Trend in foreign ownership of J-REIT units

Japanese real estate investment trusts (J-REITs), introduced in 2000, are structured as investment corporations (Toshi-Hojin) that raise capital through issuing investment units or debt. According to ARES – the Association for Real Estate Securitization, there are 58 J-REITs listed on the Tokyo Stock Exchange, they are not subject to unique foreign investment restrictions. Under the Investment Trust Law, they must outsource asset management and custody and are exempt from corporate tax if they meet certain conditions. Investment Corporation (Toshi-Hojin) Structure is provided in Supplementary Figure S1.

The J-REIT market has grown rapidly, now the world's third-largest by size, according to EPRA Q1 2025 data. With a market capitalization of $90.81 billion, it ranks behind the United States ($1,234 billion) and is comparable to Australia's REIT market ($104.50 billion). Furthermore, the largest individual J-REIT, Nippon Building Fund (NBF), is ranked among the top 10 non-US REITs globally by market capitalization, highlighting the sector's international significance. It also has the highest level of foreign investment volume. Major international holders include BlackRock, Vanguard, NBIM, PFZW/PGGM and REIT specialists (Cohen and Steers, CBRE IM); exposure is also via global real-estate ETFs (VNQI, iShares property UCITS) that hold leading J-REITs (e.g. NBF, GLP J-REIT, Advance Residence, JHR). Foreign trading rose from 46% in 2013 to 71% in 2022, surpassing the 69% seen in Japanese equities.

Despite their scale, research on foreign investors in J-REIT remains limited. Unlike listed companies J-REITs only report major investors, their investment unit ratios, and the total number of investors, creating gaps in consistent data. This study fills that gap by compiling long-term ownership data from various reports and disclosures.

Prior studies of Japanese equities (e.g. Iwatsubo and Watkins (2021), Nguyen (2012) cannot be directly applied, as REITs differ in structure and behavior. Anderson et al. (2005) show REIT returns increasingly reflect sector-specific rather than traditional stocks factors. Evidence also indicates contrasting capital flows: in 2016 and 2018, foreign investors withdrew JPY3,689 billion and JPY5,740 billion from stocks but invested JPY167 billion and JPY306 billion into J-REITs.

Within this context, we examine the characteristics of J-REITs that influence foreign ownership by addressing five questions:

1. Do foreign investors in J-REITs, like those in equities (Fang and Stulz, 1997), prefer large firms with strong accounting performance and low leverage?

2. Does exchange-rate sensitivity observed in Hong Kong equities (Liu and Jo, 2019) also apply to J-REITs?

3. Are the links reported between REITs and other asset classes (Clayton and MacKinnon, 2003; Miyakoshi et al., 2016), and between REITs and sponsors (Wong et al., 2013; Tang and Mori, 2017; Mori et al., 2022), also reflected in foreign J-REIT holdings?

4. Does the Bank of Japan's unique REIT purchase program, shown to affect returns (Hattori and Yoshida, 2024), also influence foreign investors?

5. While global indices inclusion attracts foreign investors (Dong et al., 2023; Li et al., 2024), does this also hold for J-REITs?

This study analyzes foreign ownership in J-REITs from 2014 to 2023 using panel regression of foreign ownership ratios, incorporating variables identified in the prior literature (market capitalization, ROA, leverage, exchange rate, stock indices, interest rate, sponsor type and BOJ purchases). We also assess ownership following inclusion in global REIT indices.

These insights may assist J-REIT managers and policymakers and also inform emerging REIT markets globally.

Research on foreign ownership in J-REITs remains limited, but broader work on equity markets and REITs provides a foundation.

Equity studies show consistent foreign investor preferences. Fang and Stulz (1997) find that foreign investors in Japan overweight large, liquid firms with stronger accounting performance, lower leverage and lower idiosyncratic risk. Dahlquist and Robertsson (2001) document similar patterns in Sweden, with foreigners favoring large firms that retain cash and pay lower dividends, while Dahlquist and Robertsson (2004) show that foreign ownership reduces firms' cost of capital by lowering expected returns. In Japan, Kamesaka et al. (2003) report distinct trading and timing strategies across investor groups, and Liu et al. (2014) show systematic differences between foreign and domestic institutional investors in China. Further evidence links foreign ownership to outcomes: Nguyen (2012) finds increased volatility and risk-taking in Japanese firms; Bena et al. (2017) associate foreign institutional ownership with long-term investment and innovation across 30 countries; Vo (2018) and Loncan (2020) highlight nuanced effects on corporate cash holdings in emerging markets; and Iwatsubo and Watkins (2021) show that foreign investors enhance informational efficiency in Japanese equities by incorporating global signals more quickly. The behavior and influence of foreign investors in stock markets, as well as the characteristics of REITs, have been analyzed in prior research. Building on these findings, this study aims to clarify the characteristics of foreign ownership in J-REITs.

