Tokyo's office and luxury retail market take a hit following massive earthquake

TOKYO: Office and luxury retail rents could dip in the aftermath of the East Japan Earthquake, while the industrial market could see a temporary increase in demand, according to CB Richard Ellis's (CBRE) special Asia Pacific Viewpoint on Japan.

"The uncertain economic environment could put some pressure on office and luxury retail rents in Tokyo, but it remains to be seen how the March events will affect industrial fundamentals," said CBRE Asia Pacific head of research Nick Axford.

With companies assessing the economic outlook and potential impact on business performance, demand for prime office space is expected to weaken. CBRE believed that prime office rents could dip by as much as 5%.

However, in the longer term, prime office buildings are likely to benefit from occupiers placing greater emphasis on a building's earthquake resistance capabilities.

Meanwhile, due to the uncertainty at the Fukushima Nuclear Power Plants and blackouts, some companies have temporarily relocated head offices to Osaka, Kobe and Fukuoka. This resulted in an increase in short-term leases and full hotel occupancy in Osaka.

On the retail front, high street retailers' businesses in Tokyo's metropolitan area were affected by consumers self-imposed restraint on spending and limited operating hours due to potential power cuts.

By late April, all but a few retailers reopened for business, said CBRE.

CBRE noted that some retailers, especially foreign apparel firms and luxury brands, have temporarily moved their headquarters to Osaka or have shut down completely. However, Japanese retailers tended to stay on.

Rents are expected to remain flat or soften slightly in the coming six months but will begin to recover once as the nuclear situation is brought under control and tourism begins to recover.

In the industrial market, two trends have emerged in Greater Tokyo: disaster-affected companies are leasing short-term warehouse space, filling long-time vacancies, and demand for large-scale logistics facilities are on the rise, which could result in a development upswing.

Should there be delays in repairs to damaged manufacturing bases in Northern Japan, tenants are likely to consider consolidating existing facilities in Greater Tokyo.

However, if short-term demand fails to translate to longer term requirements, there is unlikely to be any significant benefit to rents, said CBRE.

Meanwhile, Kansai is being considered as an option for longer term requirements as some industrial tenants review their national occupational strategies and implement dispersal strategies.

Lastly, it is anticipated that Japanese investors and funds will lead the recovery in transaction volume, and though some overseas investors have adopted a "wait-and-see" attitude, others are viewing this is as a possible purchasing opportunity.

A stronger flow of opportunistic deals may result from Japan's public sector coming under pressure to dispose of assets to help pay for the costs of reconstruction, said CBRE.

Some private companies severely impacted by the earthquake may also be compelled to liquidate assets to finance reconstruction of their business