Multiscale Analysis of Japan's Rental Apartments Market

• Broader range of investors: While the residential sector has traditionally attracted mid- to long-term investors seeking stable income, recent years have seen participation from a broader range of investors, including value-add players with shorter investment horizons. This trend is driven by stronger prospects for rent growth, combined with the sector’s inherently shorter tenancy cycles. Meanwhile, geographic diversification remains limited, with Tokyo accounting for approximately 70% of total residential investment.
• Slowing pace of supply with greater focus on city centres: The pace of new supply is decelerating across most prefectures, with development increasingly concentrated near city centers and commercial districts. Key factors influencing this shift include railway network density and conversions from commercial to residential use.
• Demand fuelled by population inflows, particularly younger generations: Rising university enrolment and the urban re-centralization of universities form a major backdrop. In addition, the expansion of service industries—especially IT-related sectors—has led the working population to concentrate in major metropolitan areas rather than disperse to regional cities. However, there remains a relative shortage of rental apartments catering to lower-income segments, such as university students and recent graduates.

Chapter 1 analyses the real estate investment market for Japanese rental apartments. Traditionally, rental apartments has been valued for its resilience to economic fluctuations and stable income. These characteristics attracted core-type investors pursuing income gains for medium- to long-term. However, in recent years, the sector is seeing more opportunistic/value-add style investors with shorter investment horizons. This trend has likely been driven not only by the higher rental growth nationwide since around 2023 but also by the sector’s inherently shorter tenancy cycles compared to other asset classes (Figure 1).

However, even as investor attributes change, the trend of concentration in the Tokyo metropolitan area (Tokyo, Kanagawa, Chiba and Saitama prefectures) as an investment destination remains unchanged. From 2007 to 2024, Tokyo accounted for 50-84% (median 66%) of the total investment in Japanese rental apartments, while the Greater Tokyo area accounted for 56-90% (median 74%). This trend remained unchanged in H1 2025, both in terms of value and the number of transactions. This is likely influenced by major investors’ investment criteria, which tend to focus on the four prefectures of Greater Tokyo. For example, while the investment criteria of the 15 J-REITs which invest in residential assets explicitly mention Greater Tokyo as an investment destination, only a few clearly mentions other regions or cities (Figure 2). 

Core investors’ preference for investment destinations influences not only the new supply trends but also the exit strategies of investors focused on capital gains. The mutual reference of investment criteria among investors has likely heightened the Greater Tokyo area's importance in the investment market, contributing to its market dominance.

Chapter 2 focuses on the supply side of Japan's rental apartments market, attempting analysis across multiple regional levels. Japan's total housing stock (by number of units) has continued to increase from the mid-20th century to the present, driven by advances in construction technology (which led to a shift away from wooden structures), an increase in high-rise construction and a rising proportion of multi-unit housing.

A similar trend appears even when focusing on rental apartments. Examining regional distribution by prefecture and municipality reveals a tendency for higher concentrations of rental apartments stock in areas with advanced urban functions. For example, Tokyo Prefecture holds approximately 16% of the national stock, while Tokyo's 23 wards hold about 13%. Outside Tokyo, a trend of urban concentration is also observed, with rental apartments stock accumulating in the city districts of prefectural capitals. Furthermore, analysing at the ward level in regional cities as well as in Tokyo reveals that cities with larger population tend to have rental apartments stock distributed more widely across wards outside central districts with commercial and business functions. Conversely, cities with smaller population show a higher share of the stock concentrated within central districts. The association between population and the share of housing stock in Tokyo's 23 Wards and Osaka City's 24 wards tends to show greater variation than the relationship between population and the share of housing stock in municipalities within Tokyo and Osaka Prefectures (Figure 3, 4).

While Japan's housing stock continues to increase, housing starts (i.e., flow) have been on a declining trend. Comparing the construction starts of rental apartments by prefecture in 2024 with 2004 and 2014, 45 prefectures showed a decrease in units compared to at least one of those two time points, and only two regions showed an increase compared to both time points: one is Osaka Prefecture, which saw increase in vacation rentals on the back of strong inbound demand; and another is Kumamoto Prefecture, where the establishment of semiconductor-related corporate bases increased demand for housing for employees (Figure 5). It appears that the trend of increases or decreases in housing starts is influenced more by changes in regional economy than by the size of the city.