REITs differ from equities in structure and pricing. Chan et al. (1990) identify distinct REIT return drivers, while Anderson et al. (2005) show REITs increasingly load on small-cap and value style factors. Clayton and MacKinnon (2003) demonstrate that US REIT returns reflect a combination of stock, bond and real estate influences, underscoring their hybrid nature.

Short-term market studies emphasize distinctive trading patterns. Bertin et al. (2005) document lower intraday liquidity and higher volatility in REITs compared with common stocks. Akbulut et al. (2015) show that REIT returns exhibit calendar anomalies that differ from those in equities.

Cross-market studies stress macro-financial linkages. Yat-Hung et al. (2008) find time-varying correlations among Asia–Pacific REITs, while Liu et al. (2012) examined correlations between the US REIT market and four APAC REIT markets, including J-REITs. Pham (2012) analyzed co-variations between Asian REIT markets; Fang et al. (2016) identify macroeconomic variables influencing REIT index returns in Japan, Singapore, China; and Loo et al. (2016) show that while Asian REIT markets are influenced by macroeconomic factors, developed markets such as Japan exhibit weaker linkages with these fundamentals, underscoring their relative independence. Kim (2009) further shows the effects of the Global Financial Crisis on Asia–Pacific property and REIT markets. Building on these findings, this study also considers the relationships between J-REITs and overseas markets by examining connections with exchange rates and global REIT index.

Studies highlight the role of J-REITs in portfolios. Newell and Peng (2012) find J-REITs provide diversification benefits in mixed-asset portfolios. Cho (2017) shows that hotel and industrial J-REITs generated the strongest risk-adjusted performance with diversification gains. Lin et al. (2019) emphasize residential J-REITs as an institutionalized sector with consistent returns.

Sponsor structures are central in Asian REITs. Wong et al. (2013) show sponsor backing influences IPO performance, while Tang and Mori (2017) demonstrate sponsor ownership shapes governance outcomes. Mori et al. (2022) find that business-group (keiretsu) sponsorship provides risk-sharing that reduces volatility in J-REITs.

Capital structure and corporate events have also been studied extensively. Ong et al. (2011) show that seasoned equity offerings (SEOs) in J-REITs are influenced by prior acquisition patterns and market conditions. Ota and Takahashi (2018, 2025) demonstrate that dividends, acquisitions and financing choices (dilution and borrowing ratios) drive abnormal returns around SEOs. Ma and Michayluk (2015) analyze mergers, finding abnormal pre-announcement trading but limited post-merger gains. Nagano (2013) highlights debt-maturity structures in J-REITs, with little direct evidence yet on the role of foreign ownership in such financing policies.

Foreign investors also access Japanese real estate through alternative vehicles. Hoesli et al. (2022) show that non-listed value-add real estate funds in Japan attract growing foreign investor interest due to their strong diversification properties and consistent risk-adjusted returns. In other markets, Carstens and Freybote (2018) find that the introduction of REITs in South Africa improved liquidity through increased foreign trading. Regionally, Newell et al. (2013) document large capital inflows into Australian commercial property markets, illustrating global patterns of cross-border real estate investment.

Policy interventions shape the J-REIT market. Hattori and Yoshida (2024) examine Bank of Japan REIT purchases and their impact on REIT financing and investment.

The literature indicates that foreign investors respond to firm size, leverage, governance, sponsor structures, sector characteristics and macro-financial conditions, while REITs retain features distinct from equities. Yet, no prior study applies firm-level panel regression to foreign ownership in J-REITs. This study addresses that gap using data from 2014 to 2023 and also evaluates the effect of global index inclusion on foreign ownership.

This study examines the determinants of foreign ownership in J-REITs. The dependent variable is the foreign ownership ratio of each J-REIT, measured semi-annually from 2014 to 2023. Explanatory variables capture financial characteristics, asset type, sponsor attributes and macro-financial conditions.

The sample consists of 33 J-REITs that were continuously listed since the end of 2013, yielding a balanced panel over a ten-year period (2014–2023). These represent a stable subset of the 58 J-REITs listed as of end-2023. The full list of sample REITs is provided in Supplementary Table S1.

