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Commercial Rent in Downtown Tokyo up 12.86% Over Last Year

On Thursday, real estate firm Miki Shoji released their quarterly Tokyo Office Building Market Research Report for July 2007. The report covers the five central wards of Tokyo (Shinjuku, Shibuya, Minato, Chiyoda and Chuo Wards). They surveyed 2,612 office buildings (27 new and 2,585 pre-existing) that have at least 330 square meters of office space for rent on each floor. New buildings are defined as having their office space come online after July 1, 2006.

The first noteworthy statistic is that vacancy rates at new large office buildings in Tokyo stood at 3.43%, which was higher than the 1.76% measured in July 2006, and also higher than the 2% vacancy rate from April of this year. The overall average vacancy rate, however, was down 0.23%, and the vacancy rate at existing buildings was at 2.85%, down from 3.13% a year ago.

Chiyoda and Chou wards remained the places with lowest vacancy rates, hovering around 2%, while Minato and Shinjuku wards stood at 3.87% and 3.68%, respectively. In Shibuya, the vacancy rate was at 3.06%.

Average rent continues to soar. At the end of June, the average rent in the five major wards surveyed stood at 20,794 yen per tsubo, which is about 3.3 square meters. This was 12.86% higher than a year ago. It was also 285 yen higher than the figure from Miki Shoji’s April report.

The average rent at large newly built buildings, however, was at 34,335 yen per tsubo, which is 26.91% higher than a year ago. This translates into an average increase of 7,281 yen per tsubo, which is about 2,200 yen higher per square meter than a year ago.

A pdf copy of Miki Shoji’s report can be accessed from our Research and Reports page.

Japan’s Retail Sales Down in July, Consumption Tax Hike Being Discussed Openly

Yesterday, the Ministry of Economy, Trade and Industry released statistics showing that Japan’s retail sales fell 2.2% in July 2007 compared to July of last year. We have now seen retail sales fall in Japan every month since last October, aside from the 0.1% increase we saw in May of this year. Sales at large retailers fell 3.8% year-on-year.

Once again, weather is being brought out as the culprit, as a rainy holiday weekend seemed to have dampened sales. Interesting that this seems to happen every month. In truth, it seems as though savings rates are staying high (especially amongst younger Japanese consumers), wages are not increasing (though with the mass retirement of baby boomers, this is to be somewhat expected), and effective tax hikes are behind the fall in spending.

Speaking of tax hikes. While personal income tax cuts have been quietly rolled back over the past two years and local taxes have gone through the roof for most taxpayers this year, new Health, Labour and Welfare minister Yoichi Masuzoe told reporters on Thursday that a hike from 5% to 7% in the nation’s consumption tax might be necessary:

We will endeavor to work on spending cuts but we have no choice but to ask people to pay more taxes in the future…I consider it better to raise the consumption tax and disburse much of the increased tax income on welfare programs. The people should find it more acceptable if the proposed tax increase is designed to fund nursing care services, for example.

Masuzoe is surely aware that tax funds enter the same pool and attempting to tell the public something along the lines of, “This money is being collected to be spend on this” is a big fat lie. By the way, the Defense Ministry asked for more money in its next budget, after seeing five years of budget cuts (Good timing there, as Chinese Defense Minister Cao Gangchuan just asserted on Thursday that China poses no threat to Japan).

Masuzoe made his remarks despite reports last week in the Nikkei and Forbes that the ruling Liberal Democratic Party would drop discussions of a possible hike in the consumption tax, since the opposition Democratic Party of Japan, which now controls the Upper House, stands firmly opposed to such a move.

Of course, if official party line is that discussion of tax hikes is to be dropped, Masuzoe is exactly the man to bring it up, as he has been one of the most outspoken critics of the Abe administration and its policies.

However, we now see new Finance Minister Fukushiro Nukaga also saying that it would be good to discuss raising the consumption tax.

Aside from the obvious political question of why Abe cannot get his party to put forth a unified front, we have the serious economic repercussions that not only an actual tax hike might bring, but also what might result simply from further (aimless) discussion of one.

Many analysts say that an imminent consumption tax hike might cause a short-term boom in spending on durable goods and housing starts, as people try to spend before prices rise (not to mention interest rates). This is probably true. At the same time, however, when we look back at what happened in April 1997, when the consumption tax was increased from 3% to the current 5%, it seems more likely that the public mood will sour at the move, and the retail sales will stand little to no chance of picking up any time in the next three years.

New Finance Minister Fukushiro Nukaga Has an Itchy Trigger Finger for Defense - Will he Pull it out in Defense of the Weak Yen?

In Monday’s Cabinet shakeup, Finance Minister Koji Omi was replaced by Fukushiro Nukaga, a Waseda University graduate (for those of us who care) and longtime LDP member of the Lower House. Back in 1998, Nukaga served as head of the Japan Defense Agency, though he resigned from that post due to a political scandal. In 2000, then Prime Minister Yoshiro Mori named Nukaga as Minister of State in charge of economic and fiscal policy, though he resigned from that post due to another scandal involving political fund contributions. From October 2005 to September 2006, he served once again as head of the Japan Defense Agency under Prime Minister Koizumi, and left the post when Mr Koizumi’s term as party president expired.

