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Tokyo facing a glut of office space

19 Comments

Empty offices and declining rents. Miki Shoji, a Yaesu, Chuo Ward-based real estate brokerage specializing in contracting offices and other commercial properties for corporate clients, announced in its most recent market report that vacancies in Tokyo’s five central wards (Chiyoda, Chuo, Minato, Shinjuku, Shibuya) have increased for the past five consecutive months. The ratio of property vacancies has risen from 2.55% in January to 3.49% in June.

This, the evening tabloid newspaper Yukan Fuji (July 12) reports, clearly shows that demand for office space is declining. Along with impacting on landlords’ income, this will also affect dividends paid out to real estate investment trusts (REITs). Such trusts are a prime source of capital for property development, one of the mainstays of Japan’s economy

With the glut of offices, it has now become a buyer’s market for prospective tenants. The overall mood is becoming increasingly grim.

“As a result of increased supply from newly constructed buildings that came on the market between January and June of this year, the amount of vacant commercial space has increased by 58,000 tsubo (191,400 square meters),” Miki Shoji says.

Miki Shoji’s survey showed average rents in the five wards had declined to 33,301 yen per tsubo at present, down from 35,906 yen at the end of 2007.

“Both new buildings and properties like Roppongi Hills, which have been in operation for five years, are all in the process of negotiating reduced rents,” an executive at a trust bank tells Yukan Fuji.

After peaking in May 2007, the indices for REITs, which include equity, mortgage or hybrid types, have plummeted. Due largely to fallout from the subprime mess in the United States, investments have been declining.

“The appeal of the REITs to investors is diminishing, and their values are going drop further,” a source in the financial sector predicts to Yukan Fuji.

“It’s a fact that the U.S. subprime loan debacle and rising costs of petroleum are going to negatively affect business performance in fiscal 2008,” explains Meiji University professor Masaru Takagi. “The businesses hit by the downturn are a part of the low demand for office buildings in central Tokyo. I suppose this marks the start of a drop in land prices in the central parts of the city.”

So then here is another deflationary effect looming on Japan’s horizon.

© Japan Today

©2024 GPlusMedia Inc.

19 Comments
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Man, I hate it when there's a glut of office space!

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Reading between the lines, I think what the article's suggesting is that Japan is once again facing the collapse of another economic bubble. Nobody wants to hear the B-word, but it's staring us in the face again.

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Greedy landlords, I have no pity!

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I think there are a few factors to it.

Too many new office-towers, upgraded areas going up. Just look at what happened in and around Roppongi, Tokyo Station, etc.

Add to that many companies being forced to shut-down or downsize due to economic and other problems.

With the capabilities to have a good SOHO now many small to mid-sized firms no longer need to rent office-space when they can rent an apartment or small shop-space for less.

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Let's attempt to draw a few reality-strings together. An aging, retiring population. A declining birthrate. A loss to other Asian countries of almost 25,000 middle-aged experienced engineers per year, often hired into Taiwanese, PRC, Indonesian and Malaysian companies competing with Japan. A countryside that's in tatters and fast becoming depopulated. 800 small towns and villages where the average age is 75 or above, and the only store is a converted school bus making a weekly visit. Last year 120% of individual's savings went overseas for higher interest rates. An increasing number of bankrupt municipalities. Tokyo itself is bankrupt, and yet continues to pour money into ShinTaro Ginko. A business environment that is openly hostile to foreign capital, and its concomitant ability to control companies. Essentially, Japan is not open for business. The bottom line is, the money has gone elsewhere. That's why there is so much vacant commercial premises. Basic economics. (I've gleaned the above snippets from the major English language dailies over the past year, by all means check for yourself.) Japan has an economic shock fast looming. While Tokyo has a glut of office space, many small towns have a glut of empty houses. And it's not going to get any better anytime soon.

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this has really been the case for 15+ years...what happens is, Mori or some other clown puts up a new complex, and to get tenants he just offers better deals to his existing tenants at his other buildings...so it's just a game of musical chairs...japan isn't attracting new tenants, overseas companies would rather set up shop in singapore, HK, KL, or shanghai

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Congratulations Libertas on gathering snippets from English newspapers and connecting the dots. Now, let's learn to read Japanese and get more dots to connect. Before foreign critics liked to point our Japan's irrationsl use of capital. Then when they decide to cut off subsidies to unnecessary companies and communities, they observe that Japan is dying. Foreign critics like the local scenery I guess. It is so "Japanesque" compared to the big city.

