Japan’s recession has weighed on Mitsubishi Estate (Tokyo: 8802; OTC: MITEY), as its fiscal third-quarter revenues fell by 2.5 percent from the same period last year to JPY654,976,000. Net income in the period was also down from the prior year, falling 34.6 percent to JPY33.9 billion, while earnings per share (EPS) fell from JPY37.37 to JPY24.42, with higher quarterly expenses figured in.

The average vacancy rate in Tokyo is currently running at 8.7 percent. By comparison, Mitsubishi Estate’s current vacancy rate is just 4.5 percent. While that’s up a bit less than one percent versus the same period last year, it’s down by 5.51 percent from the level it reported in the previous period. The company’s lower-than-average vacancy rate is primarily due to the fact that while office demand is down overall, Mitsubishi Estate’s properties are located in some of the best and highest demand areas of Tokyo.

While the company’s fiscal third-quarter results were weaker than they have been in recent years, I look for improvement going forward.

Many Japanese companies have reported better-than-expected earnings, particularly those that are export-oriented, thanks to Prime Minister Shinzo Abe’s aggressive stance on weakening the yen. While he may have just taken office in late December, his campaign rhetoric has forced a sharp devaluation since about late October, when his ultimately victorious party was widely seen as the front-runner in Diet elections.

Assuming he is successful in pulling Japan out of its recession—even if it is on the back of much higher government debt—the improving business environment will quickly prompt Japanese companies to expand their operations and take up the slack in the office space market.

Granted, Abe has his work cut out for him.

At its current level of about 11,500, the NIKKEI is well off its high of 18,000 put in during 2007 and the more than 20,000 it hit in 2000. Since last decade’s highs, the Japanese economy has grown by less than 1 percent annually, land values are at levels last seen in the 1970s and government debt has grown to more than 200 percent of the economy.

To overcome those challenges, not only has Abe tackled devaluing the yen through easing credit and pushing inflation, he’s proposed a JPY10 trillion stimulus program. While Abe won’t make Japan an engine of major global growth, he…

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