Japanese Capital into U.S. CRE in 2025 — What It Signals for 2026
2025 is shaping up to be a meaningful year for cross‑border real estate capital flows — especially from Japan into the U.S. commercial real estate (CRE) market. As interest rate pressures begin to ease in the U.S., Japanese investors are once again evaluating how to allocate capital globally. Here’s what we’re seeing, and what we expect coming into 2026.
What We’ve Seen in 2025
- Despite some tightening or at least non‑aggressive easing from the Bank of Japan (BOJ), Japanese real interest rates remain relatively unattractive. Negative or very low real yields have encouraged Japanese insurers, pension funds, and asset managers to deploy capital overseas rather than hold domestically.
- Japanese foreign asset holdings remain large (some estimates around $3.5 trillion) and only modestly shifting back toward domestic bond markets, in part because conditions for repatriation (higher domestic yields, a stronger yen, etc.) aren’t yet compelling.
- On the U.S. side, CRE valuations have been under pressure, but certain sectors (multifamily, industrial/logistics, and net‑lease retail) remain relatively resilient. There is pent‑up demand as higher financing costs and rate uncertainty have delayed some deals.
What to Watch for in 2026 as U.S. Rates Decline
As interest rates in the U.S. are expected to decline (or at least moderate), the following implications for Japanese capital into U.S. CRE seem likely:
Trend Implications
Lower borrowing costs & cheaper financing
Japanese investors will likely find U.S. CRE more attractive: better debt leverage, improved cash flow on financed deals, and potentially stronger returns on stabilized or value‑add properties.
Cap rate compression
With lower rates comes pressure on cap rates. For high quality/core U.S. assets in gateway cities, we should expect cap rate compression (i.e., investors willing to accept lower yields) which lifts valuations. This will favor trophy and gateway properties.
Sector selectivity
The appeal of sectors with strong fundamentals (multifamily, industrial/logistics, data centers, and select residential) will grow. Japanese capital may shy away or demand higher return premiums from riskier sectors (e.g., full‑service hotels, office in markets with poor demand).
Currency & yield spread sensitivity
The strength (or weakness) of the yen vs. the dollar, plus the spread between U.S. yields and Japanese yields (both nominal and real), will continue to be a critical factor. If U.S. rates fall but Japanese rates remain low, the spread remains favorable for outbound capital flows. But if the yen strengthens significantly or domestic yields in Japan improve, that could temper flows outward.
Competitive pressure & send/time premiums
As flows pick up, competition for high quality assets will intensify, pushing up prices. Early movers will have an advantage. Also, distressed or secondary assets may come into focus for Japanese investors seeking higher yields, especially if price dislocations emerge.
What Could Limit Japanese Flows
While the tone is broadly optimistic, there are several risk factors to monitor:
- If U.S. long‑term rates (Treasury yields) stay elevated even as Fed policy rates are cut, financing costs for longer‑term fixed debt may remain high, limiting the upside for CRE valuations.
- Inflationary pressures, supply chain disruptions, or geopolitical/china‑US trade risks could increase risk premiums.
- Changes in Japanese policy (e.g., BOJ moves, currency intervention), or shifts in domestic capital needs (e.g., funding liabilities, regulations) could rein in outbound capital.
Our Outlook
Looking ahead to 2026, we believe:
- Japanese investment into U.S. CRE will increase, especially in core plus / gateway markets and resilient sectors.
- Yield compression will persist in the top tier deals, though with some premium required for risk in secondary markets.
- Overall transaction volumes will pick up as both financing conditions improve and investor confidence strengthens.
- Japanese investors who move early and decisively will capture more favorable pricing and choice in assets.
📌 As with all macro‑trends, the devil is in the details. For Japanese capital to noticeably accelerate into U.S. CRE, we’ll need a favorable combination of U.S. rate cuts (or at least accommodative forward guidance), stable or weakening dollar/yen dynamics, and maintain investor risk appetites.
If you’re evaluating cross‑border CRE opportunities for 2026 (or already active), we’d be interested in hearing where you’re seeing the best value and where the risks feel highest.
What do you think — how much upside is priced in already? Would you put more weight on macro vs. local market fundamentals?
Disclaimers: IMPORTANT: This is not advice. Always contact an attorney, a licensed real estate inspector, CPA and a licensed real estate appraiser prior to considering advice, signing or agreeing to any offer.
Information About Broker Services by Lumicre, LLC
Lumicre, LLC Broker License #9013770