J-REITs were classified as specialized if at least 90% of REIT assets were concentrated in one sector; otherwise, they were categorized as diversified. The distribution is as follows:

1. Office REITs: 7

2. Retail REITs: 2

3. Hotel REITs: 3

4. Residential REITs: 4

5. Logistics REITs: 3

6. Diversified REITs: 14

Sponsor structure was coded into three mutually exclusive dummy variables:

1. Domestic Real Estate Sponsor: ≥50% ownership of the asset management company by a domestic real estate developer.

2. Foreign Sponsor: ≥50% ownership by a foreign parent company.

3. Keiretsu Sponsor: affiliation with a Japanese business group, following Mori et al. (2022).

Foreign ownership ratios were obtained from statutory securities filings, annual/semi-annual reports and presentation materials. Because J-REITs have staggered fiscal year ends, each year was divided into two periods (January–June and July–December).

Firm-level financial variables (market capitalization, ROA, gearing ratio) and market indices (Nikkei Stock Average, Tokyo Stock Exchange REIT Index) were collected from Nikkei Value Search. Macro-financial data (interest rates, USD/JPY exchange rates, Bank of Japan J-REIT purchases and FTSE EPRA/NAREIT Global REIT Index) were sourced from the Bank of Japan and Mitsubishi UFJ Research and Consulting.

The dependent variable is the foreign ownership ratio of each J-REIT, measured semi-annually from 2014 to 2023. Explanatory variables include: market capitalization, ROA and gearing ratio. Macro-financial factors are Nikkei Stock Average, Tokyo Stock Exchange REIT Index, Japan's policy interest rate, BOJ's J-REIT purchase volume, USD/JPY exchange rate and the FTSE EPRA/NAREIT Global REITs Index. Sponsor structure is captured by dummies for foreign parent, domestic real estate company, and keiretsu group. Asset-type dummies cover office, residential, retail, hotel and logistics. Table 1 (summary of variables) shows the variables used in the panel analyses. Basic statistics of variables are provided in Supplementary Table S2 (Basic Statistics).

Descriptive statistics for all variables are presented in Supplementary Table S2. These statistics report the minimum, maximum, mean and standard deviation for continuous variables, and the proportion coded as one for dummy variables.

To establish a baseline, foreign ownership ratios were aggregated across all sample J-REITs, and the time-series trend of the average foreign ownership ratio was examined for the period 2014–2023. In addition, the market capitalization of J-REIT units held by foreign investors and the number of foreign investors were tracked to provide a broader view of evolving foreign participation in the J-REIT market.

To identify determinants of foreign ownership, panel regressions were estimated using 660 firm–period observations (33 J-REITs observed semi-annually over 10 years). Both fixed effects and random effects specifications were considered. Multicollinearity was assessed using variance inflation factors (VIFs). Model selection between fixed and random effects was guided by the Hausman test, and the discussion centers on the variables retained in the preferred specification.

Finally, the impact of global index membership was evaluated for the 13 J-REITs added to the FTSE EPRA/NAREIT Global REIT Index during the study period. For each inclusion event, foreign ownership ratios immediately before and after index entry were compared. A t-test assuming unequal variances was applied to test whether the rate of change in foreign ownership differed significantly from non-inclusion periods.

The semi-annual trend in the foreign ownership ratio of 33 J-REITs from 2014 to 2023 showed a modest upward trajectory, fluctuating between 20% and 25% over the decade. At the firm level, the maximum ratio declined from 61.8% in 2014 (Ichigo Office REIT) to values between 40% and 50% in later years.

Conversely, the minimum ratio increased, with Daiwa Office Investment Corporation rising from 4.9% in 2014 to 14.5% in 2023, and Starts Proceed Investment Corporation from 4.8%, to 14.8% over the same period. As lower-ranked J-REITs experienced gains, the gap between the highest and lowest narrowed. The standard deviation of ownership fell from 12.1% to 8.1%, indicating reduced dispersion across the market.

The average market capitalization held by foreign investors increased 1.85x, from JPY1,547 billion in 2014 to JPY2,856 billion in 2023, slightly outpacing overall market growth of 1.76x. This indicates that foreign investors have broadly expanded their holdings in line with the market growth.

Exceptions were observed: United Urban Investment Corporation and Japan Prime Realty Investment Corporation both grew in market capitalization (∼1.2x each) while experiencing declines in foreign ownership ratios of 6.1% and 4.2%, respectively, reducing their contribution to total foreign-held capitalization (Supplementary Figure S2).

