Kenzo Capital Coporation

Tokyo Office Market Update – February 2011

  1. Latest Economic Brief

    • The GDP figures released on February 14, 2011 confirmed that the economy shrunk in the forth Q of 2010 as expected though with a minus 0.3% q o q result the economy shrank less than expected (Median forecast minus 0.5%). The shrinkage follows a 0.8% gain in the third quarter 2010 and was expected because of an expiry of government incentives for car and environmental friendly household equipment purchases.
    • The economy that saw the first decline after 5 straight quarters of growth, in seen on track for an ongoing moderate recovery during 2011. Over the whole of 2010 the Japanese economy grew 3.9%.
    • The ongoing capital expenditure that rose 0.9% in Q4 after a 1.5% rise in Q3 is one of the strong supports to this expectation together with ongoing external demand.
    • Exports, increased in JPY terms by 24.1 % between 2009 and 2010 despite the JPY’s spike to a 15 year high against US$ and Euro.
    • Japan continues to participate in the Asian growth:
      • The 2010 total exports in US$ rose to 760 billion, representing 13.9% of the country’s GDP of US$ 5,442 billion. 5 years ago the experts of Japan made up for US$ 598 billion.
      • The growth in exports mainly comes from exports to Asian countries which in 2010 received 56.1% of Japan’s shipments (up from 48.4% in 2005),
        • shipments to Europe represent 12.8 in 2010 down from a share of 15.7% in 2005
        • Shipments to North America made up 16.6% of Japan’s exports in 2010, in 2005 this share was 24%.
    • Several factors indicate that consumer prices will increase during 2011 and exit from the downward trend of the past 2 years. The upward pressure will come from increasing prices on the world markets for energy and commodities. On top the onetime factors in 2010 like the abolition of public school fees will result in upward pressure on the CPI in 2011. As a result the CPI should see moderate positive growth in 2011.
  2. Vacancy Trend

    • After exceeding 9 % in last June, the average vacancy rate for the Tokyo 5 Wards leveled off at last.
    • CB Richard Ellis reported the demand for offices in Tokyo 5 Wards started to close the gap with the supply in 3Q of 2009 and almost eliminated it in 3Q of 2010.
    • Large-scale and high-quality offices in Tokyo 5 Wards attracted many tenants in the latter half of 2010 for their reasonable rents, while small-sized or low-quality offices were still struggling against insufficiency of demand.
    • The vacancy rates of class S and class A office buildings posted by CBRE peaked out in 4Q of 2009 and continued decreasing to 4.1 % and 4.9 % in December 2010 respectively.
    • New office supply in 2011 is expected to be lower than the average for the last decade in all Tokyo 23 wards, following the last 3 years. Most of the supplies are planned to be out of major business areas in the Tokyo 5 Wards.
  3. Rent Trend

    • The rents in the Tokyo 5 Wards continued to decline owing to the high vacant rates. The average rent of the 5 Wards in December 2010 is down around 20% from the most recent peak in 2008, almost the same as the lowest level for the last decade.
    • CB Richard Ellis hinted that the closing rent for some large-scale and high-grade offices in the Tokyo 5 Wards seemed to bottom out unlike that of small-sized or low-quality offices. The difference of rent between office classes was tightened.
  4. Recent Transactions

    • Some opportunistic funds restarted investing in Tokyo office properties in 3Q of 2010, but after that they played a roll of sellers in this sector.
    • Major J-REITs bought far more properties from their sponsors since the end of last year with their full-scale share price recovery.
    • In 4Q of 2010, foreign investors stood out in other sectors than Tokyo office market:
      • Pacific Alliance Group, a Hong Kong-based investment company is substantially acquiring Secured Capital Japan, a major listed real estate fund manager.
      • Credit Agricole Group acquired JPY 20 billion residential portfolio.
      • Trinity Investments, a US-based real estate investment company, acquired retail property in central Tokyo for JPY 31 billion.
    • Some European investors acquired great office properties successfully throughout 2010.
  5. Details:

    1. Office Vacancy Trend


      (Source: Miki Shoji)

    2. Office Rent Trend


      (Source: Miki Shoji)

    3. Recent Transactions (in excess of JPY 5 Bio)


      (Click to enlarge)

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