What effect, if any, will the terrible disaster that has befallen Japan have on the demand for commercial property and serviced offices in Britain and the rest of Europe?
Firstly we need to look at the effects on the general economy. It is still too early to say with any certainty, what the full impact of the tsunami, and the growing nuclear crisis on Japan’s infrastructure will be. Never mind the broader global impacts.
Nevertheless, past natural disasters and disruptive events (the Kobe earthquake of 1995, 9/11, and Hurricane Katrina in 2005) give us some idea of the likely economic effects (and timeline), of this horrific event.
The economic impacts of these events are typically large for a quarter or two after the event and are mostly concentrated in the region of the disaster. After about two quarters, however, growth is boosted by the reconstruction effort. At the national level, the impact on economic growth is usually noticeable but small (a few tenths of a percent).
In the case of Japan’s most recent calamity, given the damage to the electricity power generation capacity, the impact on economic growth could be greater. The big uncertainty about this disaster (and what sets it apart from other such disasters) is that roughly 10% of electricity generation capacity (both nuclear and coal), may be offline for a few months, until oil and gas fired plants can ramp up. In the near term, this could have major, negative ramifications for Japanese industrial sectors. For example, some steel and automotive factories have already been closed.
The good news is that Japan has not been an engine of global or Asian growth for some time. This minimises the impact a much lower Japanese growth will have on the world economy.
In fact, disruptions in Japanese automotive and steel production may result in a boost in the demand for these products from other sources, including the rest of Asia, the United States, and Europe.
So we can conclude, although the disaster is un-quantifiable when it comes to the cost of human suffering and heartache. In purely financial terms it will have no effect on the pricing or demand for either commercial property or serviced offices in the greater European economic area.
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