Decline in Japanese Property Prices Accelerates
The decline in Government-assessed property prices in 2002 accelerated for the second straight year. Average land prices fell 6.4% for the 12th straight year, a string of declines not seen since the Showa Depression in the 1920s. Residential prices fell an average 5.8% nationwide, and are down 39.7% from the peak in 1991, while commercial prices are down 65% from the peak, to levels not seen since 1979. In Tokyo, Osaka and Nagoya, commercial property prices are now down 77.7% from their peak.
The good news is that property prices in Japan are increasingly being determined by their utility value. For example, property prices rose almost 10% in business districts under redevelopment as part of urban renewal projects. But the glut of new office space in central districts in Tokyo is not expected to abate in 2003, when the peak of new supply is hitting the market. Indeed, vacancy rates in central Tokyo are likely to continue at 10% levels for the next several years. According to Ikuma Data Service Systems, new supply in the 23 wards of Tokyo over the past 5 years was 340,000-480,000 square meters (excluding new buildings used by the builders), or about one-third the level of supply in the early 1990s.
However, demand is falling off even faster. Excluding the "internet boom" in 2000, almost every year since the early 1990s has seen declining demand. In 2002, demand for new space fell by 130,000 square meters. The net excess supply (new supply-new demand) over the last 5 years since 1998 has totalled 630,000 square meters, or about the same space as four large office buildings. The number of salaried workers in Tokyo's 23 wards in 2001 was 7.13 million, down by 340,000 workers from 1996. In Chiyoda, Chuo and Minato-ku wards, the number of workers has declined by 97,000, the largest decline since 1954.
(TT's Take) The glut, with vacancy rates running at 10% or higher, could continue until 2006, placing further downward pressure on rents. Land supply is expected to continue increasing as many companies move offices to newly constructed large buildings.
