Learning the basics : Tokyo and nine regional cities
Presented here are overviews of Tokyo and nine major cities, including land price changes over the long-term and snapshots of major macroeconomic indices. For details of each city, click the red dots on the map below left.
(1) Land Prices - Recovery from the bubble burst
After the collapse of the bubble economy, the Japanese economy entered a period of stagnation called the "lost ten years." Looking at the fluctuations of the price change rates in commercial districts (sites for offices and retail stores), it is apparent that the three major metropolitan areas had particularly significant rises and falls from the late 1980s to the early 1990s in comparison to the national average. This tendency is particularly prominent in the Tokyo and Osaka regions.
Source: The Ministry of Land, Infrastructure, Transport and Tourism
During the bubble economy, surplus funds held in Japan due to the appreciation of the yen were directed to land investment. It was a time when the "land-price myth," which asserts that land prices will never go down, was widely believed. After the collapse of the bubble economy, few buyers showed interest in real estate properties for which prices kept falling. The recovery of land prices started only after drastic liquidation of bad loans by financial institutions. This process was helped by the general adoption of the DCF method, which enabled objective appraisal of real estate and the securitization of properties by the Asset Liquidation Law, which came into effect in 1998. The market was led by foreign-based funds such as Morgan Stanley and the recovery of the macro economy supported land prices.
Source: The Ministry of Land, Infrastructure, Transport and Tourism, 2007
Data shown in the above graph is based on the land prices for roughly 30,000 locations assessed by real estate appraisers appointed by the government every July. The survey is conducted for the purpose of taxation and there is some divergence from the actual transaction prices over the short-term.
Looking at the standard land prices of commercial districts, for which national averages reversed their declines in 2007, Fukuoka recorded the highest at 769,000 yen per m2 among the nine major cities, except Tokyo. It is followed by a similar value of 767,000 yen per m2 in Osaka. These are about one third of the price appraised in the wards of Tokyo, which was 2,036,000 yen per m2.
The standard land prices in commercial districts over previous years in Nagoya, Kyoto and the wards of Tokyo started to rise from 2005, while all of the nine cities reversed their declines from 2006 to 2007. In particular, Sapporo, Kyoto, Osaka, Fukuoka and the wards of Tokyo recorded increases of more than 10% two years in a row. The growth of land prices are saturating though, particularly in Nagoya and Kyoto.
Source: The Ministry of Land, Infrastructure, Transport and Tourism, 2007
(2) Rental Office Market - Vacancy rate records the lowest in Tokyo
Among the nine cities, Yokohama recorded the highest asking rent for offices, roughly 12,000 yen per tsubo, while Kyoto and Kobe recorded asking rents at the 11,000 yen per tsubo level, followed by the 10,000 yen per tsubo level of Osaka, Nagoya and Fukuoka (Tsubo equals to 3.3m2, or 36 ft2). Sapporo and Sendai dipped below the 10,000 yen per tsubo level. Standards in the five central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku and Shibuya) are close to reaching the 16,000 yen per tsubo level and the standard of Osaka was about two thirds of that.
Source: CBRE Research Institute, December 2007
The vacancy rate as of the end of 2007 was lowest in Yokohama at 4.2%, which was followed by rates at the 5% level in Osaka and the 6% level in Nagoya and Kyoto. While the actual standard rent of Kobe exceeds that of Osaka by roughly 1,000 yen per tsubo, the vacancy rate in Kobe is higher than 10%. The vacancy rate for the major five wards of Tokyo remains at the low level of 1.7 %.
The vacancy rates in the nine cities peaked in 2003 and have been declining since then in general. The vacancy rates in Yokohama and Nagoya drifted without exceeding 10% in 2003, the year which saw vacancy rates increase nationwide. Although the vacancy rates in the two cities had a downward tendency after 2004, they went up slightly in 2007. Meanwhile, the vacancy rates in Kyoto and Osaka, which exceeded 10% from 2002 to 2003, rapidly decreased and recovered to the 5% to 6% level in and after 2006. Although Sapporo and Sendai once exhibited a downward trend, they have remained at roughly the same level for the past year or two.
Source: CBRE Research Institute, December
(3) Population - Centralization progress while Japan shrinks as a whole
As of June 2008, Yokohama has a population of roughly 3.64 million, which is the largest among the nine cities. It is followed by Osaka with a population of roughly 2.65 million and Nagoya with a population of roughly 2.24 million. The smallest among the nine cities is Naha, which has a population of roughly 310,000.
When compared with the wards of Tokyo, the population of Yokohama is equivalent to roughly 42% of that of the wards of Tokyo, while the populations of Osaka and Nagoya are roughly 30% and 26% respectively.
