Economic Deterioration and Economic Fluctuations in the Real Estate Industry

「In Japan and overseas, economic activity in Japan remained firm, supported by improving employment conditions and increased capital investment driven by efforts to save labor. However, the operating environment remains unstable and uncertain due to exchange rate fluctuations, the prolonged Russia-Ukraine conflict, sluggishness in the Chinese market, higher prices and supply chain disruptions associated with the situation in the Middle East, among other factors.」

「In the real estate market, condominium prices have surged and remain at high levels approaching those seen during the bubble economy. Although rising interest rates and higher construction costs are viewed as risk factors, prices continue to rise due to increased demand from foreign investors.」

「The Japanese economy became more uncertain due to geopolitical risks including US tariff policy and the situation in the Middle East. In Japan, personal consumption continued to stagnate amid concerns about downside risks from rising prices and the impact of trade issues. The outlook for the government's fiscal policy and the Bank of Japan's monetary policy also remains uncertain.」

「During the current interim consolidated fiscal period, personal consumption showed some signs of stagnation despite continued wage increases. Meanwhile, the outlook remained uncertain due to the situations in Ukraine and the Middle East, a slowdown in overseas economies, rising prices, future US policy developments and volatility in financial markets.」

「Meanwhile, amid concerns about a slowdown in the US economy and following rate hikes by the Bank of Japan, the situation remains volatile, including a correction of the excessive yen depreciation and a sharp decline in average share prices. Continued close monitoring is required of domestic and overseas interest rate trends, including geopolitical risks.」

「During the cumulative third quarter period of the current consolidated fiscal year, rising prices gradually eased as import prices stabilized, but real wages remained negative and personal consumption showed no strength. Expectations of US rate cuts receded somewhat, and the yen traded at around ¥150 to the US dollar amid views that the narrowing of the Japan-US interest rate gap would be delayed. Meanwhile, although some companies, particularly exporters, reported solid results, operating conditions remained challenging in industries facing increasingly severe labor shortages.」

「During the cumulative second quarter period of the current consolidated fiscal year, the Japanese economy showed signs of a gradual recovery as employment and income conditions improved with the increased level of economic activity, despite the continued upward trend in prices. Meanwhile, uncertainty about the outlook persisted due to the prolonged situation in Ukraine and soaring raw material and energy prices caused by the weaker yen.」

「During the first quarter of the current consolidated fiscal period, COVID-19 was classified as a Category 5 infectious disease on 8 May 2023 under the Infectious Diseases Control Law, and social and economic activity continued to recover toward normalization. Domestic consumption, including inbound demand, is also showing signs of recovery. Meanwhile, uncertainty persists due to the prolonged war in Ukraine, soaring energy costs, higher resource and raw material prices and rising consumer prices.」

「The Japanese economy continues to recover toward normalization as social restrictions related to COVID-19 have been eased. Domestic consumption, including inbound demand, is also showing signs of recovery. Meanwhile, uncertainty persists due to the prolonged war in Ukraine, soaring energy costs, higher resource and raw material prices and rising consumer prices.」

「During the cumulative third quarter period (1 July 2022 to 31 March 2023), the Japanese economy showed signs of movement toward normalization, including a recovery trend in personal consumption and inbound demand following the easing of restrictions to prevent the spread of COVID-19. Meanwhile, prices for various goods and services rose due to higher resource and energy prices and the impact of the weaker yen, while concerns about a slowdown in overseas economies also left the outlook uncertain.」

「During the cumulative second quarter period (1 July 2022 to 31 December 2022), the Japanese economy showed signs of a gradual recovery as restrictions on activity related to COVID-19 were eased and economic activity continued to recover. Meanwhile, concerns over interest rate hikes by central banks in Europe and the US, rising domestic prices, exchange rate fluctuations and geopolitical risks, among other factors, kept the outlook uncertain.」

「During the first quarter of the current consolidated fiscal period, the Japanese economy showed signs of a recovery in the Tokyo metropolitan area and the three surrounding prefectures, where the Company conducts its operations, as COVID-19 restrictions and other measures were reviewed. However, the situation remained challenging due to the spread of the Omicron variant from July onward. In addition, uncertainty about the outlook has continued due to US policy rate hikes, the war in Ukraine and concerns about a slowdown in the global economy.」

「The Japanese economy saw signs of a recovery in personal consumption as the number of COVID-19 cases declined and economic activity moved toward normalization. However, as risks of an economic downturn increased due to the situation in Ukraine and China's zero-COVID policy, among other factors, concerns about further inflation were expected to grow, heightening uncertainty about the outlook.」

「During the first nine months of the current fiscal year, the priority preventive measures against the spread of disease were lifted on 21 March 2022 in the one metropolitan area and three neighboring prefectures where the Company conducts its sales activities, and signs of a recovery emerged. However, amid the effects of the spread of the Omicron variant and continued public reluctance to go out, the impact on the restaurant and karaoke industries in particular appears to have been substantial. Going forward, further extensions of the rebound alert period (through 22 May) and trends in new COVID-19 cases could affect economic conditions around station-front locations and lead to a further expansion of decreases in revenue and profit.」

