Insight

Japan’s residential market is approaching an inflection point after decades of ultra-low interest rates. Vacancy rates remain low and rents continue to rise across major cities, particularly Tokyo. At the same time, higher financing and development costs are making it increasingly difficult to generate attractive returns through asset ownership alone. The key change lies in how market demand and rental growth are translated into investment performance. In an ultra-low-rate environment, a strategy centered on acquiring well-located assets, holding them over the long term, and benefiting from low financing costs, stable rental income and capital appreciation was highly effective. Today, however, the ability to actively enhance net operating income and asset value through value-add strategies and professional operations has become increasingly important. One structural feature of Japan’s residential market is that increases in market rents do not immediately flow through to existing leases. Combined with the additional capital expenditure required for aging properties, this makes it increasingly difficult to fully capture market upside through a passive buy-and-hold strategy. Yet these structural shifts also create opportunities for platforms capable of combining local market knowledge with investment and operating expertise. By identifying assets where in-place rents lag market levels, repositioning them appropriately and implementing targeted leasing strategies, investors can turn market dislocation itself into a source of value creation. One Market, Different Speeds of Rent Reversion According to real estate market research firm PMA, Tokyo’s residential vacancy rate declined steadily from 6.3% in 2008 to 2.8% in 2025, while residential rents in Tokyo increased at a compound annual growth rate of 3.2% between 2015 and 2025. However, rising market rents do not translate into higher rental income at the same pace across all assets. Japan’s residential leasing market is characterized by a high proportion of traditional leases, which typically feature automatic renewal and strong tenant protections. As a result, landlords face meaningful constraints in resetting rents to prevailing market levels when existing tenants remain in place. This structural feature has become particularly relevant in Tokyo, where annual rental growth has accelerated in recent years. By contrast, fixed-term leases terminate at the end of the agreed period and require a new lease to be executed, creating greater scope to reflect market rent growth at each lease expiry. According to PMA, in the first half of 2025, rents on newly executed leases following the expiry of prior contracts increased by 8.2%, compared with just 1.7% for lease renewals. This illustrates how, even within the same market, the speed at which rental growth is captured can vary materially depending on lease structure and asset-level operating strategy. Going forward, successful residential investment in Japan will therefore require more than simply tracking headline rental trends. Investors will increasingly need the capability to assess lease structures, vacancy profiles, lease expiries and target tenant segments at the individual asset level, while managing repositioning, rent resets, lease duration, tenant acquisition channels and operating costs in an integrated manner. Unlocking Value in Aging Residential Assets The fact that market rent growth does not automatically flow through to every asset means that asset-level operating strategy can be a meaningful driver of performance differentiation. Vacancies and lease expiries can therefore be used as opportunities to improve product competitiveness and redesign lease terms for new target tenant segments. From an investment perspective, this creates opportunities to acquire well-located but aging assets whose product competitiveness has declined, upgrade private and common areas, introduce fully furnished units with appliances and household equipment, and redesign services and leasing options around the characteristics of local demand. According to PMA’s analysis of Japanese listed REITs in the first half of 2025, appropriately renovated residential units achieved new rents more than 30% above prior levels. Such outcomes, however, are not generated by renovation alone. Investors must assess acquisition basis, unit efficiency, the achievable rental premium relative to capital expenditure, and the execution framework with local architects and contractors experienced in relevant regulations and permitting requirements. In a high-cost environment, disciplined cost control and construction quality management are particularly critical. The key question is not how extensive a renovation should be, but whether the capital invested can translate into measurable improvements in rent and occupancy. Ultimately, the value creation opportunity in Japanese residential real estate does not simply lie in gaining exposure to a market where rents are rising. It lies in precisely identifying assets where the gap between market rents and in-place rents is meaningful, and in having the execution capabilities to convert that gap into tangible product improvements and stronger operating performance. Evolving Tenant Demand and the Expansion of Flexible Living Alongside changes in supply and lease structures, tenant demand itself is becoming more diverse. According to Japan’s Immigration Services Agency, the number of foreign residents in Japan increased from approximately 2.12 million at the end of 2014 to around 3.77 million at the end of 2024, representing compound annual growth rate of approximately 5.9%. As the resident base becomes more diverse—including foreign professionals, expatriates and international students—expectations around housing and leasing are also changing. Increasingly important features include information available in English, digital contracting processes, standardized screening and documentation, fully furnished accommodation, and greater flexibility in lease duration. These shifts are also reflected in public policy. Under its “Tokyo 2050 Strategy,” the Tokyo Metropolitan Government has identified the attraction of highly skilled international talent as a key policy priority for strengthening the city’s global competitiveness. Individuals holding “Business Manager” and “Highly Skilled Professional” residence statuses are