Who can fix the Japanese commercial property sector?
Despite the fact that the Japanese government, under the premiership of Shinzo Abe, has decided to take drastic measures to combat economic decline, it seems that much of this focus is still in and around Tokyo. The decision to effectively introduce quantitative easing in the shape of printing money to invest within the country did create increased demand for commercial property for a relatively short space of time. However, now the situation is beginning to settle much of the domestic and international investment in commercial property in Japan is again centred round Tokyo.
If we look at the situation from July 2014 to the end of the year we saw commercial land values rise by 1.9% in Tokyo and just 1.5% in Osaka and Nagoya. The situation around the rest of Japan is now moving towards alarming with average falls of 2.2% adding to the 23rd consecutive annual decline. However, are there some signs of hope in the future?
Annual falls are slowing
While it may seem desperate to highlight the fact that annual falls in commercial property values outside of Tokyo are slowing, in many ways this is the only hope in the short to medium term. This is a country which has been wracked by economic problems for well over 20 years and experienced deflation and a whole array of other challenges. While the over focus upon Tokyo has in some ways backfired, what else could the government do when the whole country was struggling and Tokyo seemed to be the only attraction available?
Attracting overseas businesses
There is much activity in the commercial property sector across the whole of Japan but the problem remains attracting overseas businesses outside of Tokyo. This has been an issue for many years now and one which the local government has been unable to solve. The only possible positive in the short to medium term is the fact that the valuation gap between Tokyo commercial property values and the rest of the country is growing. At some stage international and domestic investors will realise there is long-term value but when that will be is anyone’s guess.
Over the years the Japanese government has tried a whole array of different methods and strategies to inject confidence into the economy and the real estate sector. Some areas of the country are benefiting from these government strategies but the fact remains that Tokyo is still taking centre stage.
Investment in infrastructure
While Japan has some of the most technologically advanced infrastructure systems in the world there is still much to do. Even if Tokyo was seen as the centre of the business community the introduction of high-speed and high-quality travel systems to some of the struggling cities could inject some life into the commercial property sector. There are certainly many challenges for the Japanese government to take on in the years ahead and it would take a brave person to call the bottom of the non-Tokyo commercial property sector and invest heavily in the future.