Rising vacancies for offices in the capital are weighing on shares of Japanese real estate developers and owners as the market digests the damage that the pandemic has done to a seven-year office boom.
Vacancies in five of Tokyo’s major business districts rose for a fourth consecutive month, gaining to 1.97 percent from 1.64 percent in May, real estate brokerage Miki Shoji Co. said on Thursday. The increase is the the largest one-month gain in more than a decade.
Shares in Tokyu Fudosan Holdings Corp. fell as much as 4.6 percent on Friday, while Ichigo Inc. fell as much as 6 percent.
The Topix Real Estate index fell as much as 2.9 percent, the third-worst performer among the index’s 33 sub-groups.
Vacancies in Tokyo fell almost unrelentingly for the seven years since Prime Minister Shinzo Abe came to power in late 2012, even as rents continued to rise. The trend was halted by the pandemic, which has made prospective tenants reluctant to sign leases and raised questions worldwide about the future of the office.
Fujitsu Ltd., one of the largest employers, has already declared its intent to halve its domestic office space over the next three years and have its 80,000 employees work mostly from their homes.
Hisayuki Shimokawa, an analyst with Tachibana Securities Co. in Tokyo, said it was hard for investors to favor real estate stocks, given the lack of clarity surrounding the future of the office amid the need to avoid enclosed spaces. Reports on companies reducing office space or spreading their space out were weighing on real estate stocks, he added.
Tokyu Fudosan’s share drop on Friday was larger than some peers, with the increase in vacancies especially prominent in the Shibuya area, where the rate increased to 3.38 percent from 2.55 percent. The area houses some 34 percent of Tokyu’s office portfolio, according to Jefferies.
"Shibuya is known for a higher concentration of both tech-related and mid-sized tenants,” Jefferies analysts William Montgomery and Shunsuke Kuriyama wrote. "With the increase in teleworking, the market is concerned that small and mid-sized companies and tech-focused companies are reducing demand.” However, they noted that while its older portfolio of Shibuya properties will be under pressure, much of its portfolio is new, which will add "earnings resilience.”
SMBC Nikko Securities Inc. analyst Junichi Tazawa wrote in a note on Thursday that he expects vacancies to increase to 3.9 percent by the end of the year, before recovering to 3.4 percent by the end of 2021 and 3.1 percent by the close of the following year.
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