The Tokyo residential market has entered 2026 with a phrase that Japanese analysts keep returning to: 都心一強. Central Tokyo stands alone.

Throughout 2025, property prices across the greater capital region diverged sharply. Suburban markets softened. Purchase applications thinned out in outlying areas. The 23 wards held firm, and the ultra-premium wards accelerated. According to the Real Estate Economic Institute (不動産経済研究所), the average new condominium price across Tokyo’s 23 wards reached ¥136.13 million in 2025, with supply falling to a record low of 21,962 units across the greater Tokyo area. Properties priced above ¥100 million — the so-called 億ション — rose to 5,669 units, an increase of over 2,000 from the prior year. The most expensive units sold in 2025 reached ¥2.5 billion, in both Minato-ku and Shinjuku-ku.

The secondary market tells the same story. Tokyo Kantei reported that the average asking price for a pre-owned 70㎡ condominium in the 23 wards reached ¥114.85 million in November 2025, marking 19 consecutive months of increases. In the core three wards — Chiyoda, Minato, and Shibuya — tsubo unit prices now exceed ¥9 million for new construction, with average transaction prices around ¥200 million. A decade-old condominium in Chiyoda-ku still commands tsubo prices above ¥9 million, confirming that prime central Tokyo holds its value with rare consistency.

Supply Is Tightening, and It Will Continue

New supply across the capital region hit its lowest point since records began in 1973. Land acquisition in the city center has become extraordinarily competitive, and construction costs remain elevated. The Institute forecasts a modest 4.7% increase in 2026 supply to approximately 23,000 units, though this remains well below historical norms.

This scarcity has a compounding effect. When fewer new properties enter the market, each one commands a higher premium. When new prices rise, the secondary market follows. The result is a self-reinforcing cycle in the most desirable wards, where inventory for truly exceptional residences remains thin.

International Capital Continues to Flow In

JLL reported that real estate investment in Japan during Q1 2025 surpassed ¥2 trillion for the first time, a 23% increase year-over-year. Tokyo ranked first globally for real estate investment volume at $11 billion, surpassing New York at $7.3 billion by a wide margin. Foreign investment specifically surged 3.7 times compared to the prior year’s first quarter.

National Land Agency data shows that overseas buyers accounted for 3.5% of new condominium acquisitions across Tokyo’s 23 wards in the first half of 2025. In the central six wards — Chiyoda, Chuo, Minato, Shinjuku, Bunkyo, and Shibuya — that figure reached 7.5%. The yen, having traded around ¥150 to the dollar for much of 2024 and 2025, has made Tokyo properties appear significantly undervalued relative to comparable global cities. The Japan Real Estate Institute’s International Price Index confirms that Tokyo residential prices sit at less than half the per-square-meter cost of Hong Kong or London.

DWS has identified Tokyo as the most attractive real estate market globally for the first time in 15 years. The combination of comparatively low borrowing costs (1–2% in Japan versus 6–7% in the US), sustained rental growth driven by inflation, and a currency discount for dollar-denominated buyers has created a convergence of favorable conditions.

Interest Rates Are Rising — Slowly

The Bank of Japan has begun gradual normalization, and analysts expect continued modest increases in 2026. Sakura Jimusho’s year-end outlook noted that the Takaichi administration’s fiscal stance may provide some counterbalance to rate increases. More importantly, competition among lenders has widened discount margins, meaning effective borrowing rates have not risen as sharply as headline policy rates suggest.

For buyers in the ¥300 million and above segment, interest rate sensitivity is structurally different. Purchases at this level are frequently made with significant cash components, or financed through private banking arrangements with terms unavailable to the broader market. The rate environment matters, but it matters less here than in any other price segment.

The Long View on Real Property

Over long historical periods, real estate assets — which include land — have delivered roughly 6–7% average annual real returns, according to long-run economic research.

Tokyo’s prime residential market has outperformed that benchmark considerably over the past decade. The national real estate price index for condominiums reached 207.2 in late 2024 (against a base of 100 in 2010), representing a doubling in value over fourteen years. Properties near major stations in Chiyoda-ku have seen resale values approach three times their original purchase price within a decade.

These figures reflect a specific set of conditions: constrained supply in a mature urban center, sustained domestic and international demand, and the enduring desirability of Tokyo’s most established residential neighborhoods.

What 2026 Holds

Several dynamics will shape the year ahead. Analysts at Kenbi-ya and Tokyo Kantei have noted early signs of inventory accumulation in some central areas, with certain units at high-profile developments like Mita Garden Hills reportedly seeing price adjustments. If this pattern broadens, selective buyers may find opportunities that were unavailable twelve months ago.

The 2026 tax reform is expected to expand mortgage deduction limits for pre-owned housing and relax floor-area requirements, which should accelerate the shift toward the secondary market — a shift already well underway as new construction prices exceed what even high-income households can absorb. The threshold for purchasing a central Tokyo condominium now sits at household incomes of ¥20–30 million, according to market observers.

For those acquiring residences at the highest tier, the calculus remains favorable. Tokyo’s position as Asia-Pacific’s leading destination for real estate capital is well established. Urban redevelopment continues across Azabu, Toranomon, Shibuya, and the bay area. And the fundamental character of Tokyo’s finest neighborhoods — Azabu’s embassy-district quiet, Hiroo’s tree-lined discretion, Shirokane’s generational elegance — is unchanged by market cycles.

The numbers confirm what the neighborhoods have always known about themselves.