JAPAN - Japanese property returns remained for most of 2008 positive thanks to a strong, steady income return, according to the Investment Property Databank's (IPD's) Japan Monthly Indicator.

Preliminary return figures to November 2008 released by IPD showed income return remained positive and unchanged for eight months, at 4.9%.

Toshiro Nishioka, managing director at IPD Japan, said: "Income return is normally positive. And it remains stable in Japan while capital growth shows negative in many sectors. This means that actual net operating income itself can be slightly falling."

Annualised real estate returns to November 2008 stood at 1.8% but have been falling every month since June 2007 while capital returns deteriorated 3% for the year to November, reflecting a 110 basis point decline from October 2008.

The retail sector was the worst performing sector for the year to November 2008, returning -1.3% and the Japanese residential sector fell into negative territory for the first time in the Index's history during November 2008, at -0.8%.

"Capital returns in the retail sector continue to weaken with the indicative annualised capital returns for the same period dropping further by 129 basis points to -5.6%," said Nishioka.

"The residential sector shows a similar downward trend where regional capital return falls ranging from 120 to 160 basis points, as measured on an annualised six-month return to July 2008," he added.

The office sector produced the strongest returns for the year, at 3.6%. Over the six months to July 2008, the office sector remained the best performing sector, producing annualised returns of 5.3%. However, office capital returns declined from 2% to 0.6%, making this the largest fall among the sectors.

Only Tokyo offices and the industrials sector produced positive capital returns for the six months annualised period to July 2008.

According to Nishioka, the mood in the Japanese real estate industry is growing sombre as the country's economy weakens.

"Every month we have seen the redundancy of big property companies and fund managers recently and the mood is not really good. The impact of sub-prime problem did not seem to be serious six months ago compared with US and Europe but now the Japanese economy generally turns to be very weak, as do the property markets," he said.

Japanese real estate investor Pacific Holdings Inc filed for bankruptcy protection last week with JPY162.6bn (€1.28bn) in debt.

The IPD Japan Monthly Indicator uses information provided by Japanese Real Estate Investment Trusts (J-REITs) and uses partial data in the most recent months to give an early indication of Japanese property market trends.

The returns to November are based on valuations of 38% of properties in the most recent month, rising to 100% of properties in July 2008.

If you have any comments you would like to add to this or any other story, contact Poppy Sketchley on + 44 (0)20 7261 4629 or email poppy.sketchley@ipe.com

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