Japanese Property Market Quarterly Review,Second Quarter 2014-Leasing and Investment Activity Steady, but Labor Shortage Risk-

Kazumasa Takeuchi

■Summary

The impact of April’s consumption tax rate increase is greater than when it was last raised in 1997. However, consumer confidence is already stabilizing and economic growth is expected to be maintained. A labor shortage in the construction industry is severe and increasing costs are likely to push condominium prices upward.
Housing starts for owner-occupied houses and condominiums declined significantly after the consumption tax rate hike. Nationwide residential vacancy rates reached 13.5% and are anticipated to increase on the back of the declining and aging population.
Office vacancy rates have decreased in Tokyo due to active corporate relocations and expansions. With moderate supply, rents are expected to rise in the latter half of 2014. Tokyo grade-A office prices have risen by 10.7% y-o-y and 70.9% since the third quarter 2011.
Residential rents are recovering, especially in Tokyo and Sendai. The number of foreign visitors increased by 26% y-o-y and sustained hotel occupancy rates at high levels.
The J-REIT market rose steadily in the quarter driven by foreign investors. Market participants are paying more attention to the Government Pension Investment Fund beginning to invest in J-REITs and whether other pension funds will follow suit.