Japanese Property Market Quarterly Review Fourth Quarter 2011 -Tokyo Office Recovery Halts on Economic Standstill-

Toru Matsumura

■Summary

The Japanese economy has come to a standstill in the recovery from the earthquake, and the business confidence of large manufacturers deteriorated significantly in fourth quarter 2011 with negative factors from overseas such as the European financial crisis, emerging economic slowdown and the extraordinary flooding in Thailand.
Tokyo office rents turned negative again following a small pick-up last month, as corporate demand shrank in line with deteriorating business confidence. On the other hand, apartment rents bottomed out and the occupancy rates of hotel and logistics facilities improved substantially.
In the Tokyo metropolitan area, corporations and consumers have become more risk sensitive after the earthquake and the nuclear plant accident, and market polarization progresses in land and property prices with more stringent appraisal of locations, building structures and equipment.
The TSE J-REIT index declined by 10.1%, q-o-q, in the midst of global financial uncertainty, but expected Cap rates remained unchanged and fund raising conditions still improved. While existing funds sold some assets, some new funds were seen being established.