Japan Real Estate Report Q4 2009

Japan Real Estate Report Q4 2009

The Japanese economy was hard hit by the global economic slowdown, although recent activity shows
that the worst may be over. However, the past 12 months have been extremely testing for all major real
estate sectors.
Some good news may be emerging, however. According to Jones Land LaSalle, distress – as indicated
by developer bankruptcies, lender foreclosures and the sale of debt at discounts – is providing
opportunities for savvy investors who have the skills and appetite to take advantage of these market
movements. The company also reports that Grade A office rents have dropped 31%.
According to CB Richard Ellis, overseas investors remained largely absent during the second quarter in
Japan. Nevertheless, five major office transactions were concluded at the US$50mn level and above. All
of the buyers were Japanese investors or investment institutions, proving that they still maintain an
appetite for quality assets.
The residential sector in Japan has also been 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 global property guide. Japan’s second largest developer, Mitsubishi Estate,
reported a 12% slump in quarterly operating earnings on February 5. It also cut its full-year earnings
forecasts by 25%. The company cited a very weak apartment market as a key contributor. In 2008 nearly
800 real estate firms collapsed as the economy weakened and lending was sharply reined in. The sector
had been one of the most highly leveraged sectors in Japan. The fall-out from tighter lending policies
continues to be felt in the sector.
Large transactions were very few in the quarter. However, in March Advance Residence acquired
Shinjuku Residence in Shinjuku-ku from Nomura Real Estate Development for JPY750mn
(US$7.6mn) at an estimated NOI yield of 5.7%. This was the first REIT residential transaction in six
months. Completed in February 2009, the 39-unit residential building is near the Subway Shinjuku 3-
chome Station and provides a net leasable area of 8,830ft2 over 11 storeys.

Executive Summary ....5
Key Features Of This Report.........6
SWOT Analysis............7
Japan Real Estate/Construction SWOT 7
Japan Economic SWOT ..... 7
Real Estate Market Overview .........8
Key Projects.10
Construction Overview .... 10
Commercial Construction 10
Table: Major Infrastructure Projects In Japan. 10
Real Estate Investment Trusts.....12
Table: FTSE EPRA/NREIT Global Real Estate Index, Total Returns (US Dollar Terms) ... 12
Table: US REITs, Total Returns (US Dollar Terms)....... 14
Industry Finance Outlook............19
International Financing... 19
Table: Loan Growth, 2006-2013 (% Change y-o-y) ....... 19
Table: Loan-To-Deposit Ratios, 2006-2013...... 21
Japan’s Monetary Policy . 23
Industry Forecast Scenario ..........25
Asia Pacific Real Estate Forecasts 25
Table: Asia Pacific Housing Prices At A Glance (% Change y-o-y) ... 25
Table: Asia Pacific Office Rents, CBRE ........... 27
Table: Current And Forecast Office Rents, 2008-2014 (US$ per square metre per month). 28
Japan’s Real Estate Forecasts....... 28
Japan’s Construction Industry Forecasts ......... 29
Table: Japan Construction Industry, 2007-2013 ............ 30
Macroeconomic Outlook.. 31
Table: Japan – Economic Activity, 2006-2013 . 33
Business Environment ..34
Real Estate/Construction Business Environment Rating. 34
Table: Asia Real Estate/Construction Business Environment Ratings 34
Japan’s RECBER............. 35
Asia Pacific Project Finance Ratings . 36
Table: Design And Construction Rating ........... 40
Table: Commissioning And Operating Rating .. 41
Table: Overall Project Finance Rating............. 42
Japan’s Business Environment ...... 43
Company Monitor......45
J-POWER ..... 45
Kajima Corporation......... 48
Kumagai Gumi... 49
Obayashi Corporation ..... 50
Sanyu Construction.......... 51
Sekisui House 52
Shimizu Corporation........ 54
Sumitomo Real Estate Sales........... 55
BMI Methodology ......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... 64
Sources ......... 65