The breadth of foreign participation also expanded. The average number of foreign investors nearly doubled from 177 in 2014 to 343 in 2023, although Japan Prime Realty Investment Corporation was an exception with a slight decline. Please see Supplementary Figure S4 for reference.

Multicollinearity was tested using VIFs. The highest value was 3.503 for the Tokyo Stock Exchange REIT Index, well below the standard threshold of 10. This indicates no significant multicollinearity concerns, and all variables were therefore retained in the panel analyses. Full VIF results are reported in Supplementary Table S3.

Both fixed effects and random effects models were estimated. The Hausman test yielded χ² = 16.062 with p = 0.098, failing to meet the 5% significance level. Accordingly, the random-effects model was preferred. However, given the difficulty of assuming that individual effects are uncorrelated with explanatory variables, the fixed effects model is often employed. Therefore, both models are presented in Table 2, and further discussion is provided.

In the random-effects model, the coefficient of determination (R²) was 0.294. Market Capitalization and Gearing Ratio were positively significant at the 1% level, suggesting that larger and less levered J-REITs attract greater foreign investment. ROA, by contrast, was negatively significant at the 1%. Since lower ROA in J-REITs typically reflects high-quality, low-yielding assets, this implies that foreign investors favor J-REITs with superior properties rather than those delivering higher accounting yields.

Among macro-financial variables, the Nikkei Stock Average and REIT indices (Global REITs and TSE) were insignificant, indicating limited linkage between foreign ownership and equity or REIT market benchmarks. In contrast, Japan's policy interest rate was negatively significant at the 1% level, consistent with lower interest rates encouraging foreign ownership.

The Bank of Japan's J-REIT purchase volume was also negatively significant at the 1% level, implying that foreign investors hold more units in stable periods when BOJ intervention is low. The foreign exchange rate was negatively significant at the 5% level, indicating that yen appreciation supported foreign inflows.

Sponsor dummies (foreign company, real estate company, and keiretsu) were found to be insignificant.

For asset types, office, residential and retail-were not significant, while hotel was positively significant at the 1% level, reflecting the appeal of globally branded assets. Logistics was negatively significant at the 10% level, despite their prominence in capital markets, suggesting reduced appetite.

In the fixed effects model, the coefficient of determination (R²) was lower at 0.251, but the variables adopted were consistent: market capitalization, ROA, gearing ratio, interest rate, BOJ purchases and exchange rate. Additionally, the foreign company sponsor dummy became significant, capturing shifts in ownership structure from domestic to foreign through M&A during the study period.

Inclusion in global indices such as the FTSE EPRA/NAREIT Global Index enhances visibility to international investors. During the study period, 13 out of the 33 sample J-REITs were added to the index. Table 3 compares the Foreign Ownership Ratios immediately before and after inclusion. On average, foreign ownership ratio increased by 4.1% in the six months following inclusion. Several J-REITs showed especially large gains, including Invincible Investment Corporation (9.5%) and Global One Real Estate Investment Corporation (5.0%). Overall, 12 of the 13 J-REITs recorded increases in foreign ownership, with only AEON REIT Investment Corporation showing a modest decrease (1.7%), underscoring the positive effect of index inclusion.

To verify the statistical significance, a t-test compared the rate of change in the Foreign Ownership Ratio around inclusion with the rate of change during other periods (Table S4). The mean change in foreign ownership was 4.1% (n = 13, variance = 8.2) compared to 0.025% across other observations (n = 614, variance = 5.2). The t-statistic (−5.06, df = 12) and two-tailed p-value (0.000) confirmed that this difference was statistically significant at the 1% level, demonstrating that index inclusion significantly impacts foreign ownership ratio J-REITs. Full test outputs are provided in Supplementary Table S4.

Most findings align with existing studies, though some differ in ways that highlight the distinct features of the J-REIT market.

1. In the Japanese stock market, Fang and Stulz (1997) reported that foreign investors prefer large firms with strong accounting performance and low leverage. This study confirms that foreign investors also favor larger J-REITs with relatively low leverage. However, unlike the stock market, lower ROA was more attractive. Since in J-REITs a lower ROA typically reflects prime, well-located assets with lower yields, this suggests that foreign investors prioritize asset quality and stability over accounting profitability.

2. Yen appreciation was associated with higher foreign ownership, consistent with prior findings on the relationship between the Hong Kong dollar and investment in Hong Kong from mainland (Liu and Jo, 2019). Yen strength makes J-REITs less expensive in foreign currency terms, enhancing their attractiveness.