Figure 5: Change Rate in Rental Apartment Starts by Prefecture

Further granular analysis ( involving mapping rental apartment developments) revealed that, in Greater Tokyo, supply was concentrated in the peripheral areas of central Tokyo, while in Greater Osaka, it was concentrated in the centre of the Osaka city (Figures 6, 7). The former is most likely due to difficulty in obtaining land in the central locations, while the latter is seen to be due to conversion of commercial properties into residential properties. The density of railways (line length and operating frequency) is also another function that would affect the distribution of rental housing.

Figure 6: Tokyo Metropolitan Area - Pedestrian Flow and Development Patterns

Figure 7: Osaka City Area - Pedestrian Flow and Development Patterns

Chapter 3 analyses demand for rental apartments. Looking at the population migration for the most recent five years (2020-24), all 23 wards of Tokyo showed a net inflow of the younger generations. However, within the Tokyo 23 wards, less inflow was seen in central business/commercial districts, while other regional cities tend to have more population inflow into such central areas (Figure 8). In terms of demand for rental apartments, population migration driven by single individuals – typically for university enrolment or employment -- appears to be the main driver.

The above-mentioned trend stems from the rise in university enrolment rates and the accompanying increase in the number of college students. Also, the return of universities to city centres observed since the early 2000s has led to expansion in demand for school commuting to major city centres. The increase in university graduates also led to a rise in white-collar workers, further driving employment into companies whose headquarters are located in major city centres. Furthermore, the growth of professional and personal services industries due to the sophistication of industrial structures, along with the expansion of IT-related industries, caused the working population to concentrate in major city centres rather than disperse to regional areas.

Even within overall migration of younger generations, the impact on housing demand varies by social class, as each segment tends to favor different types of properties. University students have low rent affordability and prefer low-rent areas in suburban or peripheral locations. High-income, white-collar workers anticipating future moves to condominiums in central urban areas would drive demand in the high-rent segment of city core locations. Service industry workers, who form the backbone of urban functions, are thought to have intermediate preferences between these two groups, but primarily drive demand for relatively affordable rental apartments. 

Meanwhile, Japan appears to face a shortage of rental housing catering to both ends of the income spectrum – high-income and low-income groups. (This is implied from the fact that, when examining the distribution of average rents by municipality across income classes, rent fluctuations tend to be smaller compared to income fluctuations (Figure 9)). For high-income groups, rising condominium prices (and potentially further rise in interest rate) could lead to more demand for higher-grade rental properties and/or longer-term rental use before acquiring condominiums. However, the more critical issue in urban areas is likely the shortage of adequate rental housing for low-income individuals. Many young households, the core of single-person households, have low-income levels. Furthermore, a significant number of elderly households and immigrant households, whose numbers are expected to increase, are also economically vulnerable. The shortage of affordable housing poses a barrier to population inflow, and could become an issue for the sustainability of urban areas themselves and of real estate investment.

Figure 9: Average Monthly Rent by Household Income Range, Urban Areas

To summarise, the factors contributing to the concentration of the rental apartments investment market in central Tokyo area, as suggested in this paper, include: core investors’ investment criteria which favours Tokyo, as shown in Chapter 1; the high density of the railway network, as shown in Chapter 2, which expands the areas suitable for residential development (or the scale of the metropolitan area), and the increase in university enrolment rates and changes in the economic structure, as shown in Chapter 3, leading to a rise in the number of university students, white-collar workers and service industry employees, and the concentration of their commuting and commuting destinations in the city centre. Because the concentration of commercial and business functions in cities underpins demand for rental apartments, the Tokyo metropolitan area has consistently held a disproportionately large share of the investment market compared to its share of existing population distribution or rental apartments stock in Japan.

However, these analyses do not imply that demand is sustained solely in the Tokyo metropolitan area and central Tokyo. Some companies that are facing a declining labour force are attempting to diversify their base locations from a talent hiring perspective. Through the formation of diverse corporate clusters and the advancement of industrial sophistication accompanying the redevelopment of office buildings in central business districts of regional cities, demand for rental apartments in these regional cities may also expand.

