Living Sector Trends ā Asia
Asia has had a nascent traditional multi-family market that is still developing (comprising only 4.9% of total real estate market value in Asia, compared to 16.0% in Europe, and 35.7% in the U.S.)1 with Japan in the lead but with other markets starting to move up the curve. Investor demand for the overall living sector has begun to pick up, with a strong focus on Japan where the for-rent residential market is uniquely well-developed compared to other regional markets.2
In Japan, capital markets have primarily driven performance for this sector. The market has benefitted from a secular upswing in transaction volumes coinciding with significant cap rate compression. A further tailwind for this trend of falling cap rates (and thus rising valuations, all things equal) has been falling or stable Japanese government bond yields, which have been at or close to zero from about 2010 through 2019.
However, that dynamic may be at an inflection point. Recently, government 10-year bond yields, the JGB, have risen in line with increased inflation, a new reality after almost 30 years of low inflation or outright deflation. The 10-year JGB was 1.1% at the end of 2024, and while still low relative to other country markets, that represents an absolute sea-change given that those yields were 0% at one point. And looking at the exhibit below, there may be more to come.