Nukaga has also served as Chairman of the Standing Committee on Finance in the Lower House, as well as twice having held the post of Deputy Chief Cabinet Secretary.

In a January 2006 speech at the Royal United Services Institute for Defence and Security Studies, then Defense Agency Chief Nukaga told his audience:

Japan will develop multi-functional, flexible and effective defense forces in order to cope with new threats and diverse contingencies and to participate proactively in international peace cooperation activities. New threats cannot be effectively dealt with under the traditional concept of deterrence as during the Cold War. Therefore, a transformation of defense forces from deterrence-oriented to response-oriented forces should be further pursued.

Turning to his current post. We know that Japan has not intervened directly in global currency markets since the spring of 2004. In a press appearance on Thursday, Nukaga told reporters, “We must make efforts to avoid drastic changes of foreign-exchange rates to ensure that the economy maintains sustainable growth.”

While that may hint at a possible departure from the path of his predecessor (though do no more than just hint), one thing remains consistent with former Finance Minister Omi’s line of thinking. Nukaga, like his predecessor, seems opposed to the idea of using some part of Japan’s massive foreign reserves as an investment vehicle. At the same press conference on Thursday, he also told reporters:

The priority of foreign-reserve management is to ensure the stability of currencies. We must carefully think before making risky investments.

That, of course, is a carefully worded way to not say yes or no, which is what we should expect from Mr Nukaga until at least his first meeting as a member of the Council on Economic and Fiscal Policy, which is still listed as ‘to be determined’ on their website…

Big Market Moves for NOVA: 29% Drop in Share Price Amidst Huge Selloff on Wednesday, Over 20 Million Shares Change Hands

Back on August 14, Japan’s largest English language school operator, the embattled NOVA Corporation, announced that it would issue 170,000 new shares on August 30. It’s August 30 right now, and at opening bell, those 170,000 new shares will be worth 5.1 million yen. 24 hours ago, they would have raised 6.97 million yen for the firm.

On Wednesday, NOVA’s share price fell from 41 to 29 before closing at 30 yen per share. Volatility was through the roof, as 20,247,000 shares traded hands. This is over forty times the usual number of NOVA shares that pass through JASDAQ on any given day.

There are currently about 65.5 million shares in NOVA that have been issued. According to recent JASDAQ filings, about 24.3 million (36%) are held by NOVA Kikaku (NOVA’s holding company), and 24.0 million (35.6%) are held by Nozomu Saruhashi, the President/CEO of NOVA. Together, they hold about 71.6% of the firm. In addition, another 4.8% is held by Saruhashi’s family members. This puts about 76.4% of the shares out of market reach - in theory.

According to yesterday’s statistics, about 30.91% of shares changed hands. Of course, some of those shares might have been bought and sold multiple times, but those who watched the market on Wednesday noticed that it was pretty much an all day selloff: 3 million shares in one half hour, a million the next half hour. They were being sold in large chunks at a time. Someone was buying a lot.

So, who’s buying? I’ve seen rumors, but I’d still be surprised if someone were to come in and buy them, though there could be good reasons for doing so.

Is Saruhashi or NOVA Kikaku selling off shares? If so, how many - and more importantly, how many can they sell before the regulators take notice? Or, is there a desire to allow the company to be saved if Saruhashi steps aside, in order to avoid the potentially embarrassing situation in which Japan finds itself with thousands of unemployed, angry foreigners looking to collect unemployment?

Will the price head up tomorrow? One might think that 30,000 yen for a 1,000 share lot in NOVA is tempting, but it’s still a risk. I’m thinking there could be a spike up, but it all depends on whether or not we hear news that Saruhashi is stepping aside, or if we find out who the mysterious buyer is.

Number of Net Refugees Above 5,000: Ministry of Health, Labour and Welfare

On Monday, the Ministry of Health, Labour and Welfare released a report stating that approximately 5,400 people in Japan are staying at 24 hour Internet cafes rather than in a home or apartment. The ministry stated that 80% of this group is men, and that their average income is about 113,000 yen (about $1,000) a month.

The foreign media has naturally pounced on the story, though their reporting has been much more tame than the sensationalist expose pieces that Japanese TV news has been airing recently. From the TV, one would hardly know that men count amongst the population of “Net Refugees” at all. Television pieces tend to focus on girls in the late teens and early twenties who have come on hard times and turn tricks in Internet cafes in order to pay the fees to stay the night.

We have to wonder if the MHLW’s numbers are accurate (and how they even could be), and whether this is a symptom of something larger. The Japanese government, of course, says it will do something about helping these people, including having job counselors assist them in finding work and managing budgets.

The question is: Do these people have a jyuminhyou (a certificate of residence)? Many homeless in Japan do not, and without one, finding employment often becomes difficult, since they are proof of a fixed address.