References related to figures 1-9

Figure 1: Yoshio Nakayama and Junichiro Onishi. 2025. 新リース会計基準と CRE～不動産の借手・テナント企業への影響～[The New Lease Accounting Standard and CRE ~ Impact on tenant company as lessee of real estate]. Journal of the Association for Real Estate Securitization (ARES), 86: 2-12. https://www.ares.or.jp/journal/pdf/ARES86.pdf

The Japan Property Management Association Research Institute. 2024. 第28回 賃貸住宅市場景況感調査『日管協短観』(2023年4月～2024年3月). 2024年11月.[28th rental housing market trend survey "Nikkankyo Tankan"] https://www.jpm.jp/marketdata/pdf/tankan28.pdf 

methodology: The "Rental Housing" in the figure may include properties other than rental apartments. Note that the rental housing figures were derived by dividing the source's months of tenancy by 12.

Figure 2: Tokyo Stock Exchange, Inc. 2025.「東証REITセクターフォーカス指数シリーズ」の定期選定(2025年7月31日実施）結果及び構成銘柄一覧. 2025年7月7日公表.[Results of the Regular Selection (Implemented July 31, 2025) for the "Tokyo Stock Exchange REIT Sector Focus Index Series" and List of Constituent Stocks. Announced July 7, 2025] https://www.jpx.co.jp/markets/indices/line-up/files/mei2_38_reitsectorf.pdf

methodology: The keywords listed were counted based on those explicitly stated in each fund's "investment policy" or "portfolio strategy"; hence, some overlap may exist within the same metropolitan area. For the 15 funds, refer to Japan Exchange Group (2025), "3. TSE REIT Residential Focus Index: Index Constituents."

Figure 3: Ministry of Internal Affairs and Communications Statistics Bureau. 2024. 2023 Housing and Land Survey
Geospatial Information Authority of Japan. "Past Area Surveys: Area by Prefecture, City, Ward, Town, and Village, 2019–2023" https://www.gsi.go.jp/KOKUJYOHO/OLD-MENCHO-title.htmmethodology: Processed by the author using the Geospatial Information Authority of Japan data.

Figure 4: Ministry of Internal Affairs and Communications Statistics Bureau. 2024. Housing and Land Survey
Geospatial Information Authority of Japan. "Past Area Surveys: Area by Prefecture, City, Ward, Town, and Village, 2019–2023" https://www.gsi.go.jp/KOKUJYOHO/OLD-MENCHO-title.htmmethodology: Prepared by the author based on data from the Geospatial Information Authority of Japan.

Figure 5: Ministry of Land, Infrastructure, Transport and Tourism. 2025. Construction Starts Statistics Survey Report: Time Series List. Updated May 30, 2025. https://www.mlit.go.jp/sogoseisaku/jouhouka/sosei_jouhouka_tk4_000002.html
methodology: Created by the author using processed data.

Figure 6-7:

• Geospatial Information Authority of Japan. "Digital Map"
• Ministry of Land, Infrastructure, Transport and Tourism. "Nationwide Pedestrian Flow Open Data" https://www.geospatial.jp/ckan/dataset/mlit-1km-fromto
• Geospatial Information Authority of Japan. "GSI Tiles"
• Construction Data Bank
• JLL Office Leasing Advisory Team
  

methodology: Map layer processed by (c) Esri Japan

Figure 8: Statistics Bureau, Ministry of Internal Affairs and Communications. 2025. Basic Resident Register Population Migration Report Annual Report (Actual Figures) Table 3 obtained from e-stat
methodology: The X-axis is plotted in prefectural code order. Regions closer to the origin on the X-axis are north, while regions farther from the origin are south. For the Tokyo Special Wards, the five wards possessing a CBD (central business district) as defined by JLL Research Division are shown. For Osaka City, Nagoya City and Fukuoka City, the ward with the largest net migration surplus within each city is tagged.

Figure 9: Statistics Bureau, Ministry of Internal Affairs and Communications. 2023. Housing and Land Survey
methodology: Urban Areas (N=816), Rental Housing Excluding Rent-Free Units, as of October 2023. Created by the author based on and modified from the 2023 Housing and Land Survey.