TOKYO -- Commercial land prices in Japan saw an annual increase for the first time in nine years, with cities outside the "big three" of Tokyo, Osaka and Nagoya leading the way as negative interest rates pushed yield-seeking investors into real estate.
The average market price of commercial real estate climbed 0.005% as of July 1, according to an annual report released Tuesday by the Ministry of Land, Infrastructure, Transport and Tourism.
Residential land prices nationwide edged down 0.8%, while the average for all lots examined slid 0.6%. This continued a 25-year downtrend for both, though the decline has narrowed for the past seven years.
Commercial real estate snapped its lengthy decline thanks to brisk office demand driven by the economic recovery, as well as rising profits at hotels and shopping centers frequented by foreign travelers. Commercial land prices grew in 15 prefectures, up from 12 the previous year, with Hiroshima and Fukuoka prefectures moving into positive territory.
Investors faced with negative yields on medium- and long-term government debt are sinking money into real estate in hopes of better returns. Commercial prices in the four main regional cities -- Sapporo, Sendai, Hiroshima and Fukuoka -- notched a 6.7% gain, the largest in nine years and well above the average 2.9% rise for Tokyo, Osaka and Nagoya. Prices surged more than 20% for some properties in Kyoto, a popular tourist destination, and in Kanazawa, which continues to reap the benefits of a new bullet train line.
Topping the list of the most expensive locations was the Meijiya Ginza building in Tokyo's ritzy Ginza district. This highly trafficked area is undergoing heavy redevelopment. At 33 million yen ($324,000) per sq. meter, the market price of the land housing the Meijiya Ginza building has surpassed its level from before the financial crisis and is nearing the peak of 38 million yen reached during Japan's economic bubble of the 1980s.
Residential land has been slower to recover, with growth in the three big cities flat at 0.4%. Condominium sales in Tokyo have flagged amid rising prices. Residential real estate prices rose in just five prefectures, down from eight a year earlier.
The report showed lackluster growth in Tokyo, Osaka and Nagoya and a sharp divide between winners and losers elsewhere. Returns on real estate investments fell in the three big urban areas, and fewer attractive properties are available. Average overall land prices in those three areas climbed 1%, nearly unchanged from the year-earlier 0.9%.
Conditions remain tough in outlying areas facing structural problems such as shrinking populations. Overall real estate prices fell 1.4% in urban areas outside the four big regional cities, which serve as population centers and economic hubs. The steepest drop occurred in Akita Prefecture, where the aging trend and population decline are most acute. Residential and commercial prices sank 3.4% and 3.8%, respectively.