Japan Brief: Investor mindset shifts from stability to growth amid tightening yield spreads

In Q4 2024, the yield spread between the expected NOI yield for Tokyo prime offices and the long-term interest rate fell to a record low. The spread has tightened further since the beginning of this year against the backdrop of rising long-term interest rates. CBRE believes that there may be room for even further tightening given current strong rental growth momentum, particularly in the office sector. This is because investment returns could be the same or better if rents accelerate, even if the initial yield is lower. With investors’ appetite for cash flow growth strengthening, Japan's investor mindset, which used to be characterized by its focus on stability, appears to be shifting to one that pursues growth.