Source : Business Times - 28 Oct 2008
Japan’s slowing economy and the credit crisis has damped commercial, residential demand
Tokyo residential property prices may be poised for a major decline because of excess housing supply and flagging demand, said Minoru Mori, chairman of Japan’s biggest privately held developer. ‘We foresee full-blown drops in residential property prices,’ Mori Building Co’s chairman said in an Oct 25 interview in Shanghai.
Japan’s slowing economy and the credit crisis that tightened lending has damped demand for commercial and residential property in Japan. The slump in Tokyo’s condominium market may last longer than the drop after Japan’s asset-price bubble burst in 1990, according to an estimate by the Real Estate Economic Research Institute.
Condo supply in Tokyo fell 24 per cent for the first six months of the year from the same period a year earlier. The number of new condos put up for sale in Tokyo, which stayed above 80,000 units since 1999, fell to 69,194 units in 2007 because sales declined and inventories rose. Commercial real estate is holding up better than residential property, said Mr Mori.
‘Tokyo’s commercial property market remains relatively healthy. The current price decline probably won’t be more than 10 per cent,’ Mr Mori said.
Tokyo-based Mori has scrambled to manage the impact of the global financial market turmoil. Lehman Brothers Holdings Inc, which last month filed for the largest bankruptcy in history, was a tenant of the developer’s Roppongi Hills complex, occupying 275,000 square feet of office space.
Nomura Holdings Inc, which agreed to buy Lehman’s European and Asian assets, has expressed an interest in taking over Lehman’s lease at Roppongi Hills, Mr Mori said in the interview. Japan’s biggest brokerage also ‘hinted’ at possibly increasing the floor space it leases at the complex, he said.
Other tenants at the complex such as Goldman Sachs Group Inc are under long- term agreements that incorporate increases in the rents they pay, Mr Mori said. ‘On a contractual basis, we don’t foresee any problems,’ he said.
The capital value of grade A office buildings in Tokyo’s commercial business districts fell 2 per cent on average as of March from three months earlier, according to an estimate by Jones Lang LaSalle.
As commercial prices declined, Mr Mori said now is the time to prepare for land acquisition for large-sized projects similar to Roppongi Hills. ‘We have plans to introduce second, third, fourth and fifth Roppongi Hills,’ said Mr Mori. ‘This is a good time to plan for large-size projects.’
Mori is in talks with local residents to redevelop Toranomon-Roppongi. The developer plans to build a 46-storey commercial tower and a six-floor residential building on a 15,350 square metre site in 2009.
Other projects under planning include Loop Road No 2 from Toranomon to Shimbashi in central Tokyo and a waterfront development project in Yokohama, according to the company’s website.
These projects will require infrastructure such as roads and large blocks of available land, both of which may take some time, he said.
Mori Building’s Shanghai World Financial Center, China’s tallest building, was opened to the public on Aug 30. Space in the building was leased ‘faster than expected’ to near 50 per cent of capacity currently from 40 per cent in August, Mr Mori said.
Japanese financial institutions such as Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc have taken space, he said. Demand for space may slow with the opening of new office developments in Shanghai, such as Sun Hung Kai Properties Ltd’s Shanghai IFC complex, located next to Mori’s building.
‘As new developments come on line, it might be difficult to enjoy the same occupancy rates as before, and net demand might decline somewhat,’ Mr Mori said.
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