No light on horizon for Osaka markets

OSAKA: Three months after eastern Japan was struck by a massive earthquake and tsunami, gloom has once again settled over Osaka's long-depressed property market.

After lurching from one recession to the next over the past two decades, Osaka found a glimmer of hope when institutions and embassies flocked to the country's second-largest economic centre to open emergency offices after the March 11 earthquake.

But the mood quickly changed, as landlords in the western city realised that a hoped-for exodus of companies from Tokyo looking for office space wasn't going to materialise, despite the fear of more quakes and radiation concerns.

"I haven't seen a sign that Osaka's overall markets will improve anytime soon," said Tetsuya Nakajima, Mitsubishi Estate's Osaka-based deputy general manager for office leasing and tenant relations.

"Overall, I don't think it's time for investors to look for properties seriously in Osaka. Rents may fall further and vacancy rates may increase."

The Umeda district in Osaka's main rail station is a bustling maze of shopping malls and department stores. Shoppers pack shops and cafes, sipping French chocolat chaud and sampling rice cakes covered with sweet soy sauce topping.

Yet behind the facade of affluent consumption is the reality of vacant new office buildings awaiting takers, with businesses unable to agree on the rent.

In May, vacancy rates in Osaka nudged up to 12% from 11.98%, while rents contracted to ¥11,852 (RM447.85) per tsubo (3.31 sq m) from ¥11,902. Osaka's economy is a little more than a third of Tokyo's and it might be depressed further as western Japan's Kansai Electric Power is asking customers to cut power use because public worries over safety are keeping nuclear reactors offline.

The prefecture of 8.9 million people is the third largest by population after Tokyo and Kanagawa.

With most business remaining in Tokyo, there was not much incentive for companies to expand their offices in Osaka or any other part of Japan, said Teruo Ueda, Osaka-based managing director at CB Richard Ellis.

"New business emerges in Tokyo and that's how new spaces are being filled there," Ueda said.

"But here we don't have much new business so empty spaces need to be filled by existing clients and we are struggling to fill vacancies."

Even companies that moved into bigger offices in Osaka are not keen on expanding the office space and shifting operations from Tokyo.

Toshiba, which integrated its Osaka operations into the newly opened Umeda Hankyu Building Office Tower in December, is not planning to move any operations from Tokyo even though the building is 30% empty.

Publishing company Recruit will be joining Toshiba in the 41-storey Umeda Hankyu office complex, but said it would maintain its Tokyo operations at pre-quake levels.

If it is tough to fill space now, the hunt for tenants will intensify in 2013 with the opening of the 60,000 sq m Grand Front Osaka, a complex of offices, shops and residences being developed by Mitsubishi Estate, Orix Corp, Sekisui House and nine other companies. — Reuters