TOKYO'S long depressed real estate market finally looks like it is recovering - but only at a snail's pace. There has been a trickle of activity in the central business district near Tokyo's main train station but most transactions seem to be limited to the newer, larger and better located buildings in Otemachi and Marunouchi, the city's traditional financial districts. These buildings see a 95 per cent occupancy rate while older and smaller buildings are averaging occupancy rates closer to 50 per cent. Average vacancy levels in the central business district are now 17 per cent against about 1 per cent about 10 years ago. Mori Building Shoji Co, the research arm of major Japanese developer Mori Building Group, said new office building supply was showing a tendency to level off although supply in a 5 km to 8 km radius from the Tokyo station was still increasing. Last year, for the first time in seven years, supply dropped below the one million-square-metre mark (10.764 million square feet) to 9.9 million sq ft after reaching a high of 19.7 million sq ft in 1994, the company said. Provision of new supply within a 3 km radius of the Tokyo station is likely to remain slower than new buildings 5 km to 8 km from Tokyo station in peripheral wards like Shinjuku, Shibuya and Ikebukuro. By 2000, the peripheral districts are expected to have accumulated 64.6 million sq ft of office space - 1.5 times the amount in central districts. But demand by tenants for space in the peripheral districts is dwindling as they are attracted by the falling rents in the better-located central districts. Mori Shoji expects the market to bottom out 'in the near future' and start recovering again. It said rents for good quality buildings in the central districts were unlikely to drop further. Rents in central Tokyo have plunged 50 per cent but those in Marunouchi and Otemachi districts still command monthly rentals of about 1,115.9 yen (about HK$82.58) per sq ft . Analysts are not expecting a substantial boost to interest in the real estate market this year - commercial property values continue to slide 1.5 per cent every month although large-scale public projects are moving on as planned. Developers such as Mitsubishi Estate, a major landlord in the Otemachi and Marunouchi districts said its main focus now is to upgrade the buildings it owned. 'The office rental market is facing a difficult situation,' said Shinya Sato, president of Jones Lang Wootton in Tokyo. 'The empty lots of land cannot generate any income. It is like a diamond - the empty land. Until sold, it is valueless.' Property consultancy, K. K. Halifax Associates said new construction had fallen off sharply and there was almost 10 times as much vacant space in Tokyo as there was in 1990. In those days banks channelled spare funds into real estate, but when the bubble economy was pricked, the money flow halted abruptly leaving developers and investors with expensive land that did not have a market. Banks are saddled with at least US$500 billion in real estate loans made before the market crashed. 'This is a serious problem,' said Yasushi Sakuma, general manager of the real estate planning department of the Yasuda Trust and Banking Co. He said his bank had two measures which will be used in the next three years to resolve the problem. One was to use earnings to cover the loans and the second was to help developers, who owe the bank money as a result of the crash, rebuild their businesses, he said. He said for the latter, they would either lower interest rates or excuse companies from interest repayments, or extend their repayment periods. Mr Sakuma said the bank intended to write off the bad loans by March 1997. Nevertheless, the bank still provides loans to developers with sound finances. He said about 20 to 30 per cent of new loans are to developers. Authorities have also lowered discount rates in a bid to encourage buying but have so far seen only a lukewarm response. The Real Estate Research Institute reported that Tokyo's commercial real estate prices last year had fallen 56 per cent from their peak level in early 1991. Residential real estate prices in the greater Tokyo area dropped 1.7 per cent in the fourth quarter from the third quarter, the institute, a semi-private unit attached to the National Land Agency, said. Overall, residential land prices in Tokyo are 34 per cent lower than their peak in 1991. Office prices average 185,804 yen per sq ft inclusive of land value. Residential prices are still declining especially for second-hand houses and condominiums which lost up to 70 per cent of their value. Minato and Shibuya wards are the most expensive with average prices reaching about 80 million yen for a 861-sq ft unit despite the fall of about 50 per cent from peak levels. Mr Sato said the residential market had more or less reached the bottom. 'We can expect a little bit of an increase in value within the next 12 months.'