Japan’s population is shrinking. However, more and more people are living in Tokyo. Rich Asians in particular have a soft spot for the metropolis. Living space in high-rise buildings is becoming increasingly expensive, even though there is no housing shortage.
Thomas Hasler, head of the Swiss construction chemicals group Sika, stands in a showcase example of Japanese urban planning: in a hall on the 34th floor of the Mori JP Tower in Tokyo. It is one of the newest and tallest skyscrapers in Japan. Hasler is holding Sika’s global investor conference there. Looking at the largest city in the world, he explains to the visiting analysts how his company is benefiting from the rise of Japanese real estate developers.
Over 200 buildings in Tokyo are higher than 150 meters, 53 are even higher than 187 meters, says Hasler. The 330 meter high Mori JP Tower is part of the latest major project “Azabudai Hills” by the Japanese real estate giant Mori. In total, “Azabudai Hills” consists of three high-rise buildings. The Mori JP Tower alone offers space for 20,000 employees and 91 luxury apartments – built with concrete mixes and composite solutions from Sika.
But that’s not all: In addition to the tower, there is an international school, a hotel, a hospital, business arcades and 1,400 apartments in other building complexes and high-rise buildings. “Vertical expansion will accelerate,” predicts Hasler. Because land is precious and scarce in Japan. And demand is increasing in Tokyo.
Tokyo acts like a magnet
Ten more high-rise buildings are already under construction or planned. In addition to these giants, many so-called “tower mansions” have already shot up. These are high-rise residential buildings with 30 to 40 floors. Because unlike the rest of Japan, the population in Tokyo is increasing. 14 million people now live in the city.
On the one hand, Tokyo, as a political, economic and cultural center, attracts many working Japanese people. Wages are higher in Tokyo. But seniors are also moving from the suburbs back to the greater Tokyo area, which with 38 million inhabitants is the largest contiguous urban region in the world.
“Tower Mansions” have become a popular refuge for both groups. Even at many train stations on the outskirts of the city, at least one tower rises up from a sea of smaller residential buildings and single-family homes. New buildings don’t have to worry about vacancies because the comfortable life in the towers acts like a magnet.
One example is a high-rise building at Kanamachi Station in the northeast of the capital. One minute to the train station means quality of life for commuters. Even then, you still have to travel 30 to 60 minutes in crowded trains to the office. In addition, the building offers a large supermarket open 24 hours a day, the district library, restaurants and doctors, ideal for both stressed families and seniors.
In addition to Japanese buyers, foreign investors also play an important role in the real estate boom. They have invested more than ten billion euros in Japan’s real estate market since 2019. Most investors come from China, Hong Kong, Taiwan and Singapore. “Tokyo is one of the safest investment destinations in Asia due to its political stability and robust economy,” say the experts at real estate agent Housing Japan.
Record prices do not deter foreigners
A side effect of the boom, however, is record prices for condominiums. Overall, there is no housing shortage in Tokyo. Therefore, according to the official real estate price index, the prices for land and single-family homes did not rise until the pandemic. The prices for new apartments, on the other hand, have shot up by ninety percent since 2012.
High-priced apartments in the center are particularly in demand. According to the Real Estate Economic Institute, the average price of a new condominium in central Tokyo rose to a record 129.6 million yen (780,000 euros) in the first half of 2023.
This is now putting a strain on average Japanese earners, whose real income has barely increased since 1995. A qualified specialist now has to spend fifteen times their average annual salary to buy an average apartment with 60 square meters, according to a study by UBS. Ten years ago it was ten times as much.
This makes Tokyo more expensive for Japanese than metropolises like London or Singapore for locals. The metropolis of Yokohama, south of Tokyo, is therefore increasingly popular with families. In the ranking of the most popular places to live in the greater Tokyo area, which the online broker portal Suumo compiles annually, Yokohama continued to expand its lead, while many districts of Tokyo lost popularity.
Top managers welcome
Nevertheless, the boom in the center is likely to continue. Tokyo’s real estate developers expect condo prices to continue rising at least through 2024, even though Japan’s central bank ended its negative interest rate policy this year and raised interest rates for the first time since 2007, according to a survey by the real estate advisory division of Mitsubishi UFJ Trust and Banking.
First, according to the bank, construction costs are rising due to inflation and higher salaries for construction workers, who are becoming increasingly scarce. Secondly, the buildings must be better insulated than before. But the high demand from foreigners also plays an important role. For them, Tokyo remains attractive despite price records – thanks to the weak yen. Japan’s national currency has lost more than a third of its value against the dollar since 2022. According to the Real Estate Research Institute, Tokyo 2023 was still cheaper than most Asian and Western cities.
For Shingo Tsuji, the boss of Mori Building, the construction of luxury apartments in Tokyo is an important factor so that Japan can attract top global managers and continue to grow. “Some people are looking for really high-priced condominiums,” he said before the opening of the “Azabudai Hills” project. “Without it, Japan’s global competitiveness will decline.” The prospect of further projects in Japan is good news for Sika. Because none of the new high-rise giants can do without products from the Swiss group, says Sika boss Hasler.