Mitsubishi Estate Sees First Rent Increase in 5 Years

Photographer: Tomohiro Ohsumi/Bloomberg

Commercial buildings stand in the Marunouchi area in this aerial photograph taken in Tokyo. The developer expects rents from existing buildings that were constructed prior to the completion of its landmark Marunouchi Building in 2002 to increase for the first time next fiscal year after declining for about five years. Close

Commercial buildings stand in the Marunouchi area in this aerial photograph taken in... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

Commercial buildings stand in the Marunouchi area in this aerial photograph taken in Tokyo. The developer expects rents from existing buildings that were constructed prior to the completion of its landmark Marunouchi Building in 2002 to increase for the first time next fiscal year after declining for about five years.

(Corrects story published Dec. 19 to add in fifth paragraph that Sugiyama said some rents may rise 5 percent.)

Mitsubishi Estate Co. (8802), Japan’s biggest developer by market value, plans to increase office rents for the first time in about five years in 2014 as the supply of new buildings slows.

Mitsubishi Estate, the owner of about 30 buildings in Japan’s most expensive business district, plans to boost rents by as much as 10 percent when leases are renewed or new leases signed from next year, Chief Executive Officer Hirotaka Sugiyama said. The developer expects rents from existing buildings that were constructed prior to the completion of its landmark Marunouchi Building in 2002 to increase for the first time next fiscal year after declining for about five years.

“New supply this year has been less, so the office market has improved considerably,” Sugiyama said in an interview in Tokyo yesterday. “As corporations become more robust, the need for moving has become apparent, which is benefiting us.”

While Mitsubishi Estate’s vacancy rate in the central Tokyo business district of Marunouchi almost doubled to a 10-year high of 6.8 percent in September after the introduction of five new buildings in the area, a decline in new space will enable the company to raise rents next year, he said. The rate stood at 3.66 percent in March, according to the company.

Photographer: Tomohiro Ohsumi/Bloomberg

The JP Tower building, bottom, stands in Tokyo. Close

The JP Tower building, bottom, stands in Tokyo.

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Photographer: Tomohiro Ohsumi/Bloomberg

The JP Tower building, bottom, stands in Tokyo.

“The market has reached a stage where we can start asking for about 10 percent increase on rents for existing buildings in Marunouchi,” said Sugiyama. “It’s hard to say how much we can increase next year, but we want to move in a positive direction. For some leases, we expect rent revisions at 5 percent.”

JP Tower

New office space of 580,000 square meters (6.2 million square feet) this year in Tokyo’s 23 wards is about a third of the 1.75 million square meters completed in 2012, according to a survey by Mori Building published on Oct. 2.

“There is no new supply till 2015 in Marunouchi, so the supply and demand will become tight,” said Sugiyama. “We will become more aggressive from next year.”

Shares of Mitsubishi Estate closed at a three-month high, gaining 3 percent to 2,991 yen in Tokyo.

The JP Tower, Marunouchi Eiraku Building, Palace Building and Otemachi Financial City South and North Tower that are located in the central business district were all completed in 2012 adding a total of about 250,000 square meters of space, according to Mitsubishi Estate.

Photographer: Tomohiro Ohsumi/Bloomberg

The Otemachi Financial City, center, stands under construction in Tokyo on April 11, 2012. Close

The Otemachi Financial City, center, stands under construction in Tokyo on April 11, 2012.

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Photographer: Tomohiro Ohsumi/Bloomberg

The Otemachi Financial City, center, stands under construction in Tokyo on April 11, 2012.

The JP Tower, owned by Japan Post Holdings Co. and leased by Mitsubishi Estate, has the highest vacancy rate, of about 30 percent, with the rest about 10 percent, according to the developer.

Vacancy Rate

“We don’t want to just fill in the space; we would like to maintain rental level for the entire area and Japan Post understands that,” said Sugiyama. “The situation will gradually improve and the vacancy rate will be updated again as we head toward the end of the fiscal year. I wouldn’t worry about that too much.”

The office vacancy rate in Tokyo’s five central wards fell to 7.9 percent in September from 8.6 percent in March, according to broker Miki Shoji Co.

Prime Minister Shinzo Abe’s pledge to end 15 years of deflation and the Bank of Japan’s monetary easing policy, dubbed Abenomics, have boosted sentiment, contributing to a recovery in the nation’s property market. Tokyo’s grade-A office rent will rise about 10 percent next year, according to an estimate by broker Jones Lang LaSalle Inc.

Shares of Mitsubishi Estate have risen 46 percent this year. That compares with a 62 percent gain for the Topix Real Estate Index and a 72 percent increase in the shares of Mitsui Fudosan Co. (8801), Japan’s biggest developer by sales.

Olympic Village

Mitsubishi Estate is also considering joining the bid to develop the Olympic Village complex, Sugiyama said. Bidding for the project is scheduled to open next year ahead of the 2020 Olympic Games.

The 44-hectare (109-acre) athlete’s village in Tokyo Bay will be financed and built by developers. The apartments will be sold or leased after the games, according to bid documents.

“We have heard that the units at the athlete’s village can be put up for sale after the games,” said Sugiyama. “That is appealing to us and we would like to take part in this project.”

The Olympic Village will be built in the middle of two main competition zones and consist of luxury apartments surrounded by Tokyo Bay, with a view of the Rainbow Bridge that connects central Tokyo with the Odaiba area. It will comprise 10,860 residential units spread across about two dozen buildings, along with training gyms, dining halls, seaside restaurants and parks, the Tokyo bid documents show.

Developers will be able to build high-rise buildings as part of the athletes village, said Masaaki Sawai, who is in charge of planning for the Olympic Village at the government in an interview on Oct. 31.

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Emi Urabe in Tokyo at eurabe@bloomberg.net

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

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