The Tokyo office market is running hot and demand is outstripping supply, according to Jones Lang LaSalle’s latest Asia Pacific Property Digest.
According to JLL Research, strong tenant demand across all sectors has driven rents up and vacancy rates have reached a multi-year low of 0.3% in
The latest data shows demand continued to outstrip supply in
According to JLL Research, there was no new supply of A Grade space in the fourth quarter of 2006, further fuelling the demand-supply imbalance.
In addition, projects coming onto the market are nearly 100% committed and for projects in the pipeline that have remaining space, landlords remain aggressive in the asking rents given the current tight market situation.
JLL’s head of research in Japan Takeshi Akagi said the tight condition for the A Grade office market is anticipated to continue into 2008. Meanwhile, small and medium size businesses are also actively seeking space for expansion, benefiting the overall market.
Current plans by Japanese corporations to increase capital expenditure will result in expansions as well as office space upgrade. Rents have grown by 5.4% in the fourth quarter of 2006, the tenth consecutive quarter of growth. For the full year, rents have shot up by 27.5%.
“Higher rents have not deterred occupiers from seeking the best available locations in the CBD judging from the volume of activity.
“However, rents in the CBD are prompting some prospective tenants to look elsewhere, peripheral locations and sub-markets outside the CBD are benefiting from this phenomenon, and these areas are beginning to exhibit market trends similar to those in the CBD,” Akagi said.
On the investment front, the J-REIT market has also gathered momentum with 12 new listings in 2006.
At the end of 2006, there were 39 J-REITs on the Tokyo Stock Exchange and one on JASDAQ with a market capitalisation rose to ¥4.9 trillion ($US41 billion) with total asset valued at ¥5.3 trillion ($US44 billion).
The IPO’s also included Babcock & Brown Japan Property Trust on the Australian Stock Exchange in April 2005, followed by the Rubicon Japan Trust and Galileo Japan Trust in November and December, respectively on the ASX.
Akagi said in anticipation of a possible change in the Investment Trust Law that governs the listing of J-REITs, Japan Retail Fund Investment Corporation revised its mandate to accommodate the acquisition of overseas property.
“The Ministry of Land, Infrastructure and Transport is reportedly preparing guidelines to allow overseas acquisitions. We expect the J-REIT market to gain momentum with more Japanese corporations offloading their real estate holdings as part of their restructuring plans to remain asset-light and focus on their core competencies. In addition, some REITs have adopted a development strategy to offset the lack of quality properties in the highly competitive market.
“We have noted that a two-tier market is emerging, as reflected in dividend yield and price performance. Increasingly, investors are paying attention to the reputation of the sponsors and the location of some of the smaller assets held by some REITs. As the number of listings grows, we anticipate some consolidation in the market with the possibility of a few mergers and acquisitions in the future,” he added.
Looking ahead, Akagi remained optimistic about the Tokyo A Grade office market.
“Notwithstanding this, we are conscious that rents have risen sharply over the past two years, and peaking is likely in the short term. While the Bank of Japan remains cautious in raising interest rates, the consensus is pointing towards increases over the next 12 months. This will help ease the yield compression,” he concluded.
Australian Property Journal
