Morgan Stanley is aiming to raise around 100 billion yen (approximately $684 million USD) for a new real estate fund focused on Japan, according to two sources familiar with the matter. The initiative reflects growing investor appetite for Japanese property as the nation’s economy shakes off decades of stagnation and deflation.
The fund, which is being quietly marketed and is expected to close by June, has already secured significant commitments. The final amount raised could still fluctuate before the closing, the sources noted, requesting anonymity since the information hasn’t been publicly disclosed.
The fund will primarily target investments in office spaces, multi-family residential buildings, logistics facilities, and hotels in Japan’s major urban centres, one of the sources added. Morgan Stanley declined to comment.
This effort marks the U.S. financial giant’s latest foray into Japanese real estate—a market regaining global interest following years of sluggish growth and flat prices. Japan’s first interest rate hike in 17 years, announced in March, has further enhanced the investment landscape.
Land prices rose 2.7% in 2024—the fastest pace in over three decades—according to data from the Ministry of Land, Infrastructure, Transport and Tourism. That uptick is drawing fresh capital into the market, as inflation begins reshaping investor behavior.
“Real estate is becoming increasingly attractive in today’s inflationary climate,” said Ikushin Tsuchida, Managing Director at Brookfield Asset Management. “Market dynamics in Japan are shifting.”
At the same time, corporate governance reforms are encouraging publicly listed Japanese firms to better utilize assets and offload non-core property holdings, adding fuel to the trend.
A growing number of global investment firms—including Hillhouse, EQT, and Warburg Pincus—are scaling up their Japan presence to tap into the rebounding sector. This influx has intensified competition for talent in the market, insiders say.
Capital Flow Rebounds Amid Market Turnaround
After peaking in 2020, foreign investment in Japanese real estate slowed as global interest rates climbed. But according to Shota Otani from Sumitomo Mitsui Trust Research Institute, the final quarter of last year marked a clear reversal, with property investment climbing 37% year-over-year—a rebound he expects to continue.
Local firms are also jumping in. In January, private equity firm Integral launched a new property fund to capitalize on the changing tide. “With inflation now in play, investors are shifting from stability toward higher-return opportunities,” said Hironori Nakai, a partner at Integral.
His colleague, Tomohiro Sumiya—formerly of Blackstone—added that value can be unlocked by refurbishing or repurposing properties and raising rents.
Still, some caution signs are flashing. Investors have warned of overheating in sectors like hospitality. Hong Kong-based Gaw Capital Partners, which bought Tokyo’s Tokyu Plaza Ginza for over $1 billion in February, says it's lost multiple hotel bids due to soaring valuations.
“There’s so much liquidity chasing deals, it’s creating a risky environment—especially as interest rates rise,” said Gaw Capital’s Japan head, Isabella Lo.
Office Sector Shines as Workers Return
Contrary to global trends, demand for office space in Tokyo is holding strong. As remote work eases, companies are using premium, conveniently located offices to lure talent in a tight labor market. Tokyo's office vacancy rate stood at just 3.5% at the end of 2024, compared to 14.7% in Manhattan and 7.6% in central London, according to CBRE.
Sumitomo Mitsui Trust Bank’s Natsuki Kitaguchi noted that this resurgence is drawing investor interest, with higher rental income seen as a strong upside.
Major deals reflect this momentum. Brookfield took a stake in the Meguro Gajoen complex in Tokyo, while Blackstone acquired Tokyo Garden Terrace Kioicho from Seibu Holdings—both combining office space with hospitality venues.
Meanwhile, activist investors are seizing on underutilized corporate real estate, seeing it as an untapped value driver. Elliott Management’s stake in Tokyo Gas last year is a notable example, triggering renewed scrutiny of hidden property assets on company balance sheets.
Goldman Sachs strategist Bruce Kirk said that following Elliott’s move, client interest spiked in firms holding large unrealized real estate gains. By his estimate, Topix-listed firms were sitting on 25 trillion yen in unrealized property value as of March 2024.
“Previously, the assumption was that this value was locked away,” Kirk said. “Now, there’s real potential for it to be unlocked—whether by investors or by management being pushed to act.”