Source: published data of each municipal office, 2008
Looking at the changes in the population growth rates for every five years, cities in major metropolitan areas showed significant decreases in population as demonstrated by Nagoya, Osaka, Kobe, Naha and the wards of Tokyo, all of which recorded negative growth in a comparison between 1990 and 1995. The major reverse in growth between 1990 and 1995 in Kobe is due to the Great Hanshin-Awaji Earthquake.
Source: Ministry of Internal Affairs and Communication, Statistics Bureau
In a comparison between 1995 and 2000, however, Nagoya, Kobe and the wards of Tokyo reversed their negative trends as their growth rates moved upward. In addition, all of the nine cities and the wards of Tokyo recorded increases in the 2000 and 2005 comparison. An apparent trend of centralization became common among the major cities, though population of the country is declining as a whole.
The highest growth rate in the 2000 and 2005 comparison was the 4.5% recorded by Yokohama and Fukuoka, which was followed by the 3.8% of Naha and the 3.2% of Sapporo. The wards of Tokyo remained at 4.4%, roughly at the same level as Yokohama and Fukuoka. Osaka, which had a population that had been in continuous retreat, reversed its negative growth increasing by 1.2%.
(4) Retail and Household Income
In a comparison of the number and total retail space of large-scale retail stores with floor space exceeding 1,000 m2 in the nine cities, the largest number of stores is 361 in Osaka, followed by 336 in Yokohama and 335 in Sapporo. As for total retail space, Yokohama has the largest amount of space, exceeding 2.26 million m2.
The number of large-scale retail stores in Kyoto, which has a population roughly the same size as Kobe and Fukuoka, is only 138 and the total retail space is also small at roughly 750,000 m2.
The wards of Tokyo have 911 retail stores and the total retail space exceeds 4.69 million m2. In a comparison between Yokohama and the wards of Tokyo, the number of retail stores in Yokohama is roughly one third of the wards of Tokyo, while the total retail space in Yokohama is roughly half that of the wards of Tokyo.
Source: Toyo Keizai, 2007. Stores with retail space in excess of 1,000 m2
Sales turnover of large-scale retail stores (department stores and supermarkets) was the largest in Osaka among the nine cities, surpassing 1 trillion yen. It was followed by the roughly 930 billion yen in Yokohama and the roughly 800 billion yen in Nagoya. The total of the wards of Tokyo reached 2.85 trillion yen and the turnover of Osaka is equivalent to roughly one third of that.
In comparison to the previous year, each city remained at approximately the same level and there is little difference between cities. Sapporo, Nagoya and Kyoto slightly increased their totals over the previous year.
Source: Ministry of Economy, Trade and Industry, 2006. Department stores with retail space of more than 3,000 m2. Supermarkets more than 1,500 m2.
As for the annual income of households consisting of two or more persons in each city, Yokohama recorded the highest annual income of 7.68 million yen, followed by 7 million yen in Fukuoka and 6.66 million yen in Nagoya. The lowest was the 4.25 million yen of Naha. The standard of Yokohama was roughly the same as that of the wards of Tokyo.
Source: the Ministry of Internal Affairs and Communication, Statistics Bureau, 2006. Households of two or more persons
(5) External Resources
For investors who wish to learn about Japanese property market from the ground, a comprehensive handbook published by the Real Estate Companies Association of Japan may be helpful. °»REAL ESTATE in Japan°… is issued annually in English and offered online for free.
Those who want to check recent updates of rents and vacancy data may try °»Office Market Report°… published by CB Richard Ellis Research Institute. It is a quarterly report that covers metropolitan and regional cities. Note that the rents CBRE reports are asking rents, instead of actual closing rents which we offer proprietarily on the Closing Rent Survey page.
The Association for Real Estate Securitization (ARES) provides online J-REITs information, by compiling public information regularly. "J-REIT View" abounds with outline of each REIT and statistic data, such as share price and dividend yields, updated weekly. "J-REIT Property Database" is comprised of indices and a database of REIT owned properties, based on the disclosed information. ARES also offers "Japanese Real Estate Market Overview", a webpage of its survey on cap rates, construction stats, etc.
The Japanese Real Estate Investor Survey, conducted semi-annually by a leading real estate appraisal institution Japan Real Estate Institute (JREI), provides expected cap rates of buildings in the Tokyo's central business districts, as well as regional cities. The report represents aggregated-base information of viewpoints and expectations, and does not reflect the actual transaction. However, it often referred as a key indicator for capturing market trends. The PDF files include English translation printed side by side with Japanese text.
"Land Price Look Report" is the most recent effort of the Ministry of Land, Infrastructure, Transport and Tourism(MLIT) to improve transparency of the market. It represents an aggregation of the report on the quarterly trends in land prices of urban centers by local real estate appraisers. Quarterly changes are expressed by up and down allows on the map.