Land prices in Japan fall for the first time in six years, pummelled by COVID effect

Nationwide official land prices for commercial, industrial, and residential land, assessed as of January 1, 2021, fell for the first time in six years. The COVID-19 impact hit all three of Japan’s major metropolitan areas, as average land values across the country were pushed down 0.5% annually due to the sharp drop in foreign tourists and the slowdown at restaurants and retail stores, as people heeded government calls to refrain from going out.

The latest official land price survey (koji chika) did point out that there are signs of new demand for housing due to the shift to telecommuting, but that a recovery in land prices is highly dependent on controlling the spread of the virus.

The Ministry of Land’s survey looked at about 26,000 plots of land nationwide. The 2020 aggregate results showed that nationwide average residential land prices fell for the first in five years (down 0.4%) and that commercial land values fell for the first time in seven years (down 0.8%).

However, the COVID effect was more severe in the three major metro regions (Tokyo, Osaka, and Nagoya). In the country’s three major urban regions, the average for all land-use types fell by 0.7%, while residential land values were down 0.6% and commercial fell the most, down 1.3%. In rural areas, the average for all land-use types fell by 0.3%, residential land by 0.3%, and commercial land by 0.5%.

Commercial land

The pandemic’s effect on commercial land prices last year was stark. As mentioned above, in 2020, nationwide commercial land prices fell 0.8% last year. This was a sharp reversal from 2019 results when commercial land values jumped 3.1% year-on-year due to inbound tourism and the anticipation of Tokyo 2020 Olympic-driven crowds. Last year was also the first time in eight years that commercial land prices fell simultaneously in all three major metro regions; this was due to a sudden drop off in demand in land meant for retail and hotel development.

Commercial land prices in the Osaka metro region were hit especially hard. In 2019, commercial land in Osaka leaped 6.9%, the highest rate of growth among the three major urban areas. 2020 saw a sharp U-turn, as Osaka commercial land dropped 1.8%, the highest rate of decline among the Tokyo, Osaka, and Nagoya regions. In Osaka prefecture as a whole, commercial land values fell 2.1% year-on-year, also the biggest drop nationwide.

Residential land

Regarding residential land prices, the report noted that as average wages have decreased, households have adopted a cautious attitude towards spending. However, as pointed out above, the rate of decline in residential land prices is lower than that in commercial areas.

The shift to two “home bases”

We are also seeing a trend shift as some residential areas are benefiting from telecommuting and people wanting to have two home bases (one in the city and one out-of-town) from which to live and work. Many individuals and families are starting to look at existing (as opposed to newly constructed) condominiums and single-family homes in suburban areas. In Karuizawa, a popular hot springs resort town in Nagano that is favored by the well-to-do, there was a residential land plot where the assessed price jumped 10% compared to the 2019 survey.

Industrial land

In contrast to commercial and residential land, nationwide, industrial land values rose 0.8% year-on-year. This was the sixth consecutive year of increases. As online shopping has boomed in response to stay-at-home requests, industrial land for warehouse space has risen in demand. For example, land prices rose in Matsudo, Chiba and Chikushino, Fukuoka.

Rural areas

In rural areas, the four core cities of Sapporo, Sendai, Hiroshima, and Fukuoka continue to see slow and steady improvement. Redevelopment in anticipation of population growth has progressed and the average increase in land values for all uses was positive (+2.9%) in the 2020 survey. However, in the aggregate, land prices in rural areas nationwide fell 0.3% due to population decline and the effect of  COVID-19.

Overall trends

Overall, 2020 represented a pullback from 2019 when prices shot up in anticipation of the Tokyo 2020 Olympic effect. It’s also not clear that the the retrenchment is complete. Office vacancy rates are also continuing to rise in central Tokyo, as more and more companies shift to telecommuting.

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Sources: Ministry of Land, 2020 Official Land Survey (in Japanese), Nikkei newspaper, March 23, 2021 (in Japanese)

Lead photo: iStock, Osaka skyline