Office market touches bottom as companies look to move up
DAISUKE ITO, YUSUKE SAKURAI Nikkei staff writers
TOKYO -- Encouraged by an uptick in business, many companies are relocating their offices to more desirable spaces. With few foreign companies entering the Japanese market, total office demand is not drastically increasing, but those buildings with something to offer are having no trouble attracting tenants.
Masayoshi Miyamoto, president of Office R&M, doubled his company's sales force this spring to meet a growing workload. "The market is returning to the boom level it was at before the 2008 recession. There is still room for the office brokerage business to grow," he said.
His observation is based at least partly on the fact that his company was able to lease offices in two buildings -- one 40 years old and the other 25 -- in Tokyo's Yaesu district on behalf of a private owner. His company began advertising for tenants in early January, and the last space was filled in April.
The buildings are located within a five-minute walk of Tokyo Station, but they are not reinforced to resist earthquakes, and the free-rent promotional period is only two months. Because they are on the opposite side of the station from the Marunouchi business district, it would have been difficult for them to attract tenants four or five years ago, even with up to a year of free rent. But despite raising rents by 20%, the two buildings "filled up without us having to work especially hard," Miyamoto said.
Tenants include a Nagoya-based used-car dealer and a general contractor headquartered in Chiba, both seeking opportunities to establish Tokyo offices. Both reportedly decided to act now out of concern that rents may soon rise above the level they could afford. Yaesu was an attractive choice because it will likely become a gateway to the Tokyo Bay area, which will see numerous development projects as the 2020 Tokyo Olympics approach.
Nishi-Shimbashi Square, developed in Tokyo's Minato Ward by Mitsubishi Estate, was fully tenanted upon its completion in late April, reflecting the changing currents in the Tokyo office market.
Leading office broker Miki Shoji reported the office vacancy rate in Tokyo's five central wards -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya -- was 6.64% in April, down nearly 2 percentage points in a year and the lowest in more than five years. Office rents have been heading upward for four months, indicating the market has touched bottom after the slowdown brought on by the 2008 recession.
Fred Takahashi, a consultant at CBRE to corporate tenants of the office buildings it offers, said demand is robust: "Companies are scrambling for good buildings with large floor areas."
Nothing but the best
Mitsui Fudosan is set to complete Iidabashi Grand Bloom, a high-rise in Tokyo's premier Kagurazaka district, in mid-June. With 30 stories and about 120,000 sq. meters of total floor area, it is one of the few very large buildings in central Tokyo. Contracts on about 60% of the rental space are nearing closure. Internet Initiative Japan is one of those tenants-to-be.
Key to the building's attraction is its Business Continuity Plan. As designers were completing plans for the building in March 2011, Japan was hit by a massive earthquake. The developer quickly adjusted the design to ensure that offices would be better able to resist such natural disasters.
But not all office rentals are doing so well. If a building does not offer a good location, is too far from a train station or lacks quake-resistance, tenants are hard to come by. There are many such buildings, and some older structures that are no longer competitive as office space are being revived as residential space.
The office market is clearly picking up, with rents rising and demand surging. But success still depends on meeting tenants' needs as much as possible.