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The anticipated recovery in Japanese commercial real estate capital values has so far failed to materialise, the IPD Japan Monthly Indicator shows.
The annual rate of capital depreciation troughed in May 2009, at -13.8%, thereafter the pace of write-downs attenuated over the 10 months to March 2010 – almost halving to -7.1%. Over the subsequent three months to June, the rate of declines plateaued, running at an annualised rate of -7.2% by the end of June 2010.
The Japanese real estate market, the second largest in the world, is slower than most to report its property valuations. As a result, the figures just released by IPD to the end of June 2010 are the most up-to-date available.
The chart shows the differing rates of recovery by Japan’s principal three sectors together with the main all property average. The retail sector, driven by improved consumer confidence, has slightly bucked the trend of the broader market by showing an upturn in the capital growth recovery, ending June at an annual rate of return of -2.7%. This is the shallowest rate of capital depreciation for more than two years.
By contrast, by the end of June, the rate of capital depreciation in Japan’s residential market took a turn for the worse, increasing by 80 basis points to over the month to -5.9%. In the office sector, the dominant component of the databank, annual depreciation was steeper than across the broader market by 160 basis points at -8.8%.
Over the longer term, from June 2004, at the start of the last boom cycle, capital values rose every month for the three years and 10 months to March 2008 – a cumulative rise of 23.7%. Over the subsequent two years and four months the capital growth gains of the previous near four years have all entirely been eroded, with Japanese values now exactly at June 2004 levels. The peak-to-trough in values now stands at -19.0%.
Toshiro Nishioka, Managing Director at IPD Japan, said: “We can now definitively see that the expected recovery in Japan’s real estate market has failed to materialize – for now at least. This can be explained by macro economic factors as well as property fundamentals.
“During the second half of 2009, market sentiment improved as confidence over the state of the general economy returned – based on the belief that the ‘worst was behind us’. However, into the first half of this year, the expected recovery did not manifest as strongly as many expected. The Bank of Japan recently admitted that the Japanese economy remains fragile due to the appreciation of Yen.
“In terms of the property fundamentals, the level of transactions has been very limited,
curbing the growth in market confidence. Furthermore, there is no clear sign of improving real estate cashflows in the immediate future.” (CS della Società)
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