Real estate giants’ finances looking bright

Real estate giants’ finances looking bright

In mid May, real estate companies closed up the books on their March term. We’ll be talking about the financial results of 3 big companies (Mitsui Fudosan, Mitsubishi Estate, Sumitomo Realty & Development Co.)

Firstly, the overall conclusion is that these three companies’ essentially had strong terms. Sales increased, with the exception of Mitsubishi Estate which saw a slight decrease from the previous term. All three saw an increase in profits of around 10% compared to the previous term. All three predict an increase in revenue and profits in the coming fiscal term, with Mitsui and Sumitomo already surpassing previous records for profits continuously, and Mitsubishi Estate expected to surpass theirs for the first time in 10 terms.

The primary factor for these strong results, is that due to office rents rising and decreasing vacancy rates, the office building market is expanding. On the other hand, some causes concern are that condominium prices have peaked, and the amount of some types of real estate inventory has increased. In fact, the number of condominiums sold in the previous term started to decline. However, in addition to Mitsui Fudosan’s self projected 20% increase this term, the other two companies are predicting sales in line with previous terms. It seems that the increase in condominiums meant for investment is playing a role in the number of units reserved.

In the office building business, there are large-scale development plans in Marunouchi, Otemachi, Shinagawa, and Shibuya, etc, leading to many raising concerns about a possible excess in supply. While this seems to have contributed to a recent drop in real estate share prices, considering that office vacancy rates remain at historic lows, there does not seem to be cause for excessive concern in the short term. Having said that, office rent and vacancy rates have a big influence on the performance of real estate companies, and so warrant close attention going forward.