classified as highly skilled foreign talent, with a policy target of increasing this population from 22,197 in 2023 to more than 50,000 by 2030. Supporting initiatives include the development of multilingual serviced apartments, healthcare infrastructure and international schools to make Tokyo more accessible and convenient for foreign residents. However, Japan’s residential rental market has presented relatively high barriers to foreign tenants, including stringent guarantor requirements, local bank account and income documentation requirements, and significant upfront costs. This demand is not limited to foreign residents. Mobile professionals, dual-income households and corporate tenants are also increasingly seeking high-quality, fully furnished accommodation that can be rented for the length of stay they require. The key is to convert these evolving preferences into tangible rental demand. Space planning must reflect target customers’ expected length of stay and household composition, while the entire customer journey—from property search and contracting to move-in and ongoing support—needs to be designed for transparency and ease of use. This is why residential investment in Japan increasingly needs to evolve beyond the physical enhancement of real estate toward an operating platform capable of delivering a flexible-living, customer-centric residential experience. Reading Demand, Not Just Location Emerging residential demand is unlikely to be distributed evenly across Tokyo. It is more likely to concentrate in core districts where employment, corporate activity, transport connectivity and lifestyle infrastructure converge. Tokyo’s five central wards—Chiyoda, Chuo, Minato, Shibuya and Shinjuku—host a high concentration of central government institutions, global corporate headquarters, financial and commercial facilities, universities and cultural amenities. Among them, Minato Ward, including Roppongi, Azabudai and Akasaka, combines major international business districts with high-end residential neighborhoods, supporting demand from foreign corporate employees, professionals and corporate tenants. ⓒazabudai-hills The Roppongi area is also surrounded by large-scale mixed-use developments including Tokyo Midtown, Roppongi Hills, Azabudai Hills and Toranomon Hills. Offices, residences, retail and cultural amenities are integrated within the same broader district, while access to key employment centers is strong. These attributes support demand from tenants who place a premium on proximity to work and day-to-day convenience. In such core locations, investors can consider a broader range of operating formats beyond conventional long-term rental housing, including fully furnished residences, corporate leases and medium- to long-stay accommodation. However, the premium associated with central locations also tends to translate into higher acquisition prices, construction costs and operating expenses. Target customers, achievable rents, occupancy, and required capital investment therefore need to be assessed on an integrated basis. Nor is a single product or operating model appropriate across all prime locations. In districts with a high concentration of global companies and high-income professionals, a premium rental strategy combining high-quality furnishings, services and flexible lease terms may be effective. In other areas, a more cost-efficient investment and operating model may offer stronger competitiveness. Even within Tokyo, customer profiles, purpose of stay and rental affordability vary significantly, requiring unit configuration, lease duration, service levels and capital expenditure to be tailored asset by asset. Ultimately, the key is not simply whether an asset is located in a central district, but whether its employment base, lifestyle infrastructure and transport connectivity generate a specific and identifiable tenant pool. Only when an operating platform with deep knowledge of the local market and customer base integrates capital expenditure, leasing structure and service levels into the product design process can the full potential of a location be translated into operating performance. Turning Operating Experience into a Platform Advantage Across Japan and the wider Asia-Pacific residential market, a growing number of platforms are integrating investment, product design, leasing and operations within a single operating framework. Rather than simply acquiring and managing individual assets, these platforms apply operating experience accumulated across multiple cities and customer segments to product development and future investments. Founded in 2017, Weave Living operates across Hong Kong, Seoul, Singapore and Tokyo, offering a range of residential formats including fully furnished apartments, serviced apartments, co-living and student accommodation. Its model incorporates digital systems across property search, booking, payment and post-move-in services, while segmenting products according to length of stay and lifestyle needs. The appeal of these platforms to investors goes beyond their ability to increase asset count. More importantly, data generated through operations—including rents, occupancy, customer mix, lease duration, acquisition channels, operating costs and resident feedback—can be fed back into sourcing, underwriting and product planning for subsequent investments. As a result, platforms whose investment and operating capabilities deepen as their portfolios expand can become attractive partners for global institutional investors seeking to build long-term exposure rather than pursue isolated transactions. In major Asian cities where demand for professionally operated, high-quality residential products is growing, the role of platforms capable of consistently sourcing and operating local investment opportunities is likely to become increasingly important. MODO: Connecting Investment and Operations MODO is a residential investment and operating platform established by IGIS Asia together with a local partner to respond to structural changes in Japan’s residential market and evolving demand from global investors. Through its discussions with global investors around residential investment opportunities in Japan and across Asia, IGIS Asia repeatedly identified demand not merely for an asset manager presenting individual transactions, but for a specialist platform capable of sourcing local investment