If you could read Japanese, you would know that if Japan needed foreign capital, it would let it in. It has lots of capital. Why do you think foreigners are trying so hard to get in (Steel Partners?). They are salivating at the wealth they could be taking home. Congratulations to Japan, that unlike the US, keeps control at home. You just have to learn to look below the surface, like they have.

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gokai

Are saying Jpn is getting stronger? Getting it right more often then wrong?

Sounds like you have been hanging around disney land too much, as for steel partners, they are looking for quick short term gains. There are plenty of problems with J-mgmt & they want milk companies & move on. Not saying J-companies dont need a kick in the pants but pls steel partners just want to get in cheap, pressure mgt to sell assets & give out higher dividends, again not saying thats wrong but doesnt go down well here or perhaps you forgot & didnt read about bulldog

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No, I did not say that Japan is doing things perfectly.

I forgot to address the issue at hand: declining office rents. That's because of massive overbuilding (ie., the 2011 problem). Japanese do two things very well: make things and build buildings. Building buildings is a carryover from the war, where everything had been bombed back to the stone ages (hence, the strong construction/politics relationship). As I look out over my balcony, I see no less than a dozen cranes building new skyscrapers.

However, there is no doubt Japan has lots of equity that US funds want to get their hands on. They complain about lots of things. Like, why are all the documents in Japanese? Why is everybody speaking Japanese? Get a grip. Japan doesn't have to do anything it doesn't want to. Markets are not a charity event. Just because the US wants to sell its assets to anyone with money (including Japanes) doesn't mean Japan has to reciprocate if it doesn't want to. That is a Junior high soccer pitch sense of fairness. Not reality.

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Umm, getting back to the reported office glut article... An office vacancy rate of 3.5% is still pretty hot. Most cities would kill for that kind of rate. Actually, you don't have to worry about vacancy rates until it drops double digits. The author of the article is just a sensationalist and probably knows little about real estate.

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SaruTobi- I absolutely agree with you

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As the saying goes, urban redevelopment has a net zero outcome. When you build a fancy new skyscraper, shopping center, apartment, or other building, an older one falls out of use and that part of town becomes unpopular. There isn't so much growth that both are at full capacity. This is especially true in trend-loving Japan.

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Come to think of it, falling office rents would be good for Tokyo in the long run. More companies would be able to and willing to set up in Tokyo. Or is that deflation?

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The only surprise there is that rents are coming down - I had heard that people like Mori were still trying to push them up. It's abouit time and I have been wondering for years why all these new office blocks - now if the government had some real balls they would stop granting planning permission. Won't hold my breath on that!

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3.49%

??????? Ah, excuse me, but that is damn good! What other capital city can claim a rate like that??

And this reporter is running around saying it`s bad?? what a muppet?

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Sorry... but blaming subprime is getting old. Fact is Japan's economy has been in the toilet long before the subprime issue came up. Japan has continued to rely on large scale construction projects to stimulate it's economy but with no luck. The old strategy simply doesn't work when domestic spending is held down by issues such as the pension, unemployment, government scandals, rising fuel prices, and a declining birthrate ! try some of those on for size and you will quickly realize that J consumers are simply not interested in risky land or building purchases ! Nope... nothing to do with the US, subprime, etc. Japan refuses to address the real issues and subsequently will continue to sit back and watch their beloved economy fall further into turmoil. Empty buildings, office glut, outrageous prices for purchase and rent... Japan is one huge train wreck about to happen... and they insist on blaming others ! What an immature nation and poor leadership we are witnessing here ... sad indeed, but, you get what you pay for.

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well maybe these realestate rip off artists can finally be taken down enough pegs that they cant extort several years worth for deposits etc for new tenants, it sure is a barrier to entry for someone wanting to start their own thing, screw em all

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Hugh,

Probably only Seoul, SK can brag about lower vacancy rates. You are right that most cities would outright ENVY a 3.49% vacancy rate. Singapore should be about 7% and London was about 10% I believe. New York is hovering about a 7%+ vacancy rate. I also remember LA having a 14% vacancy rate at one time...

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This has been going on since about 1990 when the "ghost building" was build where the old post office was in Shinjuku and couldn't get a single tenant for almost a year. The price of property in Tokyo really took a dive for a while but has been climbing lately. It's likely going to slow down for a while as companies try to judge how best to ride out the present financial mess in the US. It should help new companies though. Time will tell.

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