Like its people, Japan’s commercial real estate market has remained resilient and steadfast in the wake of the earthquake and tsunami of March 2010.
Studies show a drop in rents, particularly for the office sub-sector. Between early and late 2011, rents largely dropped back slightly, as a result of reduced demand from the US and Eurozone, where debt fears have led to caution among international financial investors. However, demand for modern and earthquake-proof housing and logistics facilities is increasing steadily, providing opportunities for developers to begin new projects and complete existing ones.
Recent economic figures have indicated a slight improvement in activity in Japan, but we do not expect this to hold up for the rest of 2012 or 2013.
What are the opportunities in the Real Estate Market?
- An increase in demand for industrial supply in the wake of the earthquake caused rents in that sub-sector to remain buoyant at the end of 2011, particularly in Tokyo.
- While office rents dropped slightly, new supply is expected online in 2012, which if demand can rebound in kind, should contribute to heightened competition for space in the market.
- The government is beginning to focus on reviving tourism, which could provide a long-term boost to sales and related real estate activity in the retail sub-sector.
What are the Risks?
-The difficulty faced by smaller firms that wish to refinance their loans or gain access to funding may cause bankruptcies. This will also decrease competition in the market, at least for a time, as the larger companies are likely to soak up the extra market share.
-As a result of delays in project completion and changes in marketing activity, three of Japan’s five largest real estate companies recorded declining sales for the nine months ending December 2011, compared to the same period of the previous year.
-The hitherto booming electronics industry in the country is under increasing pressure from regional competition, in particular from China and South Korea. Many manufacturing plants have closed or downsized and there are concerns for the resilience of the sector.
So while it has been a hard and often bumpy road for the Japanese and they still have some distance to travel, a new dawn is now appearing on the horizon in the land of the rising sun. I am reminded of the proverb “A journey of a thousand miles begins with a single step.” The Japanese have already taken quite a few steps, and their pace is increase.