Japan vs. Germany

29 / 10 / 21 - 4 minute read

Germany and Japan have something in common – both are ‘super-aged’ countries where a fifth of the population is 65 or older. The two nations rank first and second respectively as the nations with the oldest populations on the planet. Given that fertility rates are low (1.4 children per woman) and population growth is negative (-0.2%) in both countries, the situation is unlikely to change any time soon.

As demographic trends are one of the strongest forces shaping the residential market, it is worth delving into the experiences of the two countries. Japan, a step further down the ageing path, holds interesting parallels for its European peer. So, what


Markus Gerharz

“Lots of Europeans – driven by well-stocked pension funds – started going global with their residential investments several years ago. This trend is only just getting off the ground in the Asia-Pacific region.”

Marcus Cieleback, Chief Urban Economist at PATRIZIA

International investors increasingly noticing the appeal

Japanese residential real estate has performed well in the last ten years. Compared internationally, it delivers relatively high returns; however, in part, that also has to do with general structures and market transparency. For example, it’s not uncommon for transactions to take place within corporate networks, such as between a developer and a REIT that also owns the development company. In such cases, the revenues that can be generated are useful for both parties.

“But even if you deduct fifty or a hundred basis points from yields, compared to international conditions, it’s still an attractive market,” comments Marcus Cieleback, Chief Urban Economist at PATRIZIA.

The segment also stood up well in the pandemic. While COVID-19 had office investors quivering in their seats, the residential market notched up several new records.

At the equivalent of €319,000, the resale value of a 70 sqm flat in the Tokyo metropolitan area hit an all-time high in June. Due to its sheer scale, there are differences between the various micro-apartment markets within the metro area of Tokyo, for example, due to population growth, demographics, rent levels and returns. A fundamental parallel with the German market is the potential to raise rents. The dynamics of potential rent increases are almost identical in both countries.

In September, the returns on residential real estate in Tokyo stood at between 3 and 3.5 per cent. That’s roughly 0.5 per cent above the returns generated by office properties. Greater Tokyo is not the only location favoured by investors. The yield premium in cities like Osaka, Nagoya, Fukuoka and Yokohama is appealing. That said, it’s not actually high, which is why a more important factor fuelling the interest of foreign investors in those cities is the much lower level of competition.



Population of Japan today



Population of Japan by 2065 as a result of an aging population



Average size of rented housing in japan



Average size of rented housing in Germany

A growing number of international investors are realising that Japanese residential properties can be attractive investments. Over the past decade, their share of residential transactions has skyrocketed from zero to almost 40% in 2020. Most money channelled into the Japanese real estate market comes from the United States. Still, it’s not just being invested in apartments. According to the Nikkei, Goldman Sachs has expanded the war coffers of its fund for Japan to just under €2 billion, primarily to acquire logistics hubs and data centres. US investors have also been the most active players in the residential segment in recent years. Because they have higher yield aspirations than, for example, German pension funds, they have mainly been investing energy in the upper end of the scale of portfolio transactions.

The usual size of a residential real estate transaction is somewhere between 10 and 20 million euros. As a result, it can be difficult to invest large sums of money. Net cash flow returns and returns generated by changes in capital values are generally stable in Japan, but there are significant variations in the dynamics of different cities. This is why local knowledge and regional diversification are also crucial in Japan if you want to succeed.

It’s also important to remember that land prices declined for the first time in six years in 2020, and even house prices dropped slightly for the first time since 2015.

There is a strong flow of capital coming from Europe to Asia. Movements from Asia to Europe are still moderate, especially in residential real estate. Instead, the focus of Japanese investors has tended to lie in office properties, retail and logistics. It was not until the pandemic that more attention was given to residential investments beyond the borders of Japan.

“Lots of Europeans – driven by well-stocked pension funds – started going global with their residential investments several years ago. This trend is only just getting off the ground in the Asia-Pacific region,” observes Cieleback.

When comparing Japan and Germany, he notices one fundamental difference: the pressure on residential markets in the metropolitan regions is much less intense in Japan than in Germany. This also has to do with their ability to build more housing in Japan and build more quickly. “The Japanese have managed to get a better grip on the supply side of the equation,” says Cieleback.

“The Japanese have managed to get a better grip on the supply side of the equation,”

Marcus Cieleback, Chief Urban Economist at PATRIZIA

Markus Gerharz



Markus Gerharz is a real estate journalist, moderator and programme manager at Immobilien Manager Verlag, a German publishing house, in Cologne.