Boston, MA -- (ReleaseWire) -- 07/12/2012 -- Although Japan's commercial real estate market was surprisingly resilient in the wake of the earthquake and tsunami in March, our most recent round of in-country interviews (conducted in December 2011) showed that there was a drop in rents, particularly for the office sub-sector. Between early and late 2011, rents largely dropped back slightly as a result of reduced demand from the US and eurozone, where debt fears have led to caution among international financial investors. However, demand for modern and earthquake-proof housing and logistics facilities is increasing steadily, providing opportunities for developers to begin new projects and complete existing ones.
There is a downside risk in the industrial sector, in the form of a rebound in April 2012 for global economic concerns. Manufacturing sentiment declined during the month, and the electronics industry in particular is seeing pressure from an increase in regional competition. The retail sub-sector, as with many in the region, has shown surprising resilience and is likely to buoy the overall market in a period of caution.
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Our recent economic figures have indicated a slight improvement in activity in Japan, but we do not expect this to hold up for the rest of 2012 or 2013. Recent drivers of growth in private consumption and investment are expected to wane by mid-2012, and public consumption is weighed down by budgetary pressures. As such our GDP growth forecast for 2012 and 2013 has remained at a subdued 1.4%.
Key Opportunities In The Real Estate Market:
- An increase in demand for industrial supply in the wake of the earthquake caused rents in that subsector to remain buoyant at the end of 2011, particularly in Tokyo.
- While office rents dropped slightly, a dearth of new supply is expected online in 2012, which if demand can rebound in kind, should contribute to heightened competition for space in the market.
- The government is beginning to focus on reviving tourism, which could provide a long-term boost to sales and related real estate activity in the retail sub-sector.
Key Risks To The Real Estate Market:
- The difficulty faced by smaller firms that wish to refinance their loans or gain access to funding may cause bankruptcies. This will also decrease competition in the market, at least for a time, as the larger companies are likely to soak up the extra market share.
- As a result of delays in project completion and changes in marketing activity, three of Japan's five largest real estate companies recorded declining sales for the nine months ending December 2011, compared to the same period of the previous year.
- The hitherto booming electronics industry in the country is under increasing pressure from regional competition, in particular from China and South Korea. Many manufacturing plants have closed or downsized and there are concerns for the resilience of the sector.
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