Abstract
Most aspects of the Japanese real estate markets are currently under pressure
in terms of pricing due to
deteriorating fundamentals caused by
significantly tightened lending policies by banks, reducing gearing
capabilities for the major players, pressures on owners of real estate from
banks in refinancing
negotiations, and a weakening economy. This has
resulted in some distressed selling of real estate and six
collapses of
major real estate companies in Japan in Q109.
Transactional volumes in the
direct property market are down significantly in the first quarter of 2009.
As
such it is difficult to gauge the real move in yields (and therefore
prices) for real estate in Japan.
However, based on the limited
transactional evidence prices have fallen across commercial, retail,
industrial and residential sectors. Particularly evident in Japan has been the
trend by lenders to place more
positive emphasis on quality of assets and
as such it has remained virtually impossible to obtain finance
for
sub-prime property. This trend also occurred with refinancing where banks were
less willing to
refinance debt associated with sub-prime real estate. As
such, the value differential between prime and
sub-prime property has
probably widened significantly in Japan, although it is difficult to fully
assess this
given the lack of transactional evidence in 2009 to date.
The commercial sector in Japan is currently being significantly impacted by a
weakening economy
combined with new supply coming on to the market,
particularly in Tokyo. According to research by
DTZ, vacancy levels in
commercial property in Tokyo rose 1.33 percentage points (pps) to 6.05% in
Q109 from 4.72% in Q408. This was the fourteenth consecutive month of an
increase in vacancy levels in
Tokyo. Rents dropped 4% from the previous
quarter and 5.4% year-on-year (y-o-y) to JPY21,295. The
trend in
commercial office space is for internal space reduction, moving to more cost
effective locations
and negotiating rental reductions. Pressure on
companies and in particular in the finance sector has
resulted in
companies increasingly focused on reducing costs. Given head count reductions
in major
companies demand for rental space is under pressure. The leasing
market is slower across major
commercial centres in Japan.
The
residential sector in Japan is also under pressure from a weaker economy,
tightened lending policies
from the banks and reduced demand. Prices for
residential apartments in Tokyo dropped 5% in the quarter
according to the
Real Estate Investor Network. Relative to other cities in the Asian Pacific
region, this fall
was fairly subdued and may reflect a lack of previous
‘bubble’ conditions in Japanese residential prices.
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