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Japan Real Estate Report Q4 2011
Business Monitor International, Oct 2011, Pages: 43
Business Monitor International's Japan Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Japan's Real Estate industry.
In the last update, the Japanese market for real estate seemed rather dire in light of the disastrous effects of March's earthquake and subsequent tsunami. The picture now is more mixed and certainly not one that is entirely negative. Although there are many commercial casualties, there are areas and business that have and will benefit from the change in circumstances.
Stepping somewhat aside from the direct effects of the earthquake and tsunami, the country has systemic problems that are affecting the real estate market. A population that is ageing and not growing in number has long been an issue for debate in relation to much of industry. Japan is also besieged by political instability and yet another change of leadership does not help the country recover and we may well see another very slow period economically for the country. The real estate market will have to bide its time too.
A factor that is contributing to this ‘wait and see' phase, particularly in the investment market, is the need to evaluate the safety of buildings. Space that was built pre-1981 was constructed to different earthquake standards and the new regulations make buildings substantially safer. CB Richard Ellis explains that take-up of vacant space has been stronger in buildings that meet the post-1981 standards. Jones Lang LaSalle points out that there has also been some movement of tenants – specifically to newer buildings, in particular those with their own source of power, brought on by the ongoing issues with electricity outages.
Some of the key opportunities currently in the real estate market are:
- An increase in the activity of local real estate investment trusts (REITs) is likely in light of lower prices and this will be alongside continued improvements in their structure in the country.
- The redevelopment of homes and business provides a huge opportunity for development. It is enhanced by the government's commitment to building 100,000 temporary homes quickly.
- The disaster has caused a redefinition of where business is transacted and where people want to be. In light of this, one of the areas increasing in popularity is Osaka, where a small but steady flow of businesses have and are moving to from Tokyo. Jones Lang LaSalle reports that previously, Osaka had a schedule of new office space developments for completion in 2013 that would have heavily exceeded demand.
- The earthquake scared away some investors from the country's own Real Estate Investment Trusts (REITs or sometimes J-REITs in Japan). Before then, they had been attractive because the country had such low interest rates for savings. Bloomberg explains that REITs with space in their portfolios for more property are able to take advantage of low prices in this period of low rents where property owners need to sell.
- US distribution firm Prologis has said that its effective rents from Japanese warehouse tenants may rise by 10% by July 2012, according to Bloomberg in July 2011. The increase is likely due to a shortage of available warehouse space in Japan, following damage to a number of facilities in the March 2011 earthquake and tsunami. The firm also plans to provide new supply to meet the strong demand.
Some key risks to the current real estate market are:
- Existing and well-known structural problems in the economy, with the government under pressure to rein in its massive debt.
- A long period of stagnation economically, in business and in real estate could cause interest in the sector to dry up.
- US private equity firm Lone Star is hoping to sell Tokyo's Meguro Gajoen building for JPY100bn (US$1.3bn), reported Reuters in mid-August 2011. The firm hopes to sell the office and banquet hall complex before its loans on the property expire. The current economic climate in Japan means that it would be very difficult for the firm to refinance these loans.
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