21 January, 2011
DTZ Debenham Tie Leung K.K., a global property adviser, has issued a quarterly property market report, “Property Times Japan – Quarter 4 2010”. The report contains office market overview of Tokyo and Osaka, as well as the trend of economy and real estate investment market in the fourth quarter of 2010.
Summary of the Report
- The adjustment continued for the Tokyo office leasing market, which had no significant recovery. However, there were small signs of progress as the vacancy rate for Tokyo CBD grade A office space remained at 7.02% in Q4 2010, holding steady from the previous quarter. On the other hand, rents fell by an additional 3.6% from Q3 2010 to JPY 26,926 per month per tsubo. Looking back at 2010, vacancy levels at the end of December fell 0.24% points y-on-y, while rents declined by a significant 14.3%, which was sharper than the 12.8% decline in 2008–2009. We expect the grade A office vacancy rate to shrink slightly in 2011, while rents will turn around in 2012. However, a large amount of supply will keep the pace of improvement at a minimum.
- The Q4 2010 grade A office vacancy rate in the Osaka CBD rose 0.26 percentage points to 10.13% after falling in Q3 2010 for the first time after 12 quarters of increases. Rents declined by an additional 1.9% q-on-q to JPY 15,561 per tsubo per month. The market remained weak throughout 2010. The vacancy rate declined 2.22 percentage points y-on-y, while rents fell 3.6% y-on-y. On the other hand, the new stock in 2010 exceeded the supply amount in 2009 and this large amount of new supply hurt the market in 2010.With the slow economic recovery, the office market remained dull due to weak corporate demand.
- The investment market remained slow in Q4 2010. Despite the improvement of investor interests as well as the environment, the market suffered from illiquidity with few investable properties. Consequently, total investment volume fell 31% to JPY 277.6 billion from the previous quarter. However, in 2010 the total value of deals made increased significantly from a year ago, by 64% to JPY 1.8 trillion. J-REITs and local corporates remained dominant in the market, while some European investors re-entered, in addition to new Asian players. High net worth individuals also showed strong interest. As the fiscal year-end is approaching in March, investment opportunities are gradually increasing. Although the total transaction amount may not reach the same level we saw in Q1 2009, greater activity is expected.
- The REIT market improved significantly in Q4 2010. It has been suffering since the summer of 2007 after the U.S. subprime market collapsed. However, the announcement by the Bank of Japan in October regarding the additional monetary easing policy, which includes the intention to purchase J-REIT stocks, boosted the market by year end. Although the proposed maximum amount for the purchase of J-REIT stocks turned out to be only JPY 50 billion and only stocks rated AA or above, investor sentiment was largely improved. Consequently, both the TSE REIT Index and the market capitalization rose by 21% over the three months to the end of the year to 1,130.70 and JPY 3.7 trillion respectively. The market capitalization has expanded by more than 30% year to date.
Yoshiki Kaneko, CEO of DTZ Japan comments, “The adjustment in the Tokyo office market may continue for a short term. On the other hand, investors are increasingly seeking opportunities in Japan. Those investors include institutional investors from the western countries, but more recently the one from the buoyant Asian economies. Along with the recovery of the J-REIT market, the increasing investment activities by these players are expected to contribute to the improvement of the entire real estate market in Japan.”