Analysts have become apprehensive about the global outlook
With the onset of the biggest volume of office space since the Global Financial Crisis scheduled in 2020 and an uncertain global economic outlook, 13 out of 17 research analysts surveyed said that Japan’s occupancy rate could experience a “slight decrease” in the two six-month periods ending June and December.
In the survey by Nikkei Real Estate Market report, respondents were asked to forecast market conditions for the rest of 2019 and in 2020. The analysts’ forecasts were sorted into five categories: “increase”, “slight increase”, “flat”, “slight decrease” and “decrease”.
The most significant change from a survey six months ago was the analysts’ evaluation of macroeconomics, according to the report. For this survey, ten analysts—more than half— described the current macroeconomics as a “negative factor.” In the previous survey, opinions were divided, with five respondents describing the global market as a “positive factor” and another five saying it is “negative,” and seven saying that it was “neither positive nor negative.”
“With the rising probability that the economy will trend toward stagnation, there is the possibility that the growth of office demand will weaken, notably in the manufacturing industry,” said Urban Research Institute Managing Executive Officer and Chief Consultant Shigeo Hirayama
Yuto Ohigashi, Associate Director at JLL, expects rising vacancies due to the impact of buildings completed in 2018 and 2019. “As such, 2020 will likely be a turning point for the market,” he said.
Although most research analysts expect occupancy rates to fall in 2020, securities companies and asset managers were relatively more optimistic. While the vacancy rate is expected to rise, the demand for offices will continue to be robust. As such, “office rents will not decrease,” said Morgan Stanley MUFG Securities’ Vice President Atsuro Takemura.
For the second half of 2019, expectations were different — 12 of the 17 analysts said occupancy rates would remain “flat.” The vacancy rate for the five central wards of Tokyo was 1.64% as of the end of May 2019, the report said, citing data by Miki Shoji Company Ltd. “Historically speaking, this is an extremely low rate,” said the report. While the current conditions of the rental office building market are favourable, as much as 2,180,000 m2 of office gross floor area is expected in the 23 wards of Tokyo in 2020, it said.