PERE Japan 2013: Improved sentiment, little action

Private real estate investment executives in Japan are broadly encouraged by the early impact of the government’s ‘triple arrow’ economic measures. But delegates at PERE’s Forum: Japan 2013, held today in Tokyo, were told improving sentiment was yet to translate into tangible moves by Japanese corporates for better or more commercial space.

Since the advent of ‘Abenomics’, fiscal measures adopted following Shinzo Abe’s return to power last year that centre around monetary easing, infrastructure spending and deregulation, the Japanese economy has enjoyed first quarter GDP growth of 4 percent, followed by second quarter growth of 3.8 percent.

“So far, Abenomics seems to be working,” remarked Scott Kelley, chief executive officer of Aetos Capital Asia, a pan-Asia opportunity fund manager. “Three months ago we all viewed Abenomics with suspicion, now we have to believe in it,” agreed Fred Uruma, chief executive officer of advisory business Touchstone Capital Management.

However, while it has coincided with a stronger J-REIT market that could see $13 billion more raised by the end of the year, the government’s measures have not quickly brought about large occupational requirements.
 Nikkei Real Estate Market Report, PERE’s editorial partner for the one-day event, reported this month that the Tokyo-wide vacancy rate had reduced marginally to 11.6 percent by 25 basis points.

Invesco Real Estate managing director Takuya Yamada said the central Tokyo vacancy rate needed to improve from its 8 percent mark to around 5 percent before that would precipitate any sort of rental hike that could ripple out across the city. Underlining the point, Tom Pulley, chief investment officer of Fortress Real Estate Asia, Japan’s largest opportunistic real estate platform by capital raised, admitted that he could forecast meaningful rental growth for only 20 percent of the firm’s portfolio which is predominantly in Tokyo.

Christian Mancini, chief executive officer for North Asia at property services firm Savills, said his firm was looking out for favourable sentiment to translate into corporate occupiers engaging in capital expenditure and growing their head counts, thus seeking more office space. “Has it translated into tangibles? Not so far,” he said.

There was also an element of foreboding at the event about the Abe administration’s intention to increase the country’s consumer tax from 5 percent to 8 percent. In a presentation, Yoji Otani, managing director of global equities research at Deutsche Securities warned that should that measure come into force, which he predicted would happen, then that could peg back any recovery in the Japanese real estate market by at least six months as consumers take stock of the extra payment. “A consumption tax hike will have a considerable negative impact on the Japanese economy and its real estate,” he said. He suggested, however, a six-month pause in the country’s economic recovery could result in a buying opportunity for opportunistic real estate players.

There were approximately 160 delegates at the event which also included on its bill a surprise address from Tokihiko Shimizu, director-general in the research department of Japan’s Government Pension Investment Fund, the world’s largest pension fund. Although the presentation was given under ‘Chatham House’ rules meaning its details cannot be reported, his every word was scoured by the delegates for clues about if and when the mega fund would allocate resources to real estate. They were left largely disappointed.