May 10, 2014 4:12 am JST

Japanese property developers step up office space game

Mitsubishi Estate will invest in redevelopment projects in Tokyo's Marunouchi business district.

TOKYO -- Major Japanese real estate companies are putting more office space on the market in Tokyo, as earnings recovery prompts more businesses to hire staff and seek new accommodations.

     Mitsubishi Estate said Friday it plans to invest up to 900 billion yen ($8.76 billion) in such endeavors as redevelopment projects in the Marunouchi business district from fiscal 2014 to fiscal 2016 -- a 40% increase over what the company actually spent between fiscal 2011 and fiscal 2013.

     Of this, 600 billion yen to 700 billion yen will go into the building business, 300 billion yen of which will be used for redevelopment projects in Marunouchi and Otemachi. The company will make available 250,000 sq. meters of office space.

     With the 2020 Tokyo Olympic Games on the horizon, Mitsui Fudosan plans eight redevelopment projects in the Nihonbashi district. Floor space, predominantly for office units, is expected to reach a total of 1.6 million to 2 million sq. meters.

     Office rents continue to rise as well. Mitsubishi Estate raised listed rents for older properties 5-10% from April.

     Rents for Mori Building's Toranomon Hills complex, slated to open in June but already 80% full, are being negotiated 20-30% higher than the initially listed figures, says a real estate broker.

     There was a sea change in the office space market around the beginning of the year. Average rents in the five central wards of Tokyo -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya -- rose for four consecutive months starting in January, according to major property brokerage Miki Shoji.

     Large vacancies have been disappearing one after another. Some 30,000 sq. meters were snapped up in no time at two buildings developed by Mitsubishi Estate in Shinjuku. Sumitomo Realty & Development saw units at its Izumi Garden Tower in Minato filled immediately after being vacated.

     As of April 30, the vacancy rate in the five wards stood at 6.64%, the lowest level in five years and one month.

     The uptick in demand for office space owes to the growing need for relocation among companies increasing hiring on the back of improving business. The majority of about 40 large-scale leases for at least 3,000 sq. meters in Tokyo were for companies seeking to expand their operations or workforces, according to a survey by real estate services company CBRE.