The Morgan Stanley MUFG Securities downgraded the three largest real estate stocks in Japan, saying it expects office rents in Tokyo to fell in the next five years.
The brokerage said the city’s vacancy rate could rise to a record high as more people work from home due to the coronavirus pandemic.
“Corporate Japan has long been behind other developed markets in adopting telecommuting, but has recovered during the Covid-19 pandemic,” said analyst Atsuro Takemura.
“Telecommuting companies now have significantly less office space than those that do not, and we are concerned about the potentially enormous impact on Japan’s office market going forward.”
Japan’s deeply-rooted work culture is undergoing major changes in response to the coronavirus outbreak as large companies, such as Panasonic, Mitsubishi, and Hitachi, become more flexible to remote work.
Nomura Holdings’ chief executive said recently that the company is looking to reduce office space due to the trend.
The Tokyo office vacancy rate rose to 1.64% in May, the highest level since September, according to data from Miki Shoji. The rate fell from more than 9% in 2012 with the city’s population growth and development amid the expansion of tourism and preparations for the 2020 Olympic Games, which were postponed.
Not everyone sees such a bleak situation for real estate developers in Japan. Citigroup believes that the market slowdown is already priced, so it would be good to buy shares, including securities from Mitsui Fudosan and Sumitomo Realty.
While some parts of the housing market are likely to undergo “minor corrections,” major developers may see steady profit growth in the long run, according to an analysis by Citi’s Masashi Miki in a report on Wednesday.