Japanese Property Market Quarterly Review,Second Quarter 2016-While Housing Starts Robust, Office and Retail Rents Peak Out-

Financial Research Department Economic Research Department Researcher Kazumasa Takeuchi 


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  • Several negatives such as the earthquake in Kumamoto, Brexit, the appreciation of the yen and the equity market decline based on the global economic uncertainty have hung over in the second quarter. The government decided to reschedule the next consumption tax rate hike from April 2017 to October 2019. Thus, the anticipated tax hike related rush demand in 2016 and the counteractive slowdown in 2017 have disappeared.
  • Housing starts have been increasing as land owners build flats to save on inheritance taxes. The number of condominium units sold in the Tokyo metropolitan area shrank to the lowest level in 24 years and inventories have been accumulated, while the luxury category has still sold well.
  • Following limited office demand in 2015, large amounts of office spaces were newly occupied in 2016, though shrinking again in June. While the vacancy rates of Tokyo grade-A offices have improved, the rents have apparently lost steam declining by 6.9% q-o-q. The vacancy rates can improve further with limited supply in 2017 however large new supply is anticipated afterward.
  • Duty free sales, which have declined by 15% y-o-y, can no longer drive department store sales, as Chinese tourists are buying less big ticket items than before, affected by the appreciation of the yen and the reviewed Chinese tariffs for individual imports. Though foreign visitors still increased by 19% y-o-y in the second quarter, the total number of overnight stays in Japan declined by 2.5%, affected by Japanese tourists’ preference for going overseas.
  • The TSE REIT index declined by 2.8% in the second quarter due to Brexit, yet still rose by 5.5% in the first half, outperforming TOPIX which declined by 19.5%. The negative interest rate policy can lead to incremental values of the J-REIT portfolios. However, property incomes have to grow for sustainable value enhancement.

Financial Research Department   Economic Research Department Researcher

Kazumasa Takeuchi

Research field