Tuesday, August 30, 2005

Offices up, in big cities at least

Offices up, in big cities at least
2005/08/29, THE NIKKEI WEEKLY, page 30, 504 words

Despite uncertainty surrounding the price of steel products and other commodities dependent on the course of the Chinese economy, recovery in the domestic office building market provides evidence that the Japanese economy is picking up steam.
Since the market cleared the 2003 problem that sparked concerns of an oversupply of large office buildings in central Tokyo, vacancy rates have fallen drastically, indicating that building rents are about to bottom out and move higher.
According to real estate consultancy Ikoma Data Service System, total rental office space in Tokyo's 23 wards accounts for 59% of the Japanese office building market, while Osaka makes up 19%, Nagoya another 6% and Fukuoka and Yokohama just over 3% each.
IDSS releases a quarterly report on rental office space in central Tokyo, while Miki Shoji Co. provides similar monthly data covering the five central Tokyo wards of Chiyoda, Chuo, Minato, Shinjuku and Shibuya.
Miki Shoji's data shows that the average vacancy rate in the central wards declined to 4.76% at the end of July 2005, the lowest level since January 2000, after rising as high as 8.57% in the middle of 2003.
IDSS survey results revealed a similar trend in Tokyo's 23 wards, where the average vacancy rate showed a 0.9 percentage-point drop to 5% in June this year from a year ago.
Lagging indicator
Demand for rental office buildings is regarded as a lagging economic indicator because even companies that have gained substantial financial leeway from a recovery in earnings tend to put other management concerns ahead of extending their office space.
In the current economic upturn, Japan's office building vacancy rate finally stopped climbing about 18 months after hitting a cyclical trough in January 2002 and has begun to move downward.
The office building market was last in a recovery phase around 2000, when the IT boom was at its peak. The average vacancy rate in Tokyo's five central wards fell below 5% in early 2000 and then declined constantly to reach 3.07% in January-February 2001.
"Since the previous recovery cycle of the office building market was driven by demand from IT-related firms, the end of the IT boom also caused the market to lose its upward momentum quickly," Miki Shoji president, Kiyoshi Iijima, said. "The market's present recovery cycle is being supported by a broad range of industries, from IT firms to basic materials producers to law offices."
The downside, however, is that the office building sector in regional cities remains in an unfavorable business environment. In addition, a projected problem in 2010 is expected to unfold in Tokyo, causing a glut of office buildings, when a large chunk of baby boomers reach retirement age.
Because the present strong recovery in the office building market appears to be a phenomenon that has trailed moves in the broader economy, no optimism is possible in predicting the market's future trends.
Tomio Shida is a senior staff writer of The Nihon Keizai Shimbun. The original appeared in the Aug. 22 morning edition of The Nihon Keizai Shimbun.


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