TOKYO, Japan — One of the world’s major property investors is becoming increasingly cautious about buying real estate in Japan as rising interest rates and higher borrowing costs begin to change the economics of the country’s once highly attractive property market.
PGIM Real Estate, the property investment arm of PGIM and Prudential Financial, is taking a more selective approach to acquisitions in Japan, according to recent reporting on the firm’s strategy.
The shift comes as Japan enters a dramatically different financial environment. For years, ultra-low interest rates made the country a magnet for global property investors, allowing buyers to borrow cheaply and pursue returns from offices, apartments, logistics facilities and other assets.
But that advantage is beginning to narrow.
PGIM’s Asia-Pacific real estate chief, David Fassbender, indicated that the firm is now placing greater emphasis on higher financing costs when evaluating potential acquisitions and is more selective than it was two years ago. The narrowing gap between Japanese government bond yields and property yields is also making deals more difficult to justify, particularly in highly competitive sectors such as offices.
Japan’s Cheap Money Era Is Changing
Japan has long stood apart from many of the world’s major property markets because of its exceptionally low borrowing costs.
That environment helped attract billions of dollars from international investors seeking relatively inexpensive financing combined with exposure to Tokyo and other major Japanese cities.
However, the Bank of Japan’s ongoing monetary policy normalization is changing the calculation.
BOJ board member Kazuyuki Masu warned on September 10 that the central bank may need to raise rates more rapidly if inflation accelerates, adding to expectations that Japan’s era of extremely cheap money is moving further into the past.
A Reuters poll also found that economists widely expected the BOJ to continue tightening monetary policy, with markets increasingly pricing in further rate increases.
For real estate investors, that matters.
Higher interest rates can increase the cost of debt used to finance property acquisitions. At the same time, rising government bond yields can make risk-free or lower-risk investments relatively more attractive compared with real estate.
That means property investors may need higher returns to justify taking on additional risk.
The Shrinking Yield Advantage
One of the biggest challenges now facing property investors is the narrowing difference between returns from real estate and government bonds.
Traditionally, commercial property offered investors a meaningful premium over government debt because real estate comes with greater risks, including vacancies, maintenance costs, changing tenant demand and potential price declines.
But as Japanese government bond yields rise, that premium—or yield spread—can shrink.
For PGIM and other institutional investors, this means that properties which looked attractive under Japan’s ultra-low-rate environment may no longer offer the same risk-adjusted returns.
That does not mean investors are abandoning Japan.
Instead, the market appears to be entering a phase where asset quality, location and pricing matter more than ever.
PGIM Is Still Betting on Japan—But More Carefully
Despite the more cautious acquisition strategy, PGIM continues to view Japan as a major market.
The company appointed David Fassbender as its head of Asia-Pacific real estate in 2026, with Tokyo serving as his base. PGIM said Fassbender’s appointment reflected its plans to drive the next phase of growth across the region.
Japan has also remained one of PGIM Real Estate’s most important Asia-Pacific businesses.
The firm’s regional platform has a long investment history in Asia-Pacific, with offices across the region and billions of dollars in assets under management.
PGIM’s previous research has also pointed to potential opportunities in Japan’s aging commercial property stock, particularly for investors willing to modernize, refurbish or reposition older buildings.
The firm noted that Japan has a significant amount of older institutional office and retail stock, while historical capital spending on property improvements has been comparatively weak—potentially creating opportunities for value-add investors.
Tokyo Still a Global Property Hotspot
PGIM’s caution also comes as international interest in Japanese property remains strong.
A 2026 survey cited by Reuters found that Asia-Pacific real estate investment intentions had reached a four-year high, with Tokyo retaining its position as the top destination for cross-border property investment for the seventh consecutive year.
Investors have continued to show interest in multiple sectors, including:
- Prime office buildings
- Rental apartments and residential properties
- Logistics facilities
- Hotels and tourism-related assets
- Data centers
- Older buildings with redevelopment potential
Other global investors are also continuing to commit capital to Japan.
In July, Lendlease announced a partnership with Dutch pension fund manager PGGM with investment capacity of up to ¥120 billion to pursue value-add opportunities in Japanese logistics and office assets, initially focusing on Greater Tokyo and Greater Osaka.
The developments underline an important distinction: global investors are not necessarily leaving Japan—they are becoming more selective about what they buy and how much they are willing to pay.
Rising Bond Yields Add Another Layer of Pressure
Japan’s bond market is also becoming increasingly important for property investors.
The yield on Japan’s benchmark 10-year government bond recently reached 3% for the first time since 1996, according to Reuters reporting on September 9.
Fitch Ratings said rising domestic yields could encourage Japanese institutional investors to keep more capital at home, potentially changing investment flows both inside and outside the country.
For property markets, higher yields could have several consequences:
Higher borrowing costs: Investors relying heavily on debt may face weaker returns.
More pressure on prices: Buyers may demand lower property prices to compensate for higher financing costs.
Greater focus on income: Buildings with strong tenants and reliable rental income could become more attractive.
Tougher competition for prime assets: High-quality properties may remain expensive even as weaker assets face greater pressure.
The New Reality for Japan Real Estate
Japan’s property market is not suddenly facing a collapse.
In fact, Tokyo remains one of the world’s most attractive destinations for global real estate capital.
But PGIM’s more cautious stance highlights a potentially significant turning point.
For years, investors could rely heavily on Japan’s extraordinarily cheap financing to support acquisitions and boost returns.
Now, the equation is becoming more complicated.
The best-located properties with strong tenants, modern facilities and clear growth potential may continue attracting capital. But investors could become increasingly cautious about older buildings, expensive assets and deals that depend heavily on cheap borrowing.
That may ultimately create a sharper divide in the Japanese property market between assets investors want at almost any price—and assets that will need major discounts to attract buyers.
What Happens Next Could Reshape Japan’s Property Market
The next major test will be how quickly interest rates continue to rise.
If the Bank of Japan moves gradually, investors may have time to adjust their financing strategies and property valuations.
But faster rate increases could put greater pressure on leveraged buyers and force investors to rethink what they are willing to pay for real estate.
For PGIM, the message appears increasingly clear:
Japan remains an important investment destination—but the era of simply buying because money is cheap may be coming to an end.
The country’s real estate market could now be entering a new phase where the smartest investors are not necessarily the ones buying the most properties—but the ones willing to wait for the right deal.
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