Japanese Logistics Market By The End of Q1 2010

All economies in the Asia Pacific region continued their growth trends over the second half of 2009, with some nations seeing acceleration in economic expansion. Only Japan's outlook remains relatively fragile compared with the rest of the region. While the Japanese economy had experienced three consecutive quarters of GDP growth by the end of 2009, this comes after some major declines in late 2008 and beginning of 2009.

 

Japan's exports increased by 5.0% from Q3 2009, and the unemployment rate dropped to 4.9% by the end of the year. In February 2010, exports grew at the fastest pace in about three decades and have improved noticeably in comparison to a year ago. However, they are still some 25% lower than their 2008 level. Growing demand in China and elsewhere in Asia is helping Japanese companies, and this might minimize an economic slowdown in the coming months as government stimulus measures fade.

 

Economists generally expect that the Japanese economy will continue on its gradual upswing, despite a moderate dip forecast for Q1 2010. With rising exports to China continuing to drive growth in Japanese industrial production, the Government has lifted its view on the nation's economy.

 

The recent strengthening of the yen has fuelled concerns for the export reliant Japanese economy. However, with Beijing expected to let its currency appreciate, this could benefit the Japanese economy going forward as a stronger Yuan will make foreign goods more affordable in China. Japan is China's top source of imports, with China importing some US$131 billion worth of Japanese goods in 2009.

 

Japanese Real Estate Market

 

There are growing signs that the real estate market of the Asia Pacific have bottomed. Japan remains the region's largest investment market, accounting for almost 40% of total investment volumes in 2009. From Q4 2009 sentiment began to improve noticeably in the Japanese real estate investment market. This increased into 2010 amid a brisk flow of small and medium sized transactions. However, investor attention is focused primarily on prime office and retail assets.

 

After struggling since early 2008, the J-REIT market started to show signs of recovery in the second half of 2009. This was due mainly to support from the Kanmin fund, a Public-Private Real Estate Market Stabilization Fund with total capital expected to reach JPY 450-500 billion. The Fund has been welcomed by the market as it has alleviated refinancing concerns for some J-REITs. Continued government support, mergers and new sponsors are all expected to help prevent a J-REIT sell-off and further deteriorations in asset values.

 

Logistics Real Estate Sector

 

Demand for high quality, large scale logistics facilities remains strong in Tokyo. According to CB Richard Ellis the average vacancy rate for large scale multi-tenant logistics facilities declined to 14.2% at the end of 2009. Likewise, vacancy rates for facilities one year and older decreased to 6.8%, which marked the second consecutive quarterly decline in Tokyo. This suggests that demand for high quality logistics space is starting to increase in the nation's capital, driven mainly by virtually no new supply of modern warehouse space since the GFC.

 

Tokyo logistics vacancy rates are unlikely to increase further in the short-term with no significant new supply planned in the near future. Average asking rents in the Greater Tokyo area have not shown any sign of recovery since declining in mid-2008. Nevertheless, demand still exists for large scale facilities from companies planning to consolidate and even to relocate to nearby higher quality facilities.

 

The following logistics real estate transactions have taken place since the start of the year:

On 4 February 2010, the Japan Logistics Fund J-REIT acquired a 90% interest in a prime logistics property in Narashino, Chiba Prefecture, from ProLogis. This was the first transaction between the two parties since the announcement of their pipeline support plan on 31 August 2009, and marked the first J-REIT transaction of a logistics asset in a year. The reported NOI cap rate of 5.9% translates to about 5.2% at current market rents, based on brokerage opinions.On 19 March 2010, the Industrial & Infrastructure Fund J-REIT sold its interest in the IIF Funabashi Logistics Center in Funabashi, Chiba Prefecture, to Dream Logistics Fund for a price consideration of JPY 9.02 billion from a related party. The NOI cap rate is estimated to be about 6.3%.On 30 March 2010, Orix J-REIT acquired the Sakai Logistics Center in Sakai City, Osaka Prefecture, for a price consideration of JPY 10.2 billion from a related party. The reported NOI cap rate was 6.1%.

 

According to CB Richard Ellis, "prime" Tokyo logistics cap rates currently stand at 5.5% NOI with some compression expected from the end of 2010.

 

In a sign of increasing investor interest in the Japanese logistics real estate sector, a wholly owned unit of Mitsubishi Corporation has created an unlisted real estate fund specializing in logistics facilities. The assets are worth about JPY 23.4 billion, and the fund is to be operated for five years.

 

Outlook

 

Having weathered the global credit crunch and the ensuing economic downturn, economies in the Asia region have emerged in good shape relative to the rest of the world. This has been mainly due to Chinese economic growth. However, the Japanese economy has not been as quick to respond as the rest of the Asia Pacific region.

 

The first few months if 2010 have seen further tangible improvements in sentiment in the local real estate investment market, with more capital coming back to Japan in search of quality assets.

 

The Japanese economy still remains fragile and highly dependent on export growth to the rest of the region. Greece's sovereign debt woes and its potential effects on sovereign debt markets around the world, especially in Europe, have added to concerns about a sustainable global economic recovery for the world's second largest economy.

Source: Supply Chain Asia

http://www.supplychainasia.com/articles/253-logistics-management/2532-japanese-logistics-market-by-the-end-of-q1-2010.html