The Effect of the Postponed Tokyo Olympic Games on Japan’s Property Market

Japan Real Estate

Japan Properties

(As featured in Asian Property Review)

03 Nov, 2020 –

In 2013 Tokyo won the bid to host the 2020 Olympics. An opportunity to prove to the world its resilience after skepticism over the leak of radioactive water from the Fukushima nuclear plant. The Games would raise economic activity by boosting inbound tourism and associated consumption, and also trigger construction in the years leading up to the event. But, where Prime Minister, Shinzo Abe gave assurances for keeping the games safe, in a strange twist of fate, was faced with a pandemic and postponement of the Olympics.  Japan is determined to set itself on a path of economic recovery with the onset of the Games in 2021. Ambitious, perhaps, but a country known for its clear and efficient tax systems can only continue to render as an attractive safe haven investment destination.

Olympic Venues

Prior to the pandemic, the two primary venues in preparation of the Tokyo 2020 Olympic and Paralympic Games were: the Tokyo Bay Zone, and the Heritage Zone. Despite the pandemic and postponement of the games to 2021, some expect a transformation of not just the city, but the future of Japan; others not so optimistic.

The “Tokyo Bay Zone” was intended to stand as a model of innovative urban development to symbolize the city’s future. Masa Takaya, a spokesperson for the games, expressed high expectations for the area anticipating that the revitalized Tokyo Bay would create a zone with strong appeal for Tokyo’s future development with green spaces, as well as sports and education facilities. The zone would have eight new permanent venues which, after the Games, would be used for staging major sporting events, exhibitions, and other leisure activities. In this way, the village would ideally become a waterfront showpiece for sustainable urban living for many years to come after the Olympic Games.

The Heritage Zone was intended to bring together iconic sites used during the 1964 Tokyo Games and pass on the legacy to the new generation, of the 1964 Games and the role they played in post-war Japan. Seth Sulkin, co-chair of the American Chamber of Commerce in the Japan Real Estate Committee has not been so optimistic about profitability for the development of this area into a commercial zone. His concern has been that Tokyo lacks accessibility. Taking for example, Harumi Island Triton Square in Chuo Ward, this approximately 25 year old major mixed-used development failed due to poor access and distant subway stations. Today, the area is troubled with vacancies in large-scale office buildings and a deteriorating retail component, which would be compounded by the pandemic and reduction in tourism.

The intersection between the Tokyo Bay Zone and the Heritage Zone was designed to be the athletes’ village, an area to facilitate the daily life of the athletes. The area occupies 13.4 hectares, which the Tokyo government sold to 11 private developers for around ¥13 billion (USD $122 million) at a considerable discount from the land prices in adjacent areas. Of the 5,600 units in the athletes’ village near Harumi on Tokyo Bay, approximately 940 have been presold with a move-in date of March 2023. Because of the postponement of the Games, buyers might seek compensation. Furthermore, as Koji Moriyama, an authority on construction pointed out, if the units don’t sell, the already discounted property values could drop further, potentially prompting fear that land prices throughout the metropolitan area will plummet.

 Retail

Investors from Hong Kong and China see opportunities not only in unsold properties of the Olympic venues, but also shop prices in prime locations in Tokyo and Osaka. They held firm for more than a decade, but fell by nearly 30 percent, making it a buyers’ market with more choices and more bargaining power. Entry-level investments for retail units in high traffic areas in Japan can be purchased for approximately USD $129K to $258K vs nearly USD $1.3 million in Hong Kong. Plus in Japan, there is the added benefit of high yield and affordable management fees. Some shop owners are even willing to cash-out in the face of growing uncertainties at approximately 30 percent below market price, attracting both Hong Kong buyers as well as Japanese locals.

Rural and Hotel

Under the anticipation and speculation of the soon-to-return influx of inbound tourism to benefit both hotel and retail, and with access to low interest bank capital, rural areas, long neglected by foreign investors and domestic homebuyers alike, became particularly attractive to small and mid-size developers because of the abundance of land. According to JLL real estate, Japan continues to be amongst the most active hotel investment markets in Asia Pacific, due to its underlying demand prospects. JLL anticipates the bankruptcy of a limited number of hotel owners/operators could lead to pricing reassessments or conversions of hotel assets to alternative uses in markets with supply and demand imbalances.

Japan was notably the 11th most visited country in the world in 2019. The numbers slumped 58.3 percent to 1.09 million in February 2020, according to Japan National Tourism Organisation data, as the coronavirus pandemic deterred many visitors. For this reason, while prices may be attractive, some investors believe the coronavirus outbreak may affect consumption, which could in turn affect the leasing market. The effect of the global travel ban has also had a hard impact on ‘minpaku’ (small to mid-sized hotels and traditional Japanese inns). Sotheby’s Realty reported larger discounts on these distressed assets around Osaka, Kyoto, Fukuoka and Sapporo.

Where Tokyo once stole the show, the spotlight seems to be turning to less crowded investment destinations for commercial, residential or industrial locations within a 90-minute drive or train ride from Tokyo,  for example Hakone in the Kanagawa prefecture, Atami in Shizuoka prefecture. These types of locations have taken the limelight as places that can comfortably accommodate social distancing in this new world.

With one year to go, it is a mammoth task for the country to recover from its ailing tourism industry and plan the Olympic Games to the requirements of the global crisis. Clearly, it’s not just the athletes remaining resilient – Japan has its game on as well.

(Source – Priti Donnelly, Pic – Tokyo Olympic National Stadium Construction Site/ “Toshihiro Gamo“)

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