Japan’s RE sector not panicked after 9 magnitude earthquake

Despite Japan’s J-REIT sector crashing by almost 7 percent, real estate firms active in the country are not panicking after the country's worst ever earthquake. Some say damage to the investment market should be short term.

Real estate businesses in Japan were in defiant mode about the prospects for investment in the country following Friday’s 9 magnitude earthquake, the worst to hit in the country’s history.

The earthquake, the epicentre of which was west of the Northern Sendai region, resulted in tens of thousands of people left unaccounted for as well as the near obliteration of communities along the area’s coastline after a subsequent Tsunami tore into the country.

The Nikkei 225 collapsed 6.2 percent on its first full trading day after the event and the Japanese government has pledged $265 billion in state aid to underpin the country’s economy.

A lot was shaken but little damaged,” he said, “a year from now we could look back and see that not much has changed

Tom Mills, MGPA

But damage to real estate in the city of Sendai, approximately 25 kilometres inland was however minimal, according to multiple sources contacted by PERE today. In Tokyo, the current target for much of the institutional capital active in Japan, there was no significant structural damage to report.

“It was a huge earthquake. All the buildings were shaking from the ground,” said J-P Toppino, president and chief investment officer at Secured Capital Japan, “but it’s very difficult to even find any broken glass.”

Within the stock market collapse, the J-REIT index fell by 6.99 percent. Toppino said: “The J-REIT market was down, that is not surprising. But I imagine that longer term, it will be the insurance industry that suffers when they have to start paying the claims. Indeed, stocks in global reinsurers Swiss Re and Munich Re each fell by approximately 4 percent today.

When asked about the longer term consequences for Japanese real estate, Toppino said: “Is the market going to be the same as Thursday before the earthquake? No. But let’s wait and see. I really don’t think we’re suddenly going to see vacancies up three percent because of this.”

Joshua Isenberg, partner at the Tokyo office of law firm Paul Hastings, said that while firms looking to close out investments before the end of the fiscal year, which is 31 March, could suffer delays, the longer term prospects for investment in the country should remain sound: “As far as actual investment opportunities for real estate investors this does not mean a whole lot right now.”

“The reality is a lot of the target assets for international investors are in Tokyo and to the west. That part [Sendai] of the country is not at all attractive to foreign investors.”

According to research by Real Capital Analytics, there was $2.2 billion in transactions in Japan in 2010, reflecting a decline three years running.

Christian Mancini, chief executive officer, of property services firm Savills Japan, predicted any negative impact to investment activity in the country would be short term. He said while various investment committees might turn away from the Japanese market, many would still commit capital: “I suspect in spite of the earthquake, our transaction volumes from this year compared to last year will still reflect a dramatic increase,” he said.

Tom Mills, chief executive officer for Japan at MGPA which has approximately $1.8 billion of assets under management in the country, said the lack of damage to Japan’s capital city was testament to stringent seismic building codes to which developers must comply when constructing properties. “A lot was shaken but little damaged,” he said, “a year from now we could look back and see that not much has changed.”