Japanese Real Estate Market Stabilizes After Earthquake

The earthquake that struck the Japan’s Tohoku region on March 11, 2011, spared Japanese real estate investment trusts, or J-REITs –- at least in the short term, according to . Damages reported on J-REIT assets amount to 0.02 percent of the assets’ total combined value. But damage to the region's power grid and resulting planned and unplanned blackouts are causing factories to scale back production and stores to cut hours. The power shortages, along with fear of radiation contamination, are slowing the country's economic recovery and could hamper its real estate sector for the remainder of 2011.

Despite showing early signs of a recovery, capitalization rates are expected to remain flat through year-end as a result of foreign capital staying on the sidelines until the radiation problem is clearly resolved. However, capital value softening will create investment opportunities, according to the report. Japan may finance part of the recovery by selling public assets, and some private firms also may be forced to liquidate assets.

The J-REIT index plummeted along with the Nikkei index immediately following the earthquake, losing 15 percent of its value. But it quickly recovered after the Bank of Japan doubled its J-REIT share purchase package. The J-REIT index was 3 percent lower than its pre-quake level by the end of March. By comparison, the Nikkei 225 index ended March 6.5 percent lower than its pre-quake level. The earthquake's relatively mild impact on J-REITs is partially due to the fact that a small portion of total J-REIT-owned buildings were in the affected region. Of those buildings, few experienced severe damage.