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04/02/2016

Japanese Property Market Quarterly Review, Fourth Quarter 2015-J-REITs Decline for First Time in Four Years, Foreign Visitor Arrivals Increase 47%-

Financial Research Department Economic Research Department Researcher Hiroto Iwasa 

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3.Sub-sectors

1) Office
According to Miki Shoji, office vacancy rates in Tokyo declined by 0.16% to 4.03%, remaining below 5% for the sixth consecutive month where building owners have more power than tenants in leasing term negotiations. Office vacancy rates of other major cities also continued to decline (Chart-9).
The rent index of Tokyo grade-A1 offices declined by 7.8% q-o-q to 32,872 JPY per month per tsubo in the fourth quarter as a push back from the 14% appreciation in the previous two quarters (Chart-10). However, the index has risen y-o-y for the fifteenth consecutive month. Mori Building forecasts 1.07 million square meters of new office supply in 2016, which is slightly more than the past average of 1.03 million square meters. NLI Research Institute forecasts that the rent index will stay on the rise during 2016.
 
Chart-9 Office Vacancy Rates/Chart-10 Tokyo Grade-A Office Market
2) Residential Rental
Residential rents in Tokyo major five wards have continued to rise, particularly by 8.6% y-o-y in Chiyoda ward and by 6.25% in Chuo ward (Chart-11). In addition, Tokyo luxury residential rents rose by 3.5% y-o-y to 15,979 JPY per month per tsubo in December on the back of the improving vacancy rates (Chart-12).
 
Chart-11 Tokyo Residential Rent Index/Chart-12 Tokyo Luxury Residential Market
3) Retail, Hotel and Logistics
Same store sales of department stores, supermarkets and convenience stores grew by 0.5%, 0.3% and 1.6% y-o-y, respectively in the fourth quarter (Chart-13). After resolving the negative effects of the consumption tax hike in 2014, same store sales for the whole year of 2015 remained stable with department stores, supermarkets and convenience stores growing by 0.5%, 0.3% and 0.9% y-o-y respectively.

 
Chart-13 Retail Same Store Sales
Hotel occupancy rates improved nationwide across 61 cities by 0.9% y-o-y to 76.8% in December, posting a December record (Chart-14). Foreign visitor arrivals increased by 47% to 19.73 million in 2015 for the third consecutive record-setting year. The government target of 20 million in 2020 was mostly realized years ahead of schedule on the back of the depreciation of JPY, loosened visa issuance conditions and expanded duty free items. Visitor arrivals from China increased the most by 107% y-o-y to 4.99 million, followed by South Korea and Taiwan. These three countries accounted for 64% of all foreign visitor arrivals (Chart-15, 16). Furthermore, consumption by foreign visitors in Japan increased by 71% to 3.4 trillion JPY, 40% of which was accounted for by Chinese. The amount was as large as the export industry of major Japanese products such as electronics components at 3.6 trillion JPY or automobile components at 3.4 trillion JPY.
Chart-14 Hotel Occupancy Rates/Chart-15 Foreign Visitor Arrivals Numbers/Chart-16 Foreign Visitor Arrivals Numbers by Countries
According to CBRE, vacancy rates of large logistics facilities for multi-tenants in the Tokyo metropolitan area increased by 3.4% q-o-q to 6.9%, while those in the Osaka metropolitan area declined by 1.0% y-o-y to 3.5% (Chart-17). The largest ever supply of 0.5 million square meters of new space in the Tokyo metropolitan area raised the average vacancy rates in the fourth quarter. However, strong demand for large sized logistics facilities on the back of growing electric commerce improved vacancy rates of existing facilities to 1.2%. New supply in the Tokyo metropolitan area is forecasted to increase by 20% y-o-y to 1.2 million square meters in 2016 and vacancy rates may soar in some oversupplied areas.
According to Ichigo Real Estate Service, logistics rents in the Tokyo metropolitan areas remained almost unchanged declining by 0.3% m-o-m to 3,990 JPY per month per tsubo in October.
 
Chart-17 Logistics Facility Rents and Vacancy Rates (Large Sized Multi-Tenant-Use)
 
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 areas of more than 33,000 m2, main floor sizes of more than 990 m2, building age of 15 years or less (including some well-refurbished older buildings), facilities with ceiling heights of 2.7m or more, individual air-conditioning, earthquake resistance and environmental friendliness.

Financial Research Department   Economic Research Department Researcher

Hiroto Iwasa

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03-3512-1858

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