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Tenants sought for office spaces even in Marunouchi business district. Rent for office rooms in central Tokyo are going down

12, 12. 2008

   Fall in rents for office spaces in central Tokyo is becoming conspicuous. The rents in the Ginza and Marunouchi business and commercial districts have turned to a downtrend, spurring the downtrend in the rents for shop and office spaces in other central Tokyo areas. Contrary to this trend, some massive development projects are still going on. "Even in the popular Marunouchi district, there are not enough tenants for office spaces." This is what people concerned are beginning to whisper to each other.

Rents for office spaces down to levels of 3 years ago

   According to Miki Shoji Co., agency for consulting and planning for office, the average unoccupancy rate for office spaces in the five city-size wards of Chiyoda, Minato, Chuo, Shinjuku and Shibuya in Tokyo stood at 4.30% at the end of October. It was 0.23 point higher than a month earlier. Enough tenants are found in general for new or large office spaces of 100 to 299 tsubo (3.3 square meters), but competition is getting severer this year for alluring tenants because of increasing supply of office buildings, according to the company.

   The tenants are less eager to move to different office spaces than last year. "More occupants are taking a wait-and-see attitude," the company said. As a result, there are wider selections of office spaces from the tenants' perspective. There are some tenants, therefore, who would be satisfied with spaces with specifications somewhat different from what they were originally looking for, or some others willing to move if they can find spaces at cheaper rents. Thus cancelling of rent contracts because of the changing of office spaces by the tenants is increasing. Newly constructed office building no longer has advantage over old buildings, according to the company.

   The rents for office spaces run an average of 30,000 yen/tsubo in newly built buildings in Minato Ward where the well known commercial district of Akasaka and Roppongi are located. Such rents were 31,600 yen as of the end of December 2007 and 34,166 yen as of the end of December 2006. Thus, the rent of 30,000 yen means it slid back to the level as of the end of December 2005 (it was then 27,700 yen).

   The rents for office spaces in old buildings have been rising slowly, but they now stand at an average of 23,328 yen/tsubo, down marginally from 23,357 yen at the end of December 2007.

   A study by the Ministry of Land, Infrastructure, Transport and Tourism also shows that the rents in the Ginza district are turning slowly to a downtrend because of the tendency to rise in the unoccupancy rate in the area.

Land price in Ginza was 100 mil. yen/tsubo until 2006

   In the backdrop of the rising unoccupancy rate there is the expectancy of the tenants that the rents will go down further. Time spend in negotiations for concluding a contract is becoming longer, keeping the office spaces unoccupied.

   The study by the land ministry shows that the rents for office spaces in the Tokyo's popular areas, such as Ginza, Otemachi and Roppongi, had turned to a downtrend as of Oct. 1, 2008. This accelerated the fall in the office rent further.

"It was taken for granted that the land price in Ginza would run as much as 100 million yen per tsubo until 2006," says Daisuke Seki, representative of the real estate investment and securities consulting company IBRC Inc. "Even now," he continued, "The land price in the area would be 100 million yen provided that the land is occupied by tenant. But it would be lower than 100 million yen if there are no tenants." He further added, "You can say that the study by the land ministry shows the realities of one year ago. The rent decrease will continue for some time to come, and the rate of the fall will become wider."

   Demand for office spaces in super good areas would continue to be strong. But the downtrend of the trading prices will continue because of the speculation of higher interest rate in the future and the "wait and see" attitude of the tenants. The tenants will also become passive about moving their offices.

   Seki says that the tenants would not go away from the commercial facilities in the Ginza and Marunouchi if they are secured in good places. There will be no rent reductions in these areas, but, rather, they might be raised, he said.

   There will be a rush of development projects like those already planned for such areas as Marunouchi, Shimbashi and Nihonbashi. An official at a leading real estate company said, "I wish a price fall due to excessive supplies would be avoided. Bu it's easy to imagine there will be unoccupied spaces because of the lack of tenants."

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