the average price of for-sale condominiums in Tokyo 23W recently sees a dip from last year, this is because 2023 saw several exceptionally expensive units came to the market, propping up the average price level. Indeed, prices are expected to remain at elevated levels due to a combination of inflation, sound demand, and the strong balance sheets of developers that have little incentive to discount prices. As such, many people will still likely be priced out of this market. 

Though heightened materials, construction, and land prices threaten to eat away at developer and investor bottom lines, the broad room for growth in the residential leasing market indicates that rental growth should be meaningfully larger. 

Overall, prospects are bright for the Tokyo 23W rental residential market. Although the market has encountered a temporary pause in Q2/2024 after previous quarters of strong growth, this should be considered a normal annual cycle. Furthermore, Tokyo’s stable economic and demographic fundamentals should help the market to perform well over the course of the year