Tokyo bayside apartment bubble to burst after Olympics?

Tokyo Bay IslandsThere are currently 149 large-scale apartment buildings (those with a total floor space of over 10,000 sqm) planned in Tokyo’s 23 wards. Of those, several projects located in the bayside area are of a major scale with a floor space of over 100,000 sqm.

What impact could this future supply have on the apartment market on these manmade islands in Tokyo Bay?

Major developers are the major players

Of the 5.22 million sqm of total floorspace in these new buildings, over half will be supplied by six of Japan’s major developers. The top developers ranked by their share of this total supply are:

  1. Mitsui Fudosan: 900,000 sqm
  2. Sumitomo Realty: 860,000 sqm
  3. Mitsubishi Jisho: 310,000 sqm
  4. Nomura: 290,000 sqm
  5. Tokyo Tatemono: 240,000 sqm
  6. Tokyu Land: 190,000 sqm
    Others: 2,430,000 sqm

As these developers take up more and more of the market share, the number of small-to-mid size developers is beginning to drop off. According to the Real Estate Economic Institute, the number of developers involved in projects in greater Tokyo peaked at 500 companies in 1990. The total supply of new condominium apartments at that time was around 80,000 ~ 90,000 apartments per year.

Following the Lehman Shock and financial crisis in 2008, a number of rising developers went bankrupt. By 2012, only 150 developers were active in the market, and the supply of new apartments had dropped to 46,000.

Many of the large-scale condominiums are centred in Shinagawa, Minato and Chuo-ku. The bayside areas, in particular, have a number of projects with over 1,000 apartments each:

    • Kachidoki The Tower, Kachidoki (2016) 1,420 apartments
    • Kachidoki East District Redevelopment, Kachidoki (2020) 3,020 apartments
    • Deux Tours Canal & Spa, Harumi (2015) 1,450 apartments
    • Harumi 2 Chome Project, Harumi (2017) 1,120 apartments
    • Skyz Tower & Garden, Toyosu (2014) 1,110 apartments
    • Ariake Garden City, Ariake (2018) 2,000 apartments

These major projects are located on reclaimed land in Tokyo Bay, some of which is at risk of liquefaction in an earthquake. To counteract any concerns over safety from buyers, the developers implemented a number of features including using base-isolated earthquake-resistant construction methods, emergency supplies and backup generators. Following the 2011 Tohoku disaster, the construction and sales of some high-rise developments in Tokyo were temporarily delayed while developers came up with ways to promote the safety of their structures to cautious buyers. These measures, however, are limited to the building and lifelines such as water, gas and sewerage can still be disrupted in an earthquake.

What will become of the Athlete’s Village?

New apartment prices in these bayside areas are also showing an upwards trend. However, the proposed Athlete’s Village on Harumi Island could make or break the positive outlook for the local apartment market.

The Athlete’s Village will be built on a 440,000 sqm site at the south-western end of Harumi. The eastern side of the site will contain administration buildings while the western side will contain accommodation for athletes.

The Tokyo Metropolitan Government is considering allowing private contractors to develop the site. During the Olympics, the developer/s could be entitled to as much as 3.8 billion Yen in rent. Following the games, the apartments will be converted for either private rentals or sales.

The village will need to house 17,000 people during the games. The building heights have yet to be determined. Earlier estimates indicated they would be up to 14-storeys tall, but it is possible that developers will want to build taller in order to maximise their return following the Olympics. One plan involves building much taller buildings but only renting out the lower floors for the athletes and leaving the top floors temporarily vacant.

At this stage it is not possible to know exactly how many apartments will be built and how the Athlete’s Village will impact apartment supply in the area. Some have estimated that the project could result in over 10,000 apartments.

Developers will have to be very careful how they release these apartments for sale as they risk flooding the market and putting downwards pressure on property prices.

Transport issues

There are also growing concerns over a strain on the transport network as more and more residents move into the area. Harumi itself does not have a train station, while Kachidoki and Tsukishima have subway access. Shin-Toyosu and Ariake are accessed via a rather inconvenient and expensive monorail.

There have been talks of extending a new subway line to these islands, but construction and planning will take time. The arterial No. 2 Ring Road is under construction which will provide easier access by car and could include a bus rapid transit system, but it may not be enough in a city where convenience to a train station is a major selling point and is closely tied to resale values.

Source: Nikkei Business Online, February 14, 2014.