opportunities, executing value-add strategies and building portfolios alongside investors over the long term. MODO therefore combines IGIS Asia’s institutional investment capabilities in sourcing, underwriting and investment management with the product design, leasing and operating expertise of local professionals with experience across Japan’s residential and hospitality sectors. Its objective extends beyond improving operating efficiency and earnings at individual properties. MODO is designed as a GP-led residential investment and operating model that connects the full investment lifecycle—from sourcing and acquisition through repositioning, leasing and operations, asset management and eventual exit—within a single platform. MODO’s approach to value creation is not limited to increasing operating income. The platform also considers the quality of space, architectural execution, thoughtful curation of furniture and household amenities, and services designed around residents’ actual needs to be integral components of operating competitiveness. The objective is to create residential environments in which people genuinely want to stay over the long term. This approach is being implemented at MODO Roppongi, the platform’s first investment. Located in Roppongi, Minato Ward, Tokyo, the existing residential asset is being repositioned through architectural and design upgrades, together with a curated selection of furniture and household amenities. At the same time, MODO is designing leasing products and operating formats that can accommodate both longer-term residents and tenants seeking greater flexibility. Actual leasing and operating data generated through the asset will be incorporated into future investment decisions and subsequent acquisitions in Japan. MODO’s ambition is not limited to Japan. The platform intends first to build an investment and operating track record in Japan and, over the medium to long term, selectively expand into major Asian cities such as Seoul and Singapore with models tailored to the characteristics and residential demand of each market. At its core, MODO aims to combine institutional investment discipline with local market expertise and operating capabilities, creating residential environments that people can trust and choose for a better everyday living experience. Written by Soyeong Park, Brand Communications Manager Content Advisory and Review, GPI2 Team ──────────── - This content has been prepared for informational purposes only and is not intended to serve as a basis for investment decision-making by users. It is not created for the purpose of promoting, soliciting, or recommending financial investment products, providing investment advice, or making stock recommendations. The company makes no express or implied representations or warranties regarding the accuracy or completeness of any materials or information provided in this content. Furthermore, the company assumes no responsibility or liability for any damages or losses incurred because of investment decisions made based on this content. Potential investors shall not raise any objections in this regard. - The above information is based on data as of August 2026 and has been prepared in compliance with applicable laws and internal control standards. The materials and information in this content are subject to change due to changes in market conditions, the stock market, interest rates, inflation, tax policies, and other social, economic, or policy-related factors. Additional risks may arise from asset price fluctuations, exchange rate volatility, credit rating downgrades, declines in real estate prices, investment performance results, or unforeseen natural disasters such as fires, floods, or pandemics. Consequently, financial (investment) products may result in partial or total loss of the principal investment, with such losses being borne by the investor. These products are not protected by the Korea Deposit Insurance Corporation under the Depositor Protection Act. Past performance does not guarantee future returns, and the results may differ from the performance at the time of content creation or in the future. Additional transaction and other costs may also apply. - This content has not been legally submitted or registered, nor has it been approved under any applicable law. It may contain subjective opinions that do not necessarily represent the official views or statements of the company. This content is not intended to solicit, offer, or recommend the subscription, purchase, or sale of securities. Investors have the right to receive sufficient explanations from financial product sellers in accordance with applicable laws. All investment decisions should be made carefully and solely on the information provided in the securities registration statement, (preliminary) investment prospectus, and terms and conditions. Investors should make prudent decisions based on their own judgment. [IGIS Asset Management Co., Ltd. Compliance Officer Review No. 900-26-AD-095 (August 26, 2026 – August 25, 2027)

A perspective that views real estate not simply as an asset, but as infrastructure that enables industries and companies to evolve. This conviction has remained central throughout the career of Kab-joo Cho, who has played a defining role in the growth of IGIS Asset Management. At the heart of his philosophy is the belief that corporate growth inevitably creates demand for new types of space—and that meaningful investment opportunities emerge when this demand is translated into investable real assets. It is also the principle that has guided IGIS as it has expanded into new asset classes, connecting the evolving spatial needs of industries with the long-term capital of institutional investors. As the industrial landscape undergoes rapid transformation, what changes in space is he watching most closely? And what must asset managers prepare in order to convert emerging demand into sustainable investment opportunities? We spoke with Cho to hear his perspective. Q. You have often emphasized that “when the industrial landscape changes, the definition of space must change with it.” With AI now reshaping the industrial ecosystem, what structural changes are taking place in the built environment? The technological revolution led by AI is fundamentally changing how companies create value. The way businesses operate, collaborate and improve productivity