Japan Commercial Land Prices Slump to Record on Economy, Credit
By Tomoko Yamazaki and Katsuyo Kuwako
March 18 (Bloomberg) -- Japanese commercial land prices fell to the lowest in at least 36 years as developers faced tighter credit markets and the recession discouraged buyers.
Prices declined 6.1 percent in 2009, more than the 4.7 percent drop a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a report released today. Values are at their lowest since the ministry began collecting comparable data in 1974.
The decline in commercial prices, which are about a third of what they were in 1991 after Japan’s bubble economy peaked, may slow as the nation recovers from recession. Acquisitions by listed property trusts surged 18-fold to 66.4 billion yen ($735 million) in the three months ended December from the previous quarter, according to Urban Research Institute Corp.
“We’re seeing some signs of recovery,” said Hiromichi Iwasa, the head of the Real Estate Companies Association of Japan. “Office vacancy rates are still going up in the office market, but we could see a recovery sometime this year.” Iwasa is also president of Mitsui Fudosan Co., the nation’s biggest developer by sales.
Nationwide prices fell 4.6 percent overall, down for a second year. Residential land values declined 4.2 percent, accelerating from the 3.2 percent drop a year earlier.
Only seven of 27,410 comparable land parcels had price increases, the lowest on record, the ministry said.
Declines in Japan have been less severe than in other markets that have rallied in recent years. U.S. commercial property values in December were down 41 percent from their peak in October 2007, according to the Moody’s/REAL Commercial Property Price Index.
Major Cities
Commercial land prices fell in Japan’s three biggest metropolitan areas, with a 7.3 percent decline in Tokyo, 7.4 percent in Osaka and 6.1 percent in Nagoya, home to many of Toyota Motor Corp.’s suppliers.
Property developers and real estate companies accounted for eight of the 10 biggest bankruptcies among listed Japanese firms in last year amid the global tightening in credit markets.
Tokyo’s most expensive patch of commercial land, located in the city’s Ginza luxury shopping area, slumped 26 percent to 28.4 million yen a square meter, marking a second-straight annual decline.
LVMH Moet Hennessy Louis Vuitton SA abandoned a plan in 2008 for a major store in Ginza, and Seven & I Holdings Co., Japan’s largest retailer, will shut its nearby Seibu department store this year amid a decline in Japanese retail sales.
Property Demand
“In a nutshell, it’s all about the economy,” said Tomoya Nagai, a director of the ministry’s land price research division. “Economic weakness cut demand for residential and commercial properties and led to sluggish investment.”
Economic data in the past month have shown that the nation’s export-led recovery is starting to benefit consumers, with the jobless rate falling to a 10-month low in January and households increasing spending for a sixth month. The Japanese government earlier this week raised its assessment of the economy for the first time in eight months, saying the recovery is beginning to spur profits, home building and consumer spending.
Kenedix Inc., the nation’s biggest publicly traded real estate asset manager, said yesterday it will invest 30 billion yen in Japanese properties this year through two new funds, to take advantage of price declines.
“Investor appetite is returning, so it’s time to aggressively enter the market early for arbitrage opportunities,” President Atsushi Kawashima said in an interview. “Rents will bottom out by summer next year, following a peak in vacancy rates toward the end of this year, leading to a recovery in the overall property market.”
Office Rents
Tokyo’s office vacancy rate rose to a record in February, according to Miki Shoji Co., a privately held office brokerage company. Still, Tokyo replaced Hong Kong as the world’s most expensive office location after rents in the Japanese capital declined at a slower pace, according to broker Cushman & Wakefield Inc.
The ministry’s annual survey is based on appraisals as of Jan. 1. The survey’s results are used as a benchmark for land transactions.
“The market still remains sluggish, but given the stabilizing financial market, conditions for both lenders and investors are getting better,” said Keiji Kimura, chief executive officer of Mitsubishi Estate Co. “I’m hoping for a recovery in the property market by year-end.”
To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.ne
Last Updated: March 18, 2010 03:50 EDT
