Japan’s rapid change to keep up with the global remote-work trend is bad for the country’s office developers.
The Morgan Stanley MUFG Securities downgraded Japan’s three biggest real estate stocks, saying it expects Tokyo’s office rents to decline over the next five years.
Because of the coronavirus pandemic, the brokerage said the vacancy rate in town could rise to a record high as more people work from home.
“In embracing telecommuting, corporate Japan has long stood behind other developed markets but recovered during the Covid-19 pandemic,” analyst Atsuro Takemura said.
“Telecommuting businesses today have far less office space than those that don’t, so we’re concerned about the possible big effect on Japan’s office market for the future.”
In response to the coronavirus outbreak, Japan’s deeply rooted work culture is undergoing major changes as large companies such as Panasonic, Mitsubishi and Hitachi become more flexible to remote work.
The chief executive of Nomura Holdings recently said the company is looking to reduce office space because of the development.
According to Miki Shoji data, the Tokyo office vacancy rate increased to 1.64 per cent in May, the highest level since September. The rate dropped from more than 9 percent in 2012 with population growth and development in the city being postponed in the midst of tourism expansion and preparations for the 2020 Olympic Games.
Not everybody is seeing such a grim situation for Japanese real estate developers. Citigroup assumes the market downturn is already priced so buying shares, like Mitsui Fudosan and Sumitomo Realty securities, will be fine.
Although some parts of the housing market are likely to experience “minor corrections,” according to an analysis by Citi’s Masashi Miki in a study on Wednesday, major developers may see steady profit growth on the long-term.