3. Prior research explored relationships between REITs and other asset classes such as stocks, bonds, and real estate (Clayton and MacKinnon, 2003; Miyakoshi et al., 2016; Newell and Peng, 2012; Cho, 2017; Lin et al., 2019). Here, no significant relationship was observed between foreign ownership ratio in J-REITs and stocks indices. Instead, the interest rates underlying bonds, were determinant, with lower rates supporting greater foreign ownership. Sectoral differences were also evident: foreign investors favored hotel J-REITs but not logistics J-REITs, despite their global appeal (Cho, 2017). Unlike Lin et al. (2019), this study found no significant relationship with residential REITs.

Regarding the sponsor types, previous research suggested conflict of interest and varying profitability depending on whether sponsors are real estate companies or keiretsu groups (Wong et al., 2013; Tang and Mori, 2017; Mori et al., 2022). No such differences were observed here, suggesting foreign investors emphasize scale, asset type and macro conditions over sponsor affiliation.

1. Hattori and Yoshida (2024) examined the impact of the Bank of Japan's REIT purchase program. This study confirmed that foreign investors increased their holdings when the BOJ's purchases were low, implying foreign investors allocate more capital during stable, non-intervention periods.

2. Finally, consistent with Dong et al. (2023) and Li et al. (2024), this study demonstrates that J-REITs experience a significant increase in foreign ownership after being added to the FTSE EPRA/NAREIT Global Index, reinforcing the role of benchmarks in shaping capital flows

Overall, the results highlight three central themes. First, firm-level characteristics such as scale, leverage and asset quality strongly influence foreign ownership in J-REITs. Second, macro-financial conditions – including exchange rates, interest rates and central bank interventions, exert a substantial influence. Third, institutional mechanisms- – especially index inclusion, play a decisive role in shaping foreign participation. Foreign ownership in J-REITs thus reflects the combined effects of firm fundamentals, macroeconomic environments and institutional channels, offering a clearer understanding of how global capital engages with Japan's REIT market.

This study analyzed foreign ownership in J-REITs between 2014 and 2023 through panel regression analyses and an event study of global index inclusion. The key findings are as follows:

Across the 33 J-REITs listed before 2014, the average foreign ownership ratio rose modestly, from ∼20% to ∼25%. Market capitalization increased 1.76x, while foreign-held market portion rose 1.85x. (see supplementary Figure S3). The number of foreign investors nearly doubled (1.95x), signaling growing foreign participation. Although COVID-19 disrupted market activity, no structural shift in ownership was observed, suggesting that foreign investors maintained strategic positions despite short-term volatility.

Panel regression showed larger J-REITs attracted more foreign capital, while higher leverage discouraged it. Lower ROA, interpreted as a proxy for prime, well-located assets with lower yields, was also associated with higher foreign ownership. Macro-financial variables were important: yen appreciation, low interest rate, and reduced BOJ purchase volumes were all linked to higher foreign ownership. Sponsor type and traditional sectors (office, residential, retail) were not significant, whereas hotel was positively significant and logistics negatively significant.

Of the 33 J-REITs, 13 were added to the FTSE EPRA/NAREIT Global Index during the study period. On average, foreign ownership increased by 4.1% within six months on inclusion. A t-test confirmed this effect was statistically significant at the 1% level, underscoring the visibility and credibility that index membership provides.

For investors, the results highlight that size, conservative leverage, and exposure to hotel assets are key signals of attractiveness in J-REITs, while logistics exposures require caution. Yen appreciation and stable policy environments, including interest rates also influence timing of entry.

For J-REIT managers, strategies to attract foreign capital include maintaining scale, limiting leverage, emphasizing high-quality core assets and seeking inclusion in global indices.

For policymakers, the findings suggest that BOJ interventions may unintentionally crowd out foreign investors, while clear pathways to index engagement can amplify Japan's integration with global capital markets.

For emerging REIT markets, the Japanese experience shows that building scale, pursuing index recognition and fostering stable macro conditions are critical to drawing sustainable foreign capital.

While this study focused on trends in the foreign ownership ratio of J-REITs, future research could extend this work by examining the impact of foreign ownership on capital costs or risk-taking behavior, as examined in Dahlquist and Robertsson (2004) and Nguyen (2012). This could provide deeper insight into the role of foreign investors in REITs.

Data were sourced from publicly available J-REIT reports and the Nikkei Value Search database (subscription required). Other disclosures are accessible on J-REIT investor relations websites. The authors declare no competing interests and received no external funding.

We would like to thank Shun Hiroi for his help in conducting this study.

The supplementary material for this article can be found online.