「Conditions remained difficult in 2022 due to the spread of the Omicron variant. Japan's economic outlook will depend on the spread of the Omicron variant and progress in vaccination rates. However, if the priority preventive measures against the spread of disease are extended, decreases in revenue and profit could expand further.」

「In the one metropolitan area and three neighboring prefectures where the Company conducts its sales activities, many stores, including restaurants, were forced to close or reduce their operating hours as the state of emergency, the priority preventive measures against the spread of disease and related requests continued, resulting in a persistently difficult business environment. Meanwhile, as vaccinations progress, improvements such as economic recovery have been seen in some foreign countries, and a continued recovery is expected.」

「The outbreak of COVID-19 has begun to affect the Company's store brokerage fee revenue and outsourced service revenue. If requests for further voluntary restrictions continue for stores located near stations and in shopping streets, revenue from the subleasing business may decline, potentially resulting in substantial decreases in revenue and profit.」

「During the first six months of the current fiscal year, the spread of COVID-19 and the reissuance of a state of emergency led to the suspension of most new store openings by restaurants, including karaoke venues and izakaya restaurants, sports clubs and internet cafés operated by the Company's customers.」

「In the station-front retail property industry in which the Company operates, store closures gradually decreased, while the number of companies opening new stores gradually increased. As in the previous fiscal year, the Company refrained from face-to-face sales activities while working to contain infections, and collected information and conducted proposal-based sales using telephone, email, fax and post.」

「Due to the spread of COVID-19, most restaurants, including karaoke venues and izakaya restaurants, sports clubs and internet cafés operated by the Company's customers were temporarily closed. At the same time, negotiations to reduce rents at existing stores and suspensions of new store openings occurred one after another.」

「The outbreak of COVID-19 has begun to affect the Company's store brokerage fee revenue and outsourced service revenue. If requests for further voluntary restrictions continue for stores located near stations and in shopping streets, revenue from the subleasing business may decline, potentially resulting in substantial decreases in revenue and profit.」

「However, concerns remain about the impact of the consumption tax rate increase and natural disasters, as well as uncertainty over when the novel coronavirus outbreak will be brought under control, and the economic outlook remains uncertain.」

「During the first quarter of the current fiscal year, Japan's economy continued to see improvements in corporate earnings and employment conditions. However, the outlook remained uncertain due to tensions surrounding US-China trade relations and the risk of deteriorating consumer sentiment following the consumption tax increase.」

「In the real estate industry in which the Group operates, if the business environment surrounding the Company becomes more difficult due to a deterioration in economic conditions, the Group's performance may be affected.」

「During the nine-month cumulative consolidated period under review, there were no new business or other risks, and no material changes to the business or other risks described in the securities report for the previous fiscal year.」

「Meanwhile, uncertainty about the outlook continues due to US-China trade friction, political developments in EU countries and rising global geopolitical risks. Demand in the real estate industry to which the Group belongs remains firm, supported by increasing inbound demand and lower office vacancy rates in major cities. However, concerns about the outlook for the real estate market have emerged, as banks have become more cautious about lending for investment properties in response to problems involving improper loans.」

「In addition to natural disasters such as the torrential rains in western Japan, concerns have been raised about the effects of US-China trade friction and currency depreciation in emerging markets. The real estate industry, which is the market for the Group's core business, has continued to see capital inflows from Japan and overseas, supported by monetary easing, and favorable market conditions have persisted for an extended period. At the same time, concerns have been raised that banks are becoming more cautious about lending to the real estate sector and that long-term interest rates may rise in the near term.」

「However, concerns have also begun to emerge that the market is approaching its peak due to uncertainty surrounding the global economy and the large volume of office supply scheduled to be completed in central Tokyo from 2018 onward.」

「Although there has been progress on the North Korea issue, friction with the United States remains evident in Syria and Iran, among other areas. The effects of continued geopolitical tensions, volatility in international financial markets and other uncertainties affecting the global economy therefore remain.」

「During the first six months of the current consolidated fiscal year, there were no new business or other risks, nor any material changes to the business and other risks described in the securities report for the previous fiscal year.」

「During the first quarter of the current fiscal year, there were no new business or other risks, nor any material changes to the business or other risks described in the securities report for the previous fiscal year.」

「In the real estate industry in which the Group operates, if the business environment surrounding the Company becomes more difficult due to a deterioration in economic conditions, the Group's performance may be affected.」

「During the nine-month cumulative consolidated period under review, there were no new business or other risks, and no material changes to the business or other risks described in the securities report for the previous fiscal year.」

「During the first six months of the current consolidated fiscal year, there were no new business or other risks, nor any material changes to the business and other risks described in the securities report for the previous fiscal year.」

「During the first quarter of the current fiscal year, there were no new business or other risks, nor any material changes to the business or other risks described in the securities report for the previous fiscal year.」

「In the real estate industry in which the Group operates, if the business environment surrounding the Company becomes more difficult due to a deterioration in economic conditions, the Group's performance may be affected.」