According to the quarterly LOOK report issued by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) in the first quarter of 2018, land prices have increased in 91% of the surveyed locations. This is the first time the percentage has exceeded 90% in the history of reporting.
The main factors behind the rising land prices include positive conditions for the office market in central Tokyo, Osaka and Nagoya, major redevelopment projects, surging tourism numbers and expenditure, and strong demand for apartments that are close to transport. These factors are also encouraging investment into the office, retail, hotel and residential sector.
When looking at land by zoning, 81% of residential locations saw an increase in prices from the previous quarter with the remainder seeing no change. No locations saw a decline in land prices. For commercial land, 96% of locations saw land prices increase, with the remainder seeing no change in prices.
Since the third quarter of 2014 none of the survey locations have reported a decrease in land prices. Following the global financial crisis, as much as 96% of locations saw a drop in land prices.
LAND PRICE RISES IN TOKYO
Bancho area, Chiyoda-ku [Residential] : 0%
Located on the western side of the Imperial Palace, this is one of Japan’s leading luxury residential districts. Demand from wealthy domestic buyers is strong with prices of both new and older apartments remaining steady. Most of the demand is from owner-occupiersHowever, there has been an increase in the time required to sell higher-priced apartments. New apartment supply is expected to remain stable, as are prices.
Minami Aoyama, Minato-ku [Residential] : + 0~3%
A historically wealthy and primarily low-rise residential area near Omotesando Station. Apartment price increases have been supported by Japan’s economic recovery, low interest rates and strong share market, with a number of high-priced apartment sales. Occupancy rates in high-end rental buildings have been shrinking while rents have shown an increasing trend. New apartment supply is very limited in this neighborhood due to a scarcity of land for developments. Demand from wealthy buyers is expected to remain strong.
Marunouchi area, Chiyoda-ku [Commercial] : + 0~3%
Office vacancy rates in this district have been holding steady in the 1% range. Although tenant selection for prime office space may be limited, corporations are still seeking the Marunouchi address. Several office tower redevelopment projects are underway in Marunouchi and the adjoining Otemachi address which may see vacancies increase temporarily. With the majority of land owned by a small number of major corporations, investment opportunities are extremely limited.
Shibuya, Shibuya-ku [Commercial] + 3~6%
With the Shibuya station area redevelopment well underway, it is no surprise to see land prices increase by 3 ~ 6% in the Shibuya district. Office vacancy rates are sitting close to zero, while IT firms are clamoring to set up shop in Shibuya. In a significant move, Google will be relocating their head office to Shibuya Stream – a brand new office building just south of Shibuya Station. Demand for retail space from European and US brands has been high, while vacant retail space remains in very limited supply.
Omotesando, Shibuya-ku [Commercial] : + 3~6%
Omotesando is undoubtably Japan’s fashion capital and home to a number of flagship boutiques. Retail space fronting the main street has continued to achieve high rents. Although rents are nearing the ceiling for tenant demand, major brands looking for the advertising benefit that comes with main street frontage and an Omotesando address are supporting the high rents.
The MLIT LOOK Report is a survey of land price movements for 100 commercial and residential locations across Japan’s three major urban centers of greater Tokyo, greater Osaka, greater Nagoya as well as regional hubs.
Source: MLIT, June 1, 2018.
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