TOKYO -- Japan's capital is seeing a flurry of office relocation activity, with companies moving into spiffy new digs. The trend is yet another sign the domestic real estate market is recovering. The big question on analysts' minds, though, is whether the recovery is for real.
SoftBank Technology, which focuses on e-business services, last month moved into the Shinjuku Eastside Square building in Tokyo's Shinjuku Ward. "We wanted to relocate to a large office before rents rise," said Katsuya Tachibana, head of the company's legal and general affairs department.
The place, Tachibana noted, is expansive -- about 750 employees can work on a single floor.
Another sign that office demand is picking up: Front Place Nihonbashi, a building constructed by Mitsubishi Estate in Tokyo's Chuo Ward, was fully occupied when it opened at the end of last month.
During the global crisis that followed the 2008 collapse of U.S. investment bank Lehman Brothers Holdings, many Japanese companies sought to skimp on rent. Now they are scurrying to secure prime facilities before rising land prices push up leasing costs.
Commercial land prices in Tokyo and surrounding areas climbed 1.7% in the year to Jan. 1, topping a 0.7% uptick in residential zones.
Rising land prices have a way of sparking economic activity. When individuals and companies expect property values to increase, they have an incentive to act fast.
Plus, since land is used as collateral for bank loans, higher values allow companies to take out bigger loans and make larger capital outlays.
The Dai-ichi Life Research Institute estimated that an average 0.7% increase in land prices in Tokyo, Osaka, Nagoya and their environs as of Jan. 1 would lead to a 68 billion yen ($670.18 million) boost in personal consumption in 2014. By the institute's calculations, the surge in corporate spending would come to 107 billion yen.
If land price increases are only temporary, the economic benefits will also be temporary. But since Japan has already been through a correction of unreasonably high property values, the trends in the three metropolitan areas "appear sustainable," said Toshihiro Nagahama, chief economist at the research institute.
Still, there is no denying the property recovery is uneven. In January, the Tokyo metropolitan area's seasonally adjusted housing starts increased 5.6% on the month, according to the Cabinet Office. The Osaka and Nagoya regions slid onto downward trajectories in December.
Easy does it
The real estate market's patchy performance is partly attributable to easy-money policies.
Last year, domestic stocks soared as the yen fell amid unprecedented credit easing by the Bank of Japan. Wealthy individuals and seniors, who tend to hold large volumes of shares, put their profits toward big-ticket purchases, including property.
In Tokyo, condominiums priced above 100 million yen were hot sellers.
But if monetary easing and other policy measures send land prices to unjustifiable heights, Japan will have a bubble on its hands. Ryutaro Kono, chief economist at BNP Paribas Securities (Japan), warned there is indeed a budding property bubble caused by "an inflow of funds stemming from global monetary relaxation."
Some reckon prices may hit a ceiling. Kazumasa Iwata, president of the Japan Center for Economic Research, said: "In the medium run, land prices will not rise unless economic reforms raise Japan's growth potential."