For the near term, investors will continue trying to gauge the pandemic's ripple effects on office demand, even as many conclude Japan has less to fear than other major markets about the emergence of a material work-from-home contingent.
On that account, there's less threat of a falloff in office demand in places like Tokyo, where homes as cramped as 200 or 300 square feet are not unusual, Ms. Lo noted.
There may be lingering uncertainty about the pandemic's fallout but "the panic stage is definitely over," with few signs of a major decline in office demand on the horizon, said Hiroshi Okubo, Tokyo-based research head of CBRE Japan.
Longer term, a demographic overhang, auguring an accelerating decline in Japan's workforce, will add complexity to real estate's traditional "location, location, location" formula for success.
Official forecasts call for the country's working age population to slump to 50 million by the middle of the century from 72.4 million at present, leaving market veterans taking a nuanced view of market opportunities going forward.
"I'm cautious" about Japan's office sector "but not negative," said David Chen, Hong Kong-based managing director, chief investment officer and head of real estate Asia-Pacific with J.P. Morgan Asset Management's alternatives division, J.P. Morgan Global Alternatives. Modern, flexible workspaces with the right sustainability features will continue to be in demand, he said.
"Offices are evolving — definitely not dead, but some will not survive," noted George Agethen, co-head of Asia-Pacific with Ivanhoe Cambridge Singapore, the real estate arm of C$390 billion ($306.1 billion) Montreal-based pension fund manager Caisse de Depot et Placement du Quebec. "Like everybody else, we're making sure what we own is what people want, what users want," with an increasing focus on the qualitative aspects of the assets, especially sustainability, he said.
Inevitably, there will be more offices with low occupancy rates in the future, forcing real estate investors to focus increasingly on buying assets that can stay relevant over their investment horizons, said Suchad Chiaranussati, founder and chairman of Singapore-based real estate boutique SC Capital Partners, which invests more than half of its $7.4 billion in assets under management in Japan.
Still, while Japan's demographic outlook is far from reassuring, "I wouldn't be alarmed to the point where I'd stop investing," said Rushabh Desai, Singapore-based Asia-Pacific CEO of Allianz Real Estate. Instead, the focus has to be on factors that can ensure "our asset is resilient" enough to weather any macro challenges, he said.
As a matter of diversification, meanwhile, a portfolio with a heavy weighting to markets with challenging demographics, such as Japan, can be balanced with investments in markets with better demographics, Mr. Desai said.
As an offset, Allianz Real Estate looks to invest in countries with young and growing populations, such as India, where the firm made an investment as recently as a month ago, said Mr. Desai. The firm's latest acquisition lifted its exposure to Indian offices to between $600 million to $700 million, up from roughly $500 million at the end of 2019, he said.
The Allianz team continues to look at Southeast Asia, Vietnam, the Philippines and Malaysia as well, Mr. Desai said.
Money managers say on a five- to 10-year horizon, or even 20 years out, Japanese offices remain an attractive proposition.
"We're bullish on office," said Gaw Capital's Ms. Lo. In January, Gaw increased its exposure to Japan's office sector "significantly" with the completion, in tandem with Invesco Ltd., of a $3 billion privatization of Invesco Office J-REIT Inc.'s portfolio of 18 office buildings — 12 in Tokyo and the remainder in Yokohama, Osaka, Nagoya and Fukuoka, Ms. Lo noted.
"We also see domestic companies' interest in office coming back this year" after a few years where a "wait-and-see" stance prevailed, she said.
Mr. Okubo said CBRE sees a similar trend.
A year ago, CBRE's annual survey of domestic institutional investor interest in Japanese real estate saw the office sector cede top place as the most preferred market segment — to logistics — for the first time in five years, Mr. Okubo said.
For the latest survey, conducted in December, office reclaimed the top spot, he said.
Beyond one or two decades, however, some market veterans hesitate to make predictions.
"I think we're living in 2022 in a world we probably couldn't predict in 2002," said Glyn Nelson, Singapore-based head of research and strategy, Asia-Pacific, with real estate boutique AEW Capital Management LP. "It's fairly hard to have a strong view of what 2042 is going to look like."