Japanese realty continues to languish

An economic rebound and loose money policy under Japanese Prime Minister Shinzo Abe briefly halted a long slide in Japan's commercial property market, but the benefits of "Abenomics" appear increasingly limited to Tokyo, leaving a moribund hinterland.

As the Bank of Japan printed money and Abe spent it, commercial property investment, a barometer of economic activity, spilled beyond the capital into the country's larger regional cities.

In the year to July 1, commercial land prices rose 1.9 percent in Tokyo, and 1.5 percent in Osaka and Nagoya, notching up a second year of gains.

That patchy recovery－prices in the rest of Japan still fell 2.2 percent, marking a 23rd consecutive annual decline－now appears to be narrowing.

Rents for prime offices in Tokyo continued to rise in November from October, but in Osaka they were flat, and those in all other major cities fell, according to the latest data from broker and research firm Miki Shoji Co.

"Large foreign investors are directing their focus to Tokyo, where rents for office properties are clearly growing, which could increase the gap in asset values between Tokyo and the rest of the country in the near term," said J-P Toppino, managing partner of private-equity investor PAG Real Estate.

A huge city block in central Osaka, the priciest section of Japan's second city, is emblematic of the problem.

It remains undeveloped, except for temporary office structures, since Japan Post Co tore down the Osaka Central Post Office in 2012, intending to build a 40-story office and retail tower complex.

Japan Post has shelved the project while it "considers the economic environment and development plans in the neighborhood". The neighborhood doesn't look promising.

On the other side of the station, lies the giant Grand Front Osaka office and retail complex. That development, opened in 2013, is 30 percent empty.

Though Miki Shoji says vacancy rates for prime Osaka offices fell to 8 percent in November from 9.85 percent a year ago, that remains above the 5-6 percent considered healthy, and the city's average annual office rent has fallen 1.5 percent over the past year.

That is because there's no influx of new blood, says Yasutaka Inoue, managing director at Osaka-based developer Keihanshin Building Co.

"When a big office tower is built in Osaka's city center, new tenants move in from the same area, not from outside Osaka," he said. Keihanshin generates 90 percent of its revenue in Osaka, but wants to increase its focus on the Tokyo market, Inoue said.

In the city of Nagoya, home to Toyota Motor Corp, the property market took heart in anticipation of a super-high-speed train service, though it won't be in operation for at least 12 years.