Japan: A Real Estate Overview
M&A Transactions, the Hospitality Sector, and Data Centres Considered as Real Estate
An active real estate market with a new trend of combining M&A and real estate transactions
Real estate investment in Japan is highly active. According to Jones Lang LaSalle (JLL), investment in the Japanese real estate market totalled JPY3.19 trillion from January to June of 2025, a 22% increase from the same period in 2024. Tokyo ranked first among other global cities in aggregate investment amounts during the first half of 2025. Overseas investors’ real estate acquisitions surged 3.7-fold to JPY1.09 trillion, representing 34% of Japan’s total real estate investment.
Unlike in the US or other Western countries, the remote work style is not popular in Japan, where most workers commute to their offices even after the COVID-19 pandemic which created a trend elsewhere of increased remote work. Japan’s office-focused trend supports strong demand for office space in Japan. According to a brokerage firm Miki Shoji, Tokyo’s office vacancy rate in its five central wards was 2.85% in August 2025. Additionally, a new type of rent adjustment clause has gradually been included in office lease agreements, stipulating that rents will automatically increase in line with CPI or market rent increases. Office transactions in central Tokyo were particularly active, driven by relatively low interest rates and rising rent expectations.
M&A aimed at realising unrealised gains on idle properties held by Japanese companies are increasing as a real estate transaction strategy. After buying out Fujisoft, a listed company, KKR sold 14 of Fujisoft’s office properties to Japan Metropolitan Fund, a publicly traded REIT managed by KKR. After acquiring Sogo & Seibu, a department store company, Fortress Investment Group sold several of Sogo & Seibu’s key assets to Yodobashi Holdings for approximately JPY300 billion. These transactions enable buyout funds to swiftly recover a significant portion of their acquisition expenses by promptly selling target companies’ holding assets to third parties or listed REITs.
Hospitality properties
The hospitality sector in Japan has rapidly recovered from the pandemic, and we are seeing numerous new hotel development projects in both urban and resort areas. Notably, regional cities have become favoured destinations for foreign tourists, and international hotel operators are planning to open hotels in such cities to meet increasing demand. Furthermore, the Japanese government announced in 2024 its intention to invite luxury resort hotels into national parks. As such, the hospitality sector has once again become one of the most active real estate sectors.
One recent trend in the hospitality sector is the emerging market for branded residences and condo hotels. Due to several notable precedents, branded residences and condo hotels have rapidly become popular options in the development of hotel or mixed-use projects in both urban and resort areas. As there are various types of branded residences and condo hotels (including variations relating to whether or not they have a rental programme, whether such rental programme is mandatory or optional, whether leasing to third parties is permitted or not, and whether the property is standalone or associated with an adjacent hotel), the applicable legal framework varies depending on the type and structure.
Another emerging trend in the hospitality sector involves acquiring an entire residential building and converting it from traditional leases to serviced apartments or minpaku (vacation rentals). When converting a residential property into a hotel, it is usually necessary not only to amend the applicable by-laws of the building but also to make physical modifications to comply with building standards requirements and fire safety regulations applicable to hotels. However, for serviced apartments that are not subject to the facility standards for hotels, such physical modifications may not be required, and in some cases, only amendments to the building’s by-laws may suffice. Nevertheless, careful consideration must be given to determining whether or not the hotel facility standards and the Hotel Business Act apply to the specific serviced apartment operation in question.
Data centres
The development of data centres has become a major area of investment in Japan’s real estate market, spurred by the rise of cloud computing and the integration of AI. Acknowledging this trend, the Japanese government’s “Grand Design and Implementation Plan for New Capitalism, Revised Edition, 2025” states that “to promote domestic investment in data centres while providing various investment options including real estate, measures will be taken to create an environment where data centres can be included as assets in REITs.” In June 2025, the Financial Services Agency revised the “Q&A on Investment Corporations”, clarifying that certain types of installation forms of data centre-related facilities are considered real estate, which is the primary investment target of REITs. This aims to promote the acquisition of data centres through REITs.
In Japan, data centres are increasingly evolving into large-scale operations. Hyperscale data centres overtook retail-type data centres in terms of rack capacity, with further rapid expansion expected. A notable pattern has emerged, with data centres concentrating in the Greater Tokyo and Osaka regions. This clustering is putting considerable pressure on the power infrastructure in these densely populated areas. Additionally, rising construction costs due to higher material and labour prices are posing further challenges. The government’s “Expert Group Meetings on the Development of Digital Infrastructure” are focusing on the future direction of data centres, emphasising regional diversification and sustainable development.
Investment and financing models for data centres are in a state of evolution, with many practical aspects still being defined. While conventional structures like GK-TK (Godo Kaisha-Tokumei Kumiai) and TMK (Tokutei Mokuteki Kaisha) provide a basis, data centres require unique considerations because of their valuable internal equipment (movable assets). Tax efficiency also plays a significant role in structuring these investments. Additionally, data centre transactions must navigate various regulatory requirements, including permits and approvals under the Telecommunications Business Act.
Amendment of the Act on Building Unit Ownership
On 23 May 2025, the Act on Building Unit Ownership was amended (effective 1 April 2026).
Recent years have seen an increase in the number of ageing condominium buildings, and the owners of the units in those condominiums have also been advancing in years, leading to an increase in the number of owners who do not participate in meetings or other gatherings of condominium owners. In some cases, this has resulted in the failure to properly manage condominium buildings, or to carry out necessary renovations of ageing condominium buildings. The amendments aim to achieve three objectives, facilitating:
- the management of condominium buildings;
- the revitalisation of condominium buildings; and
- the revitalisation of condominium buildings damaged by disasters.
For example, under the current Act, decisions at meetings of condominium owners generally require a majority vote based on the total number of condominium owners and their voting rights. However, under the amended Act, certain types of resolutions (eg, (i) ordinary resolutions, (ii) resolutions regarding changes to common areas, and (iii) resolutions regarding the establishment, amendment, or abolition of by-laws) can be accomplished by majority vote among attendees only. This change is expected to facilitate the smooth management of condominium buildings.
Furthermore, requirements for resolutions on various items, such as rebuilding, renovation of an entire building, and changes to common areas, have been relaxed. The relaxation of resolution requirements for meetings of condominium owners may make it easier to manage, repair, or rebuild condominium buildings.
These changes are expected to promote the development and renovation of condominium buildings, thereby promoting real estate transactions.