Japan’s office market suffered during the COVID-19 pandemic but managed to attract comparably many foreign investors that turned their backs to more unstable markets.
In bad times, Japan and Korea are seen as safe-havens where you can experience less volatility and declines. Vacancy rates have been kept low in the industrial property market, for example.
Another benefit of investing in Japanese office space is its robust market and the ease for foreigners of owning real estate. This is something that I will go into greater detail about later in this article.
Today, we review how foreigners can invest in office space and buildings and Japan, how the market has behaved, and more.
- Can foreigners buy office space in Japan?
- Japan’s Office Space Market
- Office Prices in Japan
- How can I find office space for sale in Japan?
Can foreigners buy office space in Japan?
Japan is one of the most open countries in Asia in terms of property ownership regulations. Foreigners are treated similarly as locals and you can get hold of freehold real estate, no matter if it’s residential or commercial.
This is typically not the case in Asian countries. In Indonesia and Vietnam, for example, foreigners cannot own real estate on a freehold basis and only have a leasehold as an option.
Even if you have no particular restrictions to invest in office space and buildings, the process can seem bureaucratic to many foreigners. Thus, working with a local partner is a must.
Worth mentioning is also that transactions are typically done by firms. Assure that you work with a reputable partner that can help you minimize your tax burden and to make the process as flawless as possible.
Japan’s Office Space Market
The COVID-19 pandemic affected the global real estate markets greatly and Japan was not an exception.
With that said, both South Korea and Japan saw significantly increased cross-border investment activities as foreign investors searched for stable domestic markets with less turmoil.
According to PwC, the following five markets saw the most activity by the end of 2020:
- Hong Kong
The trend where investors turn to stable markets like Korea’s and Japan’s during a crisis is referred to as a flight-to-safety strategy by the renowned firm PwC.
China was another country that recovered comparably fast from the pandemic due to quick actions and saw increased cross-border investment activities.
Japan and particularly Tokyo ranks high in PwC’s investment survey and predicted to continue attracting investors in the coming years.
Even if the office market has been historically strong in Japan, some analysts believe that the future demand for office space might be questioned.
The reasons behind this are primarily due to social distancing measures introduced during the pandemic, the new work-from-home-trend (which is proven to work), economic declines, and tenants’ need to reduce costs.
The media also reports that Tokyo continues to attract investors in large numbers. We saw the strongest transaction volumes in Japan just after South Korea during the first nine months of 2020.
Still, the volumes fell by -22% compared to a year earlier.
South Korea currently has one of the most interesting office markets in Asia and something you should take a look at.
Office Prices in Japan
Tokyo has the highest office prices in Japan and prices continued to increase despite the COVID-19 pandemic in 2020. The CBD has the most expensive prices per square meter and the highest rents.
Due to the scarcity of price information available for office space and buildings in Japan, presenting property prices from actual listings can be a viable option. Below you can find two examples of listings for office space in Tokyo.
Example 1 – Commercial Building
- Location: Fujimicho, Tachikawa-shi, Tokyo
- Transport: R Oume Line Nishitachikawa Station. 9 min walk
- Floor size: 871.43 m² (9380 sqft)
- Land size: 489.76 m² (5272 sqft)
- Price: JPY 285,000,000 (USD 2,590,909)
- Price per square meter: JPY 327,210 (USD 2,974)
- Gross yield: 8.15%
- Estimated yearly rental income: JPY 23,245,176 (USD 211,319)
Example 2 – Commercial Building
- Location: Dogenzaka 2-Chome, Shibuya-ku, Tokyo
- Transport: JR Yamanote Line Shibuya Station. 7 min walk
- Floor size: 266.93 m² (2873 sqft)
- Land size: 101.00 m² (1087 sqft)
- Price: JPY 920,000,000 (USD 8,363,636)
- Price per square meter: JPY 3,446,596 (USD 31,332)
- Gross yield: 4.23%
- Estimated yearly rental income: JPY 38,990,160 (USD 354,456)
Example 3 – Commercial Building
- Location: Kaminarimon 1-Chome, Taito-Ku, Tokyo
- Transport: Tokyo Metro Ginza Line Asakusa Station. 5 min walk
- Floor size: 631.51 m² (6798 sqft)
- Land size: 92.74 m² (998 sqft)
- Price: JPY 798,000,000 (USD 7,254,545)
- Price per square meter: JPY 1,263,637 (USD 11,487)
- Gross yield: 5.20%
- Estimated yearly rental income: Not available
The prices differ greatly depending on where you buy. As you can see, the price increased ten-fold when comparing example 2 with example 1 above.
Real Estate Taxes
Below you can find the taxes you have to pay when buying, holding, and selling office space in buildings in Japan. Keep in mind that regulations and rates change frequently and this information is for general information only.
1. Acquisition Tax
The acquisition tax stretches from 1.5% to 4% and is multiplied by the sales value of the property.
2. Registration Tax
A so-called registration tax that is set from 1.5% to 2% is also charged and multiplied by the value of the property.
3. Stamp Duty
Stamp duty for the transfer of documents related to the ownership of the property is charged at a rate of JPY 480,000.
4. Consumption Tax
In transactions between corporations, a consumption tax of 8% is charged and multiplied by the purchase value of the building. The land is not included in this price.
5. Corporate Tax
A corporate tax of 33% to 35% is charged to property owners in Japan. With that said, investors often choose a company structure that allows you to reduce your tax burden.
This is something you should discuss in greater with your partner in Japan.
6. Annual Property Tax
The same as for the corporate tax, you need to pay an annual property tax when holding the property. The tax comprises the Fixed asset tax and City planning tax.
The tax is 1.4% to 2.1% in total, even if only 10% of local governments charge a property tax higher than 1.4%.
How can I find office space for sale in Japan?
Most international real estate companies have offices in Japan as it’s a developed and highly active market.
A good option can therefore be to approach a large-sized international real estate company to understand more how they can help you with your real estate investments in Japan.
Examples of real estate agents in Japan include:
- Ken Corporation
- Cushman & Wakefield Japan
- CBRE Japan
- Colliers International Japan
- JLL Japan
A second option is to look for listings online, even if this option can be more time-consuming. Some websites provide listings in English and with a great amount of information, but the number of listings is often limited.
If you look for a more liquid investment option than buying physical real estate, but still want to profit from Japan’s office market, another option could be to invest in Japanese REITs.
It has one of the most developed and transparent REIT markets in the world and foreigners generally have no issues to invest in the market.