In recent years, real estate prices in central Tokyo have continued to soar, and the media reports on this trend on a daily basis. On the other hand, it is not uncommon to hear people express concern about how long this price increase will continue and whether it will eventually burst like the bubble economy. It is natural to be concerned about the future of prices when dealing with such expensive assets as real estate.
However, we real estate experts have analyzed that the current price formation in premium areas in central Tokyo is not due to a mere speculative boom. There are solid "structural factors" that are supporting and even pushing up prices.
In this article, I, INA & Associates, Inc. will provide a thorough, data-driven, expert perspective on the structural mechanisms that explain why land prices in premium areas in central Tokyo have not fallen. We hope this will help those who are considering purchasing, selling, or investing in real estate to gain insight into the intrinsic value of the property.
In news and reports on the real estate market, terms such as "the three central wards of Tokyo" and "the five central wards of Tokyo" appear frequently. These are the common language of the real estate industry, so to speak, referring to a group of areas in Tokyo that are considered to have particularly high value. Understanding the definitions and characteristics of why these areas are called "premium" is the first step in deciphering the structure of land prices.
These areas are the central hubs of business, commerce, culture, and politics in Japan, and are also the nodes of the transportation network. Their convenience and brand value set them apart from any other areas and make them a special source of value.
| Terminology | Applicable Ward | Characteristics |
|---|---|---|
| 3 Central Tokyo Wards | Chiyoda, Chuo and Minato wards | The political and economic hub of Japan is concentrated in these wards. The Imperial Palace, the Diet Building, the headquarters of major corporations, the Bank of Japan, etc. are concentrated in this area, and Marunouchi, Ginza, Nihonbashi, Akasaka, etc. combine history and brand value. |
| Five Central Tokyo Wards | Tokyo Central 3 Wards + Shinjuku and Shibuya Wards | In addition to the functions of the three central wards of Tokyo, this area has a strong character as a commercial and transportation hub. With Shinjuku Station, one of the world's largest terminal stations, and Shibuya Station, a center of youth culture and the latest trends, the area is home to a diverse range of business and cultural activities. |
| Six Central Tokyo Wards | 5 wards of central Tokyo + Bunkyo-ku | In addition to the convenience of the 5 central wards of Tokyo, this category includes Bunkyo-ku, which is home to the University of Tokyo and other top-class educational institutions in Japan and maintains a quiet and favorable living environment. |
There are three major structural factors behind the long-term rise in land prices in premium areas in central Tokyo, which are less susceptible to economic fluctuations. These factors interact with each other to form a robust price maintenance mechanism.
The basis of real estate prices is the balance between supply and demand. Premium areas in central Tokyo are the places where this principle is most acutely manifested.
First, on the demand side, in addition to strong corporate demand for office space, there is also strong residential demand from affluent Japanese and real estate buyers (in recent years, the presence of "power couples," dual-income households with high incomes, has been increasing) who want to live close to their workplaces. In addition, Japanese real estate that has become undervalued against the backdrop of the rapid depreciation of the yen since 2022, especially properties in premium areas in central Tokyo with stable values, are extremely attractive investment targets for foreign investors. Thus, diverse and robust domestic and international demand continues to be concentrated in central Tokyo.
On the supply side, however, the situation is completely different. In central Tokyo, land is physically extremely limited, and it is almost impossible to secure new large-scale land. In particular, when it comes to areas with a good living environment, the scarcity is absolute. This extreme imbalance between supply and demand, between "overwhelming demand" and "absolute scarcity," is the fundamental factor structurally supporting the prices of premium areas in central Tokyo and exerting strong upward pressure.
Further increasing the value of premium central Tokyo areas are the incessant series of large-scale redevelopment projects. These projects not only renew old buildings, but also update the functionality of the city itself and play a role in creating future value.
For example, Azabudai Hills, which opened in 2023, and Takanawa Gateway City, which is currently underway, are symbolic of this. These redevelopment projects will create state-of-the-art offices, world-class commercial facilities and hotels, and lush residential environments in an integrated manner. At the same time, new train stations will open and infrastructure will be developed, dramatically increasing the attractiveness and convenience of the entire area. These expectations for the future will be factored into current real estate prices, further pushing up land prices.
| Major Redevelopment Projects | Area | Main Characteristics |
|---|---|---|
| Toranomon-Azabudai Project (Azabudai Hills) | Minato Ward | A mixed-use development project that integrates offices, residences, commercial facilities, cultural facilities, and an international school, based on the concept of "a town like a plaza surrounded by greenery that connects people. |
| Takanawa Gateway City | Minato Ward | Formation of a large-scale international exchange hub covering approximately 9.5 hectares, with Takanawa Gateway Station, a new station on the JR Yamanote Line, at its core. The city is scheduled to open in 2025, aiming to become a next-generation smart city with cutting-edge technology. |
| Nihonbashi Revitalization Plan | Chuo Ward | New office buildings and commercial facilities will be constructed while preserving and utilizing historical buildings. The revitalization of the waterfront space along the Nihombashi River is also underway in conjunction with the undergrounding of the Metropolitan Expressway. |
The last factor is from a more macro perspective, i.e., the structural changes taking place in Japan's overall real estate market. Currently, the Japanese real estate market is undergoing a phenomenon known as "tripolarization. This is the idea that real estate values will be clearly divided into the following three groups
The top of these three polarizations, or "areas that maintain or increase value," is represented by the premium areas in central Tokyo. As Japan's population continues to decline, people and companies are increasingly concentrating in urban areas with greater convenience and brand value. As a result, money and demand are being absorbed from rural and suburban areas into central Tokyo, creating a structure in which the value of premium central Tokyo areas is increasing both relatively and absolutely. We believe that this major trend is likely to accelerate further in the future.
In this article, we have explained the reasons why land prices in premium areas in central Tokyo have not fallen, based on three structural factors.
Let me summarize the main points,
The strong intertwining of these factors has resulted in an extremely stable structure that does not allow transient booms or short-term economic fluctuations to sway the value of real estate in premium areas of central Tokyo. Therefore, real estate in these areas can be evaluated as excellent assets that can maintain and increase in value over the long term, not just as living space or business locations.
When considering the purchase or investment of real estate, it is of utmost importance to assess the intrinsic value of the asset and the "structure" behind that value, without being misled by short-term price fluctuations or superficial information. We at INA&Associates K.K. will work closely with each client's asset background and goals, and propose optimal real estate strategies based on our professional expertise. Please feel free to contact us.