Kenzo Capital Coporation

Tokyo Office Market Update – February 2009

  1. Latest Economy Brief:

    • The Economy has been hit by the global recessional trend. Mainly due to a reduction in exports (Dec quarter end: minus 27%), the Japanese economy is expected to shrink in the FY2010 (March ’10) and also in the FY2011 (March 2011).
    • In contrast to other global economies, the Japanese economy is not suffering from major structural problems, especially in its financial systems which remain intact.
    • The real estate sector is being hit by the exit of foreign lenders (mainly CMBS arrangers) who provided excess cash during 2003 to 2007 at terms no longer available.
  2. Rent Trend:

    • Rent began to fall in most areas starting in the latter half of 2008.
    • Prime area S class size office rent dropped rapidly compared to traditional areas.
    • The traditional area medium size office rent drop was minor due to diversity of tenants and healthy demand base.
  3. Vacancy Trend:

    • Vacancy in all markets is in an upward trend, but still keeping at an average level of 4.7%.
    • Minato, Shinjuku, and Shibuya ward vacancy exceeded 5 %, while traditional areas stay below 5%.
    • Tokyo holds relatively low vacancy rates (below 10% during the last decade) compared to other major global cities like Hong Kong, London or Frankfurt.
  4. Recent Transactions:

    • Developers/REITs/Opportunistic investors are currently disposing their assets.
    • Only a limited number of transactions are occurring due to a buyer-seller gap.
    • Recent buyers are Japanese balance sheet holders and foreign core funds.

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