Work force shortage in Japan seen to tighten lease market

Prompting an improved supply-demand balance.

The shortage of construction workers in Japan is observed to have a positive impact on its REITs and REOCs due to market dynamics that will prompt an improved balance between supply and demand in the office sector, especially in Tokyo’s office lease market.

According to Moody's Structured Thinking: Asia Pacific newsletter, because fewer workers are available for construction projects, real estate companies will have to reconsider their plans for new office developments, and reduce new office floor supply.

The report noted that already, companies in the construction sector have become more selective in taking on projects and are demanding higher prices for both labor and materials.

Here's more from Moody’s Structured Thinking: Asia Pacific:

This trend will reduce the profitability of new developments by J-REOCs and will discourage them from taking on new projects.

For instance, according to the major construction companies' forecasts for the fiscal year ending March 2015, Kajima Corporation and Shimizu Corporation will reduce their acceptance of orders in domestic construction projects by 24% and 15%, respectively, so that they can focus on the most profitable projects.

The slowdown in new office construction will improve the supply-demand balance in the Tokyo office lease market. As a result of the global financial crisis in 2008 and the large office space supply in 2011-12, the average monthly vacancy rate in this market stood at more than 7% from June 2009 to February 2014.