Japan Developers May Struggle As Demand for Office Space Ebbs

TOKYO, JAPAN - June 27 2008 - Demand for office space in Japan, which has been strong for years, is showing signs of softness. And that’s likely to weigh on shares of the country’s biggest real-estate developers.

In late 2003, Japan’s commercial-real-estate market began a prolonged upswing. As the economy recovered from a long slump and continued to expand, companies started to add staff and to need more space. Global financial firms, in particular, aggressively expanded their businesses and moved into bigger, pricier offices.

But in the past few months, demand has weakened. One reason is that the U.S. subprime-mortgage crisis, which has hurt many finance-sector firms, has led foreign companies to be more cautious about expansion plans.

There are other signs that the Japanese office market is softening. A survey by the Japan Real Estate Institute, a research group, in April showed the first increase in five years for an indicator the industry uses to value rent-producing properties. The rise in the indicator — called the capitalization rate — signals a decline in the prices that buyers of Tokyo commercial real estate are paying.

Japan Developers May Struggle As Demand for Office Space Ebbs
by LISA THOMAS | Wall Street Journal