Mitsubishi Estate Plans Marunouchi Rent Increase in 2013

Mitsubishi Estate Co. (8802), Japan’s largest developer by market value, said a shortage of space in Tokyo’s Marunouchi business district will allow it to raise office rents next year to help reverse a decline in profit.

The developer owns about 30 buildings in Marunouchi, Tokyo’s most expensive office area and home to companies such as JPMorgan Chase & Co., UBS AG and Standard & Poor’s Financial Services LLC. Tokyo-based Mitsubishi plans to buy properties in the U.S. and Europe and may acquire real estate investment trusts or funds if opportunities arise, said President Hirotaka Sugiyama, declining to elaborate.

“The market is favorable, so we will take a more aggressive approach going forward,” he said in an interview in Tokyo. “The office building business, which has been steadily strengthening, is turning positive.”

Mitsubishi Estate, which is targeting operating profit of 185 billion ($2.4 billion) by March 2014, expects operating profit to decline 8.4 percent to 134 billion yen for the current business year ending March 2013 from a year ago. It is in its second 10-year redevelopment plan for Marunouchi -- an area which helps generate more than 90 percent of the company’s profit -- under which it has boosted total floor space by 62 percent and tripled the number of stores.

Mitsubishi Estate’s vacancy rate in Marunouchi was 2.4 percent as of March compared with 2.3 percent a year ago, according to the company. The vacancy rate in Tokyo’s five central wards was 9.2 percent as of August, according to Miki Shoji Co., an office brokerage company.

Raising Rents

“Cancellations and requests for rent reductions were less than we had expected last year,” said Sugiyama. “As those kinds of requests dissipate, we would like to start raising rents.”

Office rents in the Marunouchi area are almost double the average in the five central wards, even as average rents in Tokyo have fallen to a record low, according to Los Angeles- based property broker CBRE Group Inc. (CBG)

The average asking rent for Marunouchi, Otemachi and Yurakucho districts is Japan’s highest at 30,000 yen per tsubo as of the third quarter last year, according to the latest data available from CBRE. That is more than double the 13,650 yen per tsubo for Tokyo’s central five wards for the same period. One tsubo, a standard measure of property area in Japan, is 3.3 square meters, or 35.5 square feet.

Overseas Business

Outside Japan, Mitsubishi Estate plans to increase its overseas operating profit to account for 20 percent of total by March 2021, from 4 percent as of March, 2012, he said. The company has bought a 23-story commercial building in San Francisco this year.

“We would like to focus on acquiring our own properties and develop,” Sugiyama said. “To reach our expansion plan, we may also consider mergers and acquisitions. We may consider buying companies or REITs that own good properties if it makes sense to us.”

The company also plans to begin developing logistics facilities on its own in the Tokyo metropolitan area, Sugiyama said. The developer earlier this year announced two warehouse projects to build storage and distribution centers with partners in Tokyo Bay and Kanagawa prefecture.

“This asset class is extremely attractive,” said Sugiyama. “Buying land is not very easy. We would like to start to develop our own as soon as we get our hands on a good property.”

Mitsubishi Estate shares rose 1 percent to 1,516 yen, reversing an earlier decline, at the close in Tokyo. The stock closed at the highest since March 19, bringing its year-to-date gain to 32 percent. That compares with the 37 percent advance by the 44-member Topix Real Estate Index.

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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