Japan’s population shrank by the largest amount on record in 2014 and is on a declining trajectory. The government has warned that the number of Japanese is projected to fall from about 127 million to about 87 million by 2060, of whom almost 40% will be 65 or older.
This is old news to Japan watchers.
Tokyo’s Growing Population
What is not as widely reported is that the population of Tokyo has been increasing by an annual average of about 48,000 people since 1997, as Savills points out in a recent report.
The Tokyo Metropolitan Government estimates that just under 13.5 million people live in Tokyo (Prefecture) as of July 1, 2015, an annual increase of about 0.7% year-on-year. In the same period, Japan’s total population shrank by about 0.2%.
Increasing number of households in Tokyo
Savills also points out other key aspects of population growth in Tokyo:
- The Tokyo Metropolitan Government projects that the number of households in Tokyo’s 23 wards will increase by about 200,000 (up 4.2%) between 2015 and 2030.
- In Japan, as the population ages and the marriage rate is declining, the number of smaller-sized households (defined as households with less than two people and single-parent households) is projected to increase. Tokyo’s 23 wards is expected to account for over 20% of this growth.
- According to Savills’s research, the Central 5 wards (Chiyoda, Chuo, Minato, Shibuya and Shinjuku) and the Inner East wards (Taito, Sumida, and Koto) are projected to have the highest rates of growth in the number of households.
What this means for renters
- It hasn’t been easy and won’t be getting easier to find housing in central Tokyo. According to Savills, “The average occupancy rate for rental apartment buildings operated by J-REITs in Tokyo’s 23-wards stood at 96.4%.” This means a vacancy rate of 3.7%. This rate is on par with New York, for example, where renters face the same issue: a lot of people hunting and not enough apartments to choose from.
- Market rents in Tokyo are on an increasing trend. Savills’s research has seen an increasing trend in rent since mid-2013, especially in the five central wards. Separately, in its monthly average rent survey, Tokyo Kantei reported (in Japanese) yesterday that the average rent per square meter in Tokyo increased year-on-year by about 1.1% to 3,145yen per sqm, compared to July 2014.
Tokyo’s demographic trends have created a favorable environment for institutional and individual investors investing for rental income. As Savills summarizes, “Shrinking household sizes and net migration in centrally-located areas in Tokyo are supporting the mid-market, and rents are expected to grow at a fast pace.”
Savills defines “mid-market” by specifically excluding the luxury residential market. Mid-market apartments meet these criteria: 1. one- or two-bedroom rental apartment units of up to 100 square meters in size; 2. reinforced concrete structures built within the last ten years; and 3. properties located in Tokyo’s 23-wards and situated within a ten-minute walk of the nearest station.
The long-term demographic trend suggests that a reason for investing in Tokyo’s property market lies in the potential for stable rental income yields, which is a much different “play” than investing for appreciation that may or may not occur as a result of Abenomics or the Tokyo 2020 Olympics.
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