Japan Real Estate Report Q3 2009

Japan Real Estate Report Q3 2009

Most aspects of the Japanese real estate markets are currently under pressure in terms of pricing due to
deteriorating fundamentals caused by significantly tightened lending policies by banks, reducing gearing
capabilities for the major players, pressures on owners of real estate from banks in refinancing
negotiations, and a weakening economy. This has resulted in some distressed selling of real estate and six
collapses of major real estate companies in Japan in Q109.
Transactional volumes in the direct property market are down significantly in the first quarter of 2009. As
such it is difficult to gauge the real move in yields (and therefore prices) for real estate in Japan.
However, based on the limited transactional evidence prices have fallen across commercial, retail,
industrial and residential sectors. Particularly evident in Japan has been the trend by lenders to place more
positive emphasis on quality of assets and as such it has remained virtually impossible to obtain finance
for sub-prime property. This trend also occurred with refinancing where banks were less willing to
refinance debt associated with sub-prime real estate. As such, the value differential between prime and
sub-prime property has probably widened significantly in Japan, although it is difficult to fully assess this
given the lack of transactional evidence in 2009 to date.
The commercial sector in Japan is currently being significantly impacted by a weakening economy
combined with new supply coming on to the market, particularly in Tokyo. According to research by
DTZ, vacancy levels in commercial property in Tokyo rose 1.33 percentage points (pps) to 6.05% in
Q109 from 4.72% in Q408. This was the fourteenth consecutive month of an increase in vacancy levels in
Tokyo. Rents dropped 4% from the previous quarter and 5.4% year-on-year (y-o-y) to JPY21,295. The
trend in commercial office space is for internal space reduction, moving to more cost effective locations
and negotiating rental reductions. Pressure on companies and in particular in the finance sector has
resulted in companies increasingly focused on reducing costs. Given head count reductions in major
companies demand for rental space is under pressure. The leasing market is slower across major
commercial centres in Japan.
The residential sector in Japan is also under pressure from a weaker economy, tightened lending policies
from the banks and reduced demand. Prices for residential apartments in Tokyo dropped 5% in the quarter
according to the Real Estate Investor Network. Relative to other cities in the Asian Pacific region, this fall
was fairly subdued and may reflect a lack of previous ‘bubble’ conditions in Japanese residential prices.

Executive Summary .5
Key Features Of This Report.....6
SWOT Analysis7
Japan Real Estate/Construction SWOT........ 7
Japan Economic SWOT.... 7
Real Estate Market Overview .....8
Key Projects...10
Construction Overview........ 10
New And Ongoing Projects ..... 10
Commercial Construction ........ 10
Major Projects.... 11
Table: Japan – Major Infrastructure Projects ...... 11
Real Estate Investment Trusts In Q309.....13
Introduction .. 13
Table: FTSE EPRA/NREIT Global Real Estate Index, Total Returns (US dollar terms).... 14
Table: US REITs, Total Returns (US dollar terms)...... 15
Pointers 19
Industry Finance Outlook........20
International Financing ........ 20
Table: Client Loans, 2007-2013 (% change y-o-y) ...... 21
Table: Loan-Deposit Ratio, 2007-2013...... 22
Domestic Financing .... 23
Monetary Policy. 24
Table: Japan – Macroeconomic Forecasts.. 25
Industry Forecast Scenario.....26
Table: Housing Prices At A Glance – Asia Pacific ...... 26
Office Rents – Asia Pacific – CBRE. 29
Construction.. 30
Table: Japan Infrastructure Forecast . 30
Macroeconomic Outlook...... 32
Table: Japan – Economic Activity .... 34
Real Estate/Construction Business Environment Rating ..35
Table: Asia Real Estate/Construction Business Environment Ratings ..... 35
Real Estate/Construction Business Environment Ratings ..... 36
Japan’s RECBER... 36
Project Finance Ratings: Outlook For Asia Pacific.. 38
Table: Design And Construction Rating .... 41
Table: Commissioning And Operating Rating .... 42
Table: Overall Project Finance Rating....... 44
Japan’s Business Environment. 44
Company Monitor...46
Kajima Corporation ........ 46
J-POWER ..... 48
Obayashi Corporation..... 50
Sanyu Construction 51
Shimizu Corporation....... 52
Sumitomo Real Estate Sales .... 53
Sekisui House ........ 54
Kumagai Gumi ...... 55
BMI Forecast Modelling ..56
How We Generate Our Industry Forecasts. 56
Construction Industry ..... 57
Bank Lending ........ 57
Real Estate/Construction Business Environment Rating....... 58
Table: Weighting Of Indicators ........ 59
Project Finance Ratings Indicators.... 61
Table: Design And Construction Phase...... 61
Table: Commissioning And Operating Phase – Commercial Construction....... 62
Table: Commissioning And Operating Phase – Energy And Utilities...... 63
Table: Commissioning And Operating Phase – Transport .... 65
Sources 66