is evolving rapidly. If the spaces that support these activities remain confined to outdated physical formats, companies will find it increasingly difficult to grow. In the past, space was assessed largely in terms of physical attributes such as size and location. Today, however, asset value is increasingly determined by the digital technologies, systems and operational capabilities embedded within that space. Logistics facilities, for example, are being transformed through robotics and AI-driven algorithms. They are no longer simply warehouses for storage, but advanced production infrastructure where forecasting, assembly and rapid fulfilment take place. Offices, similarly, are becoming differentiated strategic hubs that help companies attract talent, support collaboration and enhance creativity through advanced digital infrastructure and high-quality working environments. Space is therefore no longer just real estate. It is technology-enabled infrastructure that supports corporate survival, productivity and innovation. Rent should not be viewed merely as an operating expense, but as a direct investment in a company’s future competitiveness—and as a critical infrastructure cost. Q. If space is becoming essential infrastructure for corporate growth, what role should asset managers play in this transition? Companies entering new industries or expanding existing businesses require spaces that are precisely tailored to their operational needs. Yet developing large-scale facilities such as data centers, advanced logistics assets or hotels directly can tie up significant amounts of capital in fixed assets. Companies cannot operate without the right space, but it is also difficult for them to absorb the entire cost of creating it. Institutional investors, including pension funds and mutual aid associations, are meanwhile seeking investment opportunities capable of generating stable, long-term returns. They are increasingly interested in structures that allow them to invest in the spaces required by businesses and to participate in the value and income those spaces generate over time. This is precisely why the role of connecting the space companies need with institutional capital is so important. Companies can pursue their business objectives in the right spaces while easing the burden on their balance sheets, and investors can seek medium- to long-term return opportunities through those assets. Asset managers must serve as a trusted bridge between the two. Q. What capabilities do you regard as most important for fulfilling this role as a bridge between industry and capital? First and foremost is risk management. As markets and trends evolve at an increasingly rapid pace, the ability to manage uncertainty and risk throughout the investment and asset management lifecycle is critical to long-term resilience. IGIS has continuously strengthened its risk management framework across the full spectrum of investment decision-making and asset management. The second capability is forward-looking market insight and research. As industries evolve, the types of space required by companies also change. Asset managers must understand which industries are emerging, what operational requirements they have and what specifications their facilities must provide. Only then can the right space be delivered at the right time. Just as the growth of AI and information technology has elevated data centers and smart logistics facilities into core infrastructure assets, we must now anticipate what forms of space will be required by the next generation of industries. Q. The Hanam data center development is widely regarded as a leading example of successfully connecting industry, space and capital. Data centers are essential infrastructure and a core engine of the AI and digital economy. When IGIS first began developing the Hanam data center, however, the asset class was still relatively unfamiliar in Korea’s capital markets and was widely perceived as carrying considerable investment risk. At the time, there were clear limitations to financing a project of this scale solely with domestic capital. Global investors with a deeper understanding of overseas markets had already recognized the infrastructure value of data centers. IGIS partnered with these investors, successfully secured the required capital and completed the entire development lifecycle—from site acquisition and permitting through construction, operation and eventual exit. The experience and expertise gained at Hanam were subsequently applied to the development of the Samsong data center in Goyang. Samsong is an 80MW hyperscale facility that recently received its occupancy permit. Its completion marks IGIS’s second large-scale data center delivery following Hanam, with LG CNS once again serving as the operator after our successful collaboration on the earlier project. This ability to execute across the full data center development lifecycle—and to demonstrate that capability through consecutive projects—provides a strong foundation for creating broader investment structures in which both domestic and international institutional investors can participate with confidence. Q. Following the success of data centers, which industries and forms of spatial demand are you focusing on next? We see significant potential in the new forms of space that will be created by the life sciences sector, spanning biotechnology and healthcare. Biotechnology and healthcare are highly technology-intensive industries that require substantial capital from the earliest stages of growth. Companies must devote considerable resources to attracting talent and advancing research and development, while at the same time securing highly specialized facilities such as laboratories, research centers and pharmaceutical manufacturing plants. The challenge is that these facilities are significantly more expensive to develop than conventional offices. For companies in the early stages of growth, tying up large amounts of capital in real estate at the very moment when funding is most needed for R&D and talent acquisition can become a major constraint. This is precisely where asset managers have a clear role to play. We must proactively create investment structures that allow institutional investors to participate in biotechnology infrastructure with a flexible, sustainable and long-term perspective. Such structures enable companies to focus