COVID-hit firms selling real estate assets to balance books

The Yomiuri Shimbun
This year, Dentsu Group Inc. sold the building that houses its headquarters in Minato Ward, Tokyo.

Companies that have been hit hard by the COVID-19 pandemic are increasingly looking to sell off real estate holdings as foreign investment funds with their superior financial power look to scoop up assets at bargain prices.

The number of companies announcing the sale of their real estate assets this fiscal year may reach the highest level since the 2008 financial crash.

Railway firm Tokyu Corp. sold its office building in Chiyoda Ward, Tokyo, in September. The company’s Managing Executive Officer Hirohisa Fujiwara said at a press conference on Nov. 9 that, “It was sold at a price much higher than we had expected.” The company has not disclosed who bought the building.

Tokyu also sold land in Chuo Ward, Tokyo in June.

In its consolidated financial results for the fiscal year that ended on March 31, the company posted a net loss of ¥56.2 billion, largely due to revenue declines in its railway and hotel operations, which have been hit hard by the COVID-19 pandemic.

However, the company is forecast to post a net profit of ¥10 billion for the fiscal year ending in March 2022.

According to Tokyo Shoko Research Ltd., 36 firms on the first and second sections of the Tokyo Stock Exchange announced plans to sell real estate assets during the first half of the current fiscal year — from April to September — compared with 27 companies that did likewise during the corresponding period last year. Among them, 15 companies posted a net loss in their most recent financial results for a full fiscal year.

The machinery industry accounted for the largest number with seven, followed by the services sector and retail firms with five each, and the food industry with four.

There has also been a succession of companies selling the buildings that house their headquarters, including Dentsu Group Inc. and the major travel agency firms JTB Corp. and H.I.S. Co.

Seibu Holdings Inc. is expected to sell some of the Prince Hotels it operates for around ¥100 billion.

The sell-off of real estate property tends to increase among companies in the second half of the fiscal year.

According to Tokyo Shoko Research, the number of firms selling their real estate assets may exceed 80 for the first time in 13 years.

The main buyers are foreign investment funds. A foreign fund is said to have been involved in the acquisition of JTB’s headquarters. According to real estate research firm Jones Lang LaSalle Inc., foreign investors were responsible for a third of the real estate investment in Japan last year.

The Yomiuri Shimbun
The head office building of JTB Corp., in Tokyo’s Shinagawa Ward.

Japan’s low-interest rates are likely to be a factor. Interest rates have been kept low by the Bank of Japan’s large-scale monetary easing.

“A relatively large return can be expected from real estate investments in Japan because the cost of borrowing yen is low,” said an official at a financial institution.

Another incentive is the fact that the yen is weakening and the U.S. dollar is appreciating, making Japanese real estate a bargain in the eyes of some foreign investors.

Foreign funds are becoming increasingly wary of the Chinese market following Beijing’s clampdown on the overheated real estate market that has plunged property developer Evergrande Group into a financial crisis.

Toyokazu Imazeki, chief analyst at Sanko Estate Co., said, “Japan is being chosen as a good target for investment because of its large-scale real estate market and the fact that the country is politically stable, compared with other Asian countries, such as China.”

With more workers telecommuting in Japan, office vacancy rates have been rising.

According to Sanko Estate, the vacancy rate of large office buildings in five central Tokyo wards — Chiyoda, Chuo, Minato, Shinjuku and Shibuya — stood at 4.07% in October, reaching the 4% mark for the first time since February 2015. Office rents have also declined.

Nevertheless, the office-buying trend is expected to continue.

In the United States, where economic activity is recovering, there is a clear trend among IT companies and financial institutions to return to offices, with Google LLC purchasing a new building in New York.

Hideo Omizo of Mitsubishi UFJ Trust and Banking Corp.’s real estate consulting division said, “Many investors believe that the rents will soon start to rise.”

The pandemic-triggered stay-at-home trend has led to an increase in the prices of condominiums and distribution facilities that handle the delivery of online shopping goods, making them less advantageous as investment targets.

The number of investors turning their attention to offices has been increasing since this summer.