After a few years of frenzied activity that sent property prices to stratospheric levels, Japan’s real estate market is poised for a downturn.

In recent months, the mood among property developers and financial investors alike has turned sour; the trends of rising rents, and falling vacancy and capitalisation rates have gone into reverse.

'Until six months ago, land prices and rents were rising and vacancy rates were falling. But with the spreading impact of the subprime problem from around last autumn, everything is going the other way,' says Yuji Hirota, head of international assessment at the Japan Real Estate Institute.

While the trend in rents has not yet appeared in statistics, vacancy rates in the Tokyo business district have inched up for four consecutive months, climbing to 3.29% in May compared with 2.65% last December, according to Miki Shoji, an independent real estate research company.

Meanwhile, a survey by JREI in April showed that the capitalisation rate for A-class office buildings in Otemachi, a business district in central Tokyo, has risen slightly, for the first time in five years, indicating that prices have fallen.

'This time last year, there was a go-go mood, and prices were going up,' says a representative of Mitsubishi Estate.

'But recently, financial institutions have been tightening lending and some people are saying there is a lot of uncertainty.'

Financial Times