Is Abe Getting His Priorities Sorted Out?

Yesterday afternoon, Prime Minister Shinzo Abe announced his new Cabinet lineup. According to today’s edition of the Nikkei, it seems that Abe is downplaying the importance of his pet projects (constitutional reform, education reform, et al.) and making a move to put the focus where it belongs: on economic growth, pension system reform and the economic gap between urban and rural Japan. As the paper puts it:

The new cabinet lineup strongly suggests Abe is reordering his policy priorities. National security, constitutional amendments and education reform are slipping from the top spots on his agenda to be replaced by economic growth, pension reform and the revitalization of provincial economies….

To regain public support for his cabinet, Abe must pay more attention to people’s concerns and demonstrate that the entire party is committed to addressing them.

More attention to people’s concerns? Or more attention to people’s concerns that are only party concerns because they’ve become political issues? Damage control or true reform?

I’ll believe either when I see it.

Goldman Sachs to buy Tiffany’s Tokyo Flagship Store for 3.7 or 37 Billion Yen

This one is just off the Nikkei press: Goldman Sachs To Buy Tiffany’s Main Store In Japan For Y3.7bn.

According to the article, Goldman Sachs is set to buy the land and building “for about 37 billion yen.” That figure does not jive with the headline, though in the article we discover that Tiffany’s itself bought the land and property in Ginza for 16.5 billion yen in 2003. We’re assuming that Goldman’s is paying the higher figure, though it’s still too early for a correction to be issued. Tiffany’s will continue to operate the shop by signing a long-term lease with Goldman’s.

The purchase price values the land at 180 million yen per tsubo, which is about 3.3 square meters. That makes the site Japan’s most expensive single piece of real estate - by a stretch - as the price apparently values the land 80% higher than Yamano Music’s main store in Ginza, which was the highest valued property in Japan in 2007.

The Nikkei also tells us that earlier in August, Goldmans paid confectioner Fujiya and other firms 9.3 billion yen for the building across the street from Tiffany’s. We’re not assuming that Tiffany’s is as desperate to sell off assets as Fujiya was.

NOVA’s 1Q 2008 Results: Red Ink or Blood?

If you’re following the saga of the nearly-broke NOVA Corporation, you might already know that they released their financial results for the first quarter of fiscal 2008 earlier today.

At this stage, the red ink looks like a medieval bloodletting. In the April-June quarter, NOVA reported a 4.5 billion yen loss in operating profit, which is a whopping figure when one realizes that it lost 1.2 billion yen over the entire last financial year. The firm, however, appears to have sold off 2 billion yen in assets over that same term, so the loss was limited to ‘just’ 2.5 billion yen.

At this stage, NOVA’s book value per share is at 5.26 yen, down from 42.40 a year ago.

Let’s remember, these are April-June quarter figures. The METI suspension of business activities was handed down in mid-June, so the first ten weeks of this quarter was before NOVA really ran into trouble. July-September figures could be in free fall.

Will JASDAQ be getting another report from NOVA in three months?

Nikkei: Japan’s Twentysomethings Not Spending Like They Used To

On Wednesday, the Nikkei published its results of a survey concerning the spending habits of consumers in their 20s and 30s in Japan. The survey was done online in June and early July and received responses from 1,207 men and women in their 20s and 530 men and women in their 30s.

The results do not bode well for the future of consumer spending. According to the Nikkei, 13% of respondents in their 20s from the Tokyo area said they own a car, and only 25.3% said that they wanted to purchase one. When the same poll was conducted in 2000, the paper found that 23.6% of Tokyo residents in their 20s owned a vehicle, with 48.2% aspiring to purchase one.

29.6% of respondents in their 20s said that drinking was a waste of time, and 34.4% said they drink alcohol once a month or less. I remember a hip young marketer in Tokyo recently making an astute point that alcoholic beverages needed to be marketed in newer, fresher contexts in order to appeal to the younger market, who simply finds their products unappealing due to negative reinforcement. Perhaps what the industry needs is more along the lines of a miracle. I’d say the younger market might be catching on to what I would say about hard-earned disposable income: Don’t give it to companies whose business plan involves harming your health or quickening your death.

And that disposable income is increasingly harder-earned for young workers in Japan, who are more likely to be contract workers rather than regular employees. So what are they doing with that disposable income? The Nikkei tells us that although average disposable income was at 64,400 yen per month, up about 4,000 yen a month from 2000, 36% of those surveyed in their 20s said that they prefer to save their money rather than spend. This figure was up 8.2% from the 2000 survey.

Of course, we need to consider what kind of crowd in their 20s would be responding to an online Nikkei survey. We imagine that they might be professional job-holders in white collar positions. This might mean that we have more regular employees as a percentage of the group than the population at large, though I’m hoping to hear counter-arguments on this one.

However, if the group is indeed indicative of the views of Japan’s young professionals, we might assume that the population at large is spending less, since they would have slightly lower levels of disposable income.

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