Kenzo Capital Coporation

Tokyo Office Market Update – July 2009

  1. Latest Economy Brief

    • Although the economy contracted by 4% during Q1 2009, following a 3.8% Q on Q contraction in Q4 2008 the Bank of Japan upgraded its outlook for the economy for the first time in nearly 3 years: “The deterioration in the economic conditions is likely to moderate gradually, leading to a leveling out of the economy.”
    • The government announced an additional stimulus package worth JPY 56.8 trillion (Euro 435 billion) including JPY 15.4 trillion (Euro 120 billion) in fiscal measures to be submitted to the diet on April 27, 2009.
    • Including measures unveiled in 2008 the Japanese government has thereby committed in total the equivalent of 4.2% of the country’s nominal GDP in stimulus measures, the largest of any G 20 country and far beyond the average 2.6% of GDP of all G 20 countries.
    • Industrial production has risen for 4 month in a row in June with a m-o-m growth of 2.4% and forecast survey show that companies plan to increase their activities also in July.
    • While the recovery has been seen in producer goods and consumer goods, it has still not effected and increase in capital goods production. The working household income has been effected by a stimulus cash handout effected in March which should be regarded as the main reason behind the improved consumer goods production along with benefits offered by the government for the purchase of eco friendly electronic goods and vehicles.
    • BOJ has further increased its purchase of JGB, commercial paper and corporate bonds and will maintain its easing policy throughout the year
    • A possible change of the government from the post war dominating LDP to DPL in the next governmental elections in autumn may bring a shift of governmental spending away from public work investment and regional development to a much stronger and long overdue emphasis on consumer spending.
  2. Rent Trend

    • S class size buildings are experiencing large rent fall in excess of JPY 10.000 per tsubo or 25 to 30% y-o-y, but the falling trend of medium sized buildings, especially located in the “Traditional Area”, is relatively mild.
    • Struggle has been seen for buildings priced over 30,000 yen/monthly tsubo, while those priced around 20,000 yen located inside traditional office area or slightly off has enjoyed the most from recent leasing transactions.
  3. Vacancy Trend

    • Vacancy has soared up to 7% on average for the Tokyo 5 Wards, but raising trend seems to become relent.
    • The “Traditional Area”, Chiyoda and Chuo, kept relatively low vacancy, by contrast, the “New Area”, Shinjuku and Shibuya, and also the “Traditional Area” Minato which includes the volatile Roppongi, experienced severe tenant leave and high vacancies around 8%, almost same as the 2003 level.
    • According to market research, we expect that vacancy rate in the two central wards (Chiyoda and Chuo) and part of Minato Ward not exceed 7%.
  4. Recent Transactions

    • Japanese insurance companies seem to have become major players again.
    • Sponsor backed stronger REITs have been buying from sponsors at aggressive price, but most of those deals seem to be committed beforehand.
    • Troubled REITs continue to take the position of sellers.
    • Facing re-financing problems, REITs and private funds pressured by lenders shall be forced to sell at market price in the near future.

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