Signs that people are moving away from Tokyo, as telecommuting becomes the norm for many businesses amid the COVID-19 pandemic, have put property investors on edge and pushed Japan's real estate investment trust (REIT) index to five-month lows.
Although Japan's total population has been dropping since 2009, the capital has defied the trend, attracting young workers from all over the country.
But data from the Tokyo Metropolitan Government shows the city's population dropped by around 10,700 in October to 13.971 million, its fourth decline in five months.
"We have expected Tokyo's daytime population to shrink over time but we did not think such a change would take place that quickly," said Kazufumi Takeuchi, senior analyst at UBS.
Tokyo's population had reached 14 million this year, from about 12 million in 2000, spurring property demand.
But signs of a drop in population is putting pressure on REITs, researcher Makoto Sakuma from NLI Research Institute said. Pricey properties in Tokyo make up the core part of portfolio for many REITs.
Japan's main REIT index fell to a five-month low last Thursday. It is down 23.5% for the year, while the broader index has recovered its pandemic losses.
Analysts say people are moving to suburbs instead of staying near the office as they work from home amid virus-related curbs.
House prices have not come down yet, "but as more people work from home, the demand is weakening especially for a tiny one-room residence where you just go back to sleep", Sakuma said.
Advance Residence Investment, a residential REIT, said its occupancy rate dropped in September, a month that typically sees a rise as Japanese companies tend to move staff ahead of the start of the financial half year in October.
Signs of exodus from Tokyo could put pressure on offices, key assets of Japan's ¥12 trillion ($115 billion) REITs.
"Now that companies have realized people can work outside the office, if they are forced to choose between cutting costs on office or labor, I think most … will cut office first," said Akihiko Murai, portfolio manager, Fidelity International.
"So if there is an economic downturn of the same magnitude as the previous one, the damage on the office sector would be larger. The financial industry may be a bit too optimistic because it isn't the worst affected sector this time."
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