Equity capital inflow to decelerate: Tokio Marine study

04.21.2011

Tokio Marine Property Investment Management, a company of Tokio Marine & Nichido Fire Insurance Group, released a report in which it outlined its view that equity capital inflow into the real estate investment market from REITs as well as from foreign investors will largely decelerate. The report, “The Earthquake’s Implications for Japanese Property,” also pointed out that the recovery of the rental office market will be pushed back one year from what was previously forecast to 2012 or later.  
 
Earthquake damage to commercial real estate properties in the greater Tokyo area has been minor. However, going forward there is a possibility that real estate demand will be impacted by electrical power shortage, nuclear power plant concerns and cooling consumer confidence.
 
The report gave three implications for the Japanese real estate market: the decentralization or slowdown of centralization of businesses in the Tokyo area, the shifts in demand in terms of location and building specifications, and the slowdown of capital inflow to the property market.   
 
There have been several REITs which have canceled their scheduled increase of capital due to destabilization of REIT investment unit prices following the quake. If for example, assuming a 50% leverage of REITs, the quarterly amount of capital increase prior to the quake of over 100 billion yen [$1.2 billion] was dropped to half, this would reduce the total acquisition amount of real estate of nearly 1,000 billion yen [$12 billion] down to about 500 billion yen [$5.8 billion]. The report also states that foreign investors will take more cautious views on Japanese property as they reconsider the risk premium. 
 
In the rental office building market, “with reported loss on assets and disruptions in economic activities, growth in corporate profits will probably go slack, delaying the recovery of office vacancy and the prospects for rental growth.” On the other hand, the report mentions that the large office supply may be mitigated due to increases in delays in construction starts with continued electrical power shortage.
 
 


[Related site]
- The Earthquake’s Implications for Japanese Property (PDF)

 

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