Aftershocks still shaking Japan's property sector

TOKYO (Nov 17): The exodus of expatriates from Japan did not start immediately after the tsunami rolled out of the Pacific on the afternoon of March 11.

Within 48 hours, however, it was clear that a full-blown crisis had developed at the Fukushima Daiichi nuclear plant and many expatriate residents of Tokyo decided to err on the side of caution, particularly those with young children.

Images of homes, factories, offices, and infrastructure crumbling in the face of a tsunami that in places reached 40 metres high were compounded by the fear of invisible, insidious radioactivity leaking from the plant, although there was a degree of confusion in the days immediately after the magnitude 9 earthquake struck off northeast Japan.

"Within a few days of the March 11 quake, the fear of radiation and contamination related to the explosions at the Fukushima nuclear plant increased, as information from the Japanese government was [either] not coherent or lacking," said Richard van Rooij, representative director for Colliers International in Japan. "Announcements from foreign embassies were often contradictory from one embassy to the other.

"As a result, many foreigners decided to evacuate to other parts of Japan and also abroad, including Hong Kong," van Rooij continued. "Hotel rooms there were nearly fully booked, flights were hard to get, and Haneda and Narita airports were crowded with people, including many Japanese it should be said."

John Mader, of Lend Lease Japan, pointed out that many Europeans returned to their home countries while others moved to other cities across Asia, particularly if they worked for multinational corporations with operations in the region from where they could continue to work remotely. Hong Kong was one of the destinations, along with Singapore and Shanghai.

Within a matter of weeks, however, it was clear that the structural damage had largely been limited to the northeast and companies, schools, and communities in the Kanto region and most of the rest of the country were largely operating as they were before March 11.

Some never left at all.

"If you have a significant presence in Japan, you can't just pack up and leave," said Mader. "The Japanese value long-term commitments to business relationships. If you packed up and left and then came back, it would be very bad PR indeed."

As the shockwaves, both literal and emotional, have subsided, Japan's property sector has recovered.

Occupancy rates were affected by several percentage points and there has been a surge in demand from clients to assess the safety of their office premises, as well as to provide temporary offices and longer-term back-up facilities. There has also been increased interest shown in Osaka and cities in western Japan.

According to the prime minister's office, an estimated 294,000 buildings were destroyed or partially destroyed, while an additional 587,000 properties sustained damage and required repairs. The total estimated cost to residential and office buildings has been put at ¥10.4 trillion (RM425.76 billion).

Immediately after the quake, Mori Building carried out a study of 3,400 companies in Tokyo's 23 wards that revealed a dramatic increase in the number of firms expressing a "desire to move to a building with superior seismic performance" — to 45% after March 11 from 15% before.

The answer even overtook the perennial favourite "lower rent" cited as the most common explanation given by 60% of new firms looking to lease new premises within a year.

And while 35% of firms had a business continuity plan in place before the disasters, that has since risen to 80%, with an emphasis on securing communications, procedures for employees to return home, and emergency power generation.

Arguably the biggest legacy of the March 11 disasters has been a loss of business confidence, a problem that has been compounded by Japan's gradual decline in importance as the key financial and corporate hub in Asia over the last two decades.

"Tokyo has, in relative terms, been declining as a business centre in the overall global economy for over 20 years," said Mader. "Multinationals with interests in Asia need to go where the growth is; that is China, followed by Southeast Asia and now, increasingly India."

"Thirty years ago, most multinationals with Asian operations put the regional headquarters in Tokyo," he continued. "It was the most developed economy, with the greatest domestic market, and was a safe and comfortable place for expats to live.

"Today, Hong Kong and Singapore are competitive with Tokyo in terms of markets and standards of living. More importantly, they are closer to the action."

"From the standpoint of a multinational operating in Asia, Tokyo is a place where companies want to have a presence, to service the domestic Japanese market," he said, citing the country's distinctive business culture and relatively low level of English proficiency. "But it is no longer the place that the regional headquarters gravitates towards."

Van Rooij agreed, adding that the strength of the yen in recent years had also impacted companies' decisions on their presence in Tokyo.

"The outflow of foreigners from Japan had already started after the Lehman shock, as companies moved their staff back to head office or restructured," van Rooij said.

"The lack of trust in the Japanese government following March 11, on top of an already weak economy and the lack of change, motivated many foreigners to depart permanently."

Yet both van Rooij and Mader have a degree of optimism about Japan's economy and the changing face of demand for property here.

"March 11 did not trigger an exodus, but it may have accelerated a global trend: the waning importance of Japan relative to the higher-growth markets elsewhere in Asia," said Mader. "Japan remains a big market, a big economy, with tremendous wealth and buying power."

Said Mader: "It can't be overlooked, but it faces much stiffer competition from other countries in Asia. Tokyo, as Japan's economic capital, likewise faces stiffer competition from other Asian cities." — SCMP