Japanese Property Market Quarterly Review, Fourth Quarter 2012 - Visible Polarization in Tokyo Office Market -

Toru Matsumura

■Summary

The Japanese economy remained weak in the fourth quarter with shrinking foreign demand and a deteriorating relationship with China. However, an optimistic outlook prevails in line with the Japanese yen depreciation and an equity market rally based on expected further monetary easing and emergency economic measures. New condominium sales shrank in the fourth quarter, though housing starts and secondary housing transactions continued to increase.
The Tokyo grade-A^１office rents rose noticeably while the office rents of very large sized buildings in the Tokyo three wards kept falling, indicating visible market polarization. Tokyo residential rents weakened again. Hotel occupancy rates remained at a level as high as that before the earthquake. Large sized logistics facilities are still in short supply.
The TSE REIT Index recovered to 1,000 points for the first time in six months, and maintained good momentum to return to the level before the earthquake. The index posted a 9.1% q-o-q return in the fourth quarter and a 33.6% record best yearly return in 2012. While the private property investment fund market maintained good momentum, the property investment market apparently continues to improve further on the back of a depreciating Japanese yen and a recovering equity market since the end of last year.

^１ Higher-spec buildings within the very large sized category by Sanko Estate Grade-A-Office Guidelines, urban area Tokyo five wards, main office areas and other specially integrated areas, with total floor area more than 33,000 m2, main floor size more than 990 m2, building age 15 years or less (including some well-refurbished older buildings), facilities ceiling height of 2.7m or more, individual air-conditioning, earthquake resistance, environmental friendliness.