Mitsubishi Estate Sees First Rent Increase In Five Years
Mitsubishi Estate Co., 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. "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.
"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."
New office space of 6.2 million square feet this year in Tokyo's 23 wards is about a third of those 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."
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.
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.
"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."