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Global Cities

Think Tokyo: will the music stop in 2019?

Harry Tan
Head of Research, Real Estate, Asia Pacific
Ginza pedestrian crossing in Tokyo, Japan
Among the regional commercial real estate markets, Tokyo still stands out as one of the most interesting, despite being arguably one of the most difficult to transact in at this moment. The positive drivers underlining core investment interests remain in place: real estate fundamentals continue to be positive, capital market sentiment and financial conditions are robust - driven in part by very accommodative monetary policy and strong interests from foreign and domestic institutional funds. Short-term rates are likely to stay very accommodative even as global rates are rising, allowing investors to lock in low fixed financing costs and attractive cash-on-cash returns for more time to come. Indeed, the long end of the yield curve is only estimated to steepen very marginally, reflecting sticky inflationary expectations, even if the Bank of Japan decides to continue adding more flexibility to the yield curve control framework to reflect shifting economic conditions and, as a result, support the wide positive yield spread. On the other hand, the near-term macro landscape has recently become increasingly uncertain and uneven, however pricing has stayed highly elevated. The question then is, when will the music stop playing for the Tokyo real estate market in 2019?

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on factors such as market conditions or legal and regulatory developments. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions made in preparing this material could have a material impact on the information presented herein. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

 

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