04 Apr 2014
Despite a gloomy outlook for consumers, Japanese commercial real estate remains a strong investment prospect, buoyed by long term consumer spending expectations and interest in the 2020 Olympics
Japan hit the headlines this week after an unexpected drop in industrial output and a consumption tax hike raised fears over the country’s economic recovery.
Back in 1997, when the government last raised retail taxes, the economy tanked, plunging the nation into a deep deflationary period lasting almost 20 years, until the advent of Abenomics.
But the Japan we see today and the Japan of 17 years ago are very different places, says Toshinobu Kasai, Managing Director, JLL Japan. And for property investors, opportunity abounds.
Ultimately, for those speculating on the Japanese growth story, the world’s third largest economy is still a good home for foreign capital – an influx of which is coming from Asia, Europe and, increasingly, the USA. The Japanese real estate markets have witnessed a sharp reversal in fortunes in recent years and transaction volumes of commercial properties doubled in 2013 “Last year we saw interest in offices: as an asset class it offers the largest investment opportunity, and investors are increasingly interested in retail.”
Despite the fact that Japan has become more expensive for everything from sushi to cars, Mr Kasai says he remains optimistic about consumer spending, and expects last year’s interest in retail properties to remain: “They [investors] feel confident about Japanese consumption,” he says.
Ahead of the tax rise – the Japanese equivalent of VAT, which jumped from 5 to 8 percent on 1 April – consumers embarked on a spending spree, pushing the retail sales index up constantly; 4.4 percent in January and 3.6 per cent year-on-year in February.
Following the rise, a short term dip in consumer output is expected, but unlike 1997, which was compounded by the wider Asian Financial Crisis, Japanese corporations, retailers, the government and the BOJ are prepared: “The Japanese government has implemented measures to keep spending up. From April, automobile tax discounts will come in and many retailers are offering coupons.”
Department store chain Takashimaya Co, for example, has distributed 600,000 discount coupons for use in April. In addition, across Japan, incomes have increased with manufacturers and corporations increasing wages.
The message for investors is clear: Japan’s economic recovery is a long-term bet.
While corporate sentiment improved slightly in the three months to March, according to the BOJ’s closely monitored Tankan survey, it’s expected to weaken by June. Japanese government and corporations should be prepared for a little cautiousness in the coming months, but Mr Kasai doesn’t expect it to impact long-term growth.
Events such as Tokyo 2020 are driving interest in Japanese real estate. Despite being six years away, land price near the new Olympic Park saw an upswing in 2013 according to the government’s land price survey.
“Institutional investors can get favourable finance because of the low interest rates and the sentiment for Japan is still good,” he says. “The fundamental economic reforms remain a positive and data is still strong.”