their resources on technology development and talent rather than immobilizing capital in fixed assets. At the same time, institutional investors gain the opportunity to participate in the growth of strategically important industries while enhancing the long-term value of their assets. Our objective is to serve as a sophisticated bridge between biotechnology companies that require specialized space and the long-term capital capable of providing it, and to build productive partnership models such as those emerging in the Songdo biotechnology cluster. Q. You have also said that “the value of a space is created not by the building itself, but by its users.” How do you view the virtuous cycle between the growth of occupiers and investment performance? The value of a space increases only when the companies occupying it are able to use that space as a platform for growth. A successful business can sustain its rental obligations, which in turn provides the foundation for stable and durable returns to institutional investors. Whether the asset is an office, logistics facility or hotel, if the business operating within it weakens, the asset’s income base will inevitably come under pressure. An asset manager should therefore not remain merely a landlord providing physical space. We must continuously listen to the pain points of occupiers, understand the spatial specifications and operational functions required for their businesses to grow, and reflect those needs in the design and management of the asset. The true value of a building is created not by its appearance, but by the companies and people within it. Accurately translating user needs into the physical and operational qualities of a space is the starting point of a virtuous cycle—one that strengthens asset value for institutional investors and produces sustainable long-term performance. Q. What significance do large-scale mixed-use developments such as IOTA Seoul hold from the perspective of urban competitiveness? When we look at global cities such as New York, Tokyo and London, their skylines and infrastructure play a defining role in shaping their overall competitiveness. When global companies consider establishing a presence in a city, they look first at the quality of its infrastructure, access to talent and the availability of competitive work environments that bring the two together. The Seoripul, The-K Hotel and IOTA Seoul projects are more than real estate developments. They are landmark projects with the potential to elevate Seoul’s skyline, identity and global standing. Carefully designed, large-scale developments can help attract leading international companies to Seoul while providing Korean businesses with world-class working environments. IOTA Seoul, in particular, is a project that respects the history and identity of the existing site while reinterpreting its functions and value in response to changing industrial demand. It seeks to preserve the symbolic legacy of the hotel, integrate state-of-the-art office space and restore views of Namsan that had previously been obstructed by the existing buildings, returning the natural landscape to the city. For a city to grow sustainably, physical infrastructure, cultural and experiential content, and people must function in harmony. Innovative spaces and infrastructure can raise the quality and stature of a city, and that transformation can ultimately strengthen the competitiveness of the country as a whole. Through the productive circulation of capital, IGIS Asset Management aims to provide companies with platforms for growth, create sustainable futures for cities, and serve as an ecosystem builder that brings industry, capital and space together. Interview Compiled and Edited by Soyeong Park, Brand Communications Manager ──────────── - This content has been prepared for informational purposes only and is not intended to serve as a basis for investment decision-making by users. It is not created for the purpose of promoting, soliciting, or recommending financial investment products, providing investment advice, or making stock recommendations. The company makes no express or implied representations or warranties regarding the accuracy or completeness of any materials or information provided in this content. Furthermore, the company assumes no responsibility or liability for any damages or losses incurred because of investment decisions made based on this content. Potential investors shall not raise any objections in this regard. - The above information is based on data as of July 2026 and has been prepared in compliance with applicable laws and internal control standards. The materials and information in this content are subject to change due to changes in market conditions, the stock market, interest rates, inflation, tax policies, and other social, economic, or policy-related factors. Additional risks may arise from asset price fluctuations, exchange rate volatility, credit rating downgrades, declines in real estate prices, investment performance results, or unforeseen natural disasters such as fires, floods, or pandemics. Consequently, financial (investment) products may result in partial or total loss of the principal investment, with such losses being borne by the investor. These products are not protected by the Korea Deposit Insurance Corporation under the Depositor Protection Act. Past performance does not guarantee future returns, and the results may differ from the performance at the time of content creation or in the future. Additional transaction and other costs may also apply. - This content has not been legally submitted or registered, nor has it been approved under any applicable law. It may contain subjective opinions that do not necessarily represent the official views or statements of the company. This content is not intended to solicit, offer, or recommend the subscription, purchase, or sale of securities. Investors have the right to receive sufficient explanations from financial product sellers in accordance with applicable laws. All investment decisions should be made carefully and solely on the information provided in the securities registration statement, (preliminary) investment prospectus, and terms and conditions. Investors should make prudent decisions based on their own judgment. [IGIS Asset Management Co., Ltd. Compliance Officer Review No. 900-26-AD-095 (August 3, 2026 – August 2, 2027)