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Mitsubishi Estate seen with record profit on Tokyo office market upturn

TOKYO -- Mitsubishi Estate's group pretax profit likely grew 10% on the year to about 100 billion yen ($841 million) during the three quarters ended in December, a new record for the period due to lower office vacancies and healthy revenues from other facilities.

     Sales apparently climbed roughly 3% to about 750 billion yen. Vacancies at office buildings the company owns in Tokyo's Marunouchi commercial district fell about 2 percentage points from the year-earlier period to approximately 2%. Amid better earnings, businesses are renting more space to accommodate extra employees.

     Leasing revenue rises as demand for office space increases. There are several cases in Marunouchi where rates have been bumped up 5-10% during lease renewals, said Mitsubishi Estate. Apparently such hikes are becoming commonplace as renewals come up for leases signed at bargain rates during the wake of the 2008 financial crisis.

     In Tokyo's five central wards, the average rent for 3.3 sq. meters of office space stood at 17,692 yen as of the end of December, said Miki Shoji, a Tokyo-based office brokerage firm. The figure is 4% higher than a year earlier and marks the 24th straight monthly increase. The upswing is especially steep in Chiyoda Ward and other places with office districts.

     Other commercial facilities have also been doing well. The nine Premium Outlet malls Mitsubishi Estate manages captured demand from a flood of foreign tourists into Japan. They also received a lift from strong consumption by domestic shoppers.

     Furthermore, the outlet malls receive percentage rents from tenants, which are based in part on sales in addition to fixed rent payments. Percentage rents account for nearly half of all rental income.

     For the fiscal year ending March 31, Mitsubishi Estate foresees pretax profit slipping 6% to 125 billion yen. One-time capital gains realized the previous year after selling off property are now absent. The company also plans to shut down building space in Chiyoda Ward by March to accommodate redevelopment projects, a move that will cut into rent payments. But the hit to profit may ease since office rent increases are spreading faster than anticipated.

(Nikkei)

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