Survey of Large-scale O ce Building Supply in ’s 23 wards 2014 June 3,2014

Since 1986, Mori Trust Co., Ltd. (Head O ce: Minato-ku, Tokyo) has surveyed trends in the supply of large-scale o ce buildings containing total o ce space of 10,000 square meters or more within Tokyo’s 23 wards , based on various published materials, eld surveys, and interviews. The results of the most recent surveys(including the survey of mid-scale o ce buildings) are presented below.In the calculation of total o ce oor area, where the survey deals with multi-purpose buildings—buildings coupled with stores, living quarters or residences, hotels, etc.—only the oor area purely for o ce use is taken into consideration. [Survey Date: December 2013]

The supply is expected to remain near past averages

Main Results of This Survey

１.Supply of large-scale o ce buildings In 2013, Tokyo’s 23 wards saw the supply fall to 660,000 square meters, a signicant decline from the average for the past 20 years.The supply in 2014 is expected to be 930,000 square meters, approximately 15% lower than the past average. Annual projections for 2015-17 are at least one million square meters, similar to the past average.

２.Supply trends by area Supply in central Tokyo is expected to further increase during the 2014-17 timeframe: Some 70% of this space will be located in Tokyo’s three central wards. Some 30% of the overall supply is expected to be located in Chiyoda Ward, a consistent leader, followed by Minato Ward, whose share is projected to rise dramatically to more than 20%. Three districts in Minato Ward (Toranomon and ; Konan; and Shibakoen and Hamamatsucho) are expected to rise into the list of top ten and take their place.

３.Supply trends by land for development In 2014-17, in Tokyo’s three central wards, some 70% of o ce space will be supplied through rebuilding, a high percentage continuously maintained. More and more o ce space is being rebuilt on such land not just in Otemachi and , but in , , and Kyobashi. This trend is likely to continue into the future. In contrast, during the same period, in other wards, some 80% of the o ce space will be supplied by using undeveloped or underdeveloped land; supply through rebuilding will account for just 20% of the overall gure.

４.Supply of mid-scale o ce buildings The year 2013 saw the supply reach 155,000 square meters, signicantly above the past ten-year average. The supply in 2014, however, is expected to fall to 115,000 square meters, and to fall still further to levels below past averages by 2015. In 2014-15, some 80% of this supply will be introduced in Tokyo’s three central wards.Minato Ward, the largest supplier, is expected to account for slightly more than 30%, followed by Chuo Ward and Chiyoda Ward, each accounting for some 20%. Major developers have accounted for a growing share of mid-scale o ce buildings over the past several years.

For further information, contact: Keiji Kurokawa Research & Planning,Building Leasing Department Mori Trust Co., Ltd. http://www.mori-trust.co.jp Toranomon 2-chome Tower, 3-17 Toranomon 2-Chome, Minato-ku, Tokyo 105-0001 JAPAN E-Mail: [email protected] １. Supply of large-scale office buildings

In 2013, Tokyo’s 23 wards saw the supply of large-scale office space fall to 660,000 square meters, a significant decline from the average for the past 20 years (1.1 million square meters per year) partly explained by the completion of many large-scale development projects in 2012, particularly rebuilding projects in Otemachi and Marunouchi. In any case, the supply amount was the third lowest during the past 20 years. (Chart 1-1) The supply in 2014 is expected to be 930,000 square meters, approximately 15% lower than the past average. Annual projections for 2015-17 are at least one million square meters, similar to the past average. (Chart 1-1) From 2014 in Tokyo’s three central wards, the supply is expected to be approximately 20% above the past average. For Tokyo’s other wards, this figure is expected to fall short of the past average. (Chart 1-2) As for the supply trends by scale in 2014-17, the supply of large-scale buildings of over 50,000 square meters is expected to increase drastically, accounting for some 80% of the total supply. This would approach record percentages for such space. (Chart 1-3) The future supply will remain at the past average level and will mostly come from highly demanded, very large buildings in the three central Tokyo wards. Thus we may see the supply-demand balance improve slowly but steadily over the next several years.

2 . Supply trends by area

Supply in central Tokyo is expected to further increase during the 2014-17 timeframe: Some 70% of this space will be located in Tokyo’s three central wards. Some 30% of the overall supply is expected to be located in Chiyoda Ward, a consistent leader, followed by Minato Ward, whose share is projected to rise dramatically to more than 20%. Additionally, the share held by Shinagawa Ward is expected to rise to 10%, while those of Ward, Ward, and Koto Ward will be below 10% .(Chart 2-1) Business districts in Tokyo’s three central wards will be among the leading areas in which new space is introduced. These include Otemachi and Marunouchi; Yaesu, Nihonbashi, and Kyobashi; Akasaka and ; and Toranomon and Shinbashi. Districts other than the three central wards currently ranking among the top ten business districts in 2010-13 (Nishi-Shinjuku, Nakano, and Rinkai) are expected to drop out of the top ten in 2014-17. Three districts in Minato Ward (Toranomon and Shinbashi; Konan; and Shibakoen and Hamamatsucho) are expected to rise into the list of top ten and take their place. (Chart 2-2)

2/11 【Chart 1-1】Supply trends for large-scale office buildings in Tokyo’s 23 wards

Office supply in completed buildings Office supply in buildings under construction Office supply in buildings to be constructed 49 Number of supply 50 43 36 40 33 32 29 29 29 27 26 25 30 29 22 27 20 ㎡ 23 20 (10,000 ) 20 21 19 250 17 16 16 14 14 10 Number of supply 221 0 200 1994-2013 average supply: 1,100,000㎡/year 183 183

162

150 126 119 118 118 119 121 117 106 99 100 93 92 89 90 Supply volume 82 82 74 72 64 66

50 36

0 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

【Chart 1-2】Tokyo’s three central wards and 【Chart 1-3】Supply and ratio by building scale other wards

56% 44% Tokyo’s '94－'98 ㎡ ㎡ three central wards Other wards (630,000 /year) (500,000 /year) 57% 43% 1994-2013 average supply: 1994-2013 average supply: '99－'03 640,000㎡/year 460,000㎡/year (610,000㎡/year) (460,000㎡/year)

(10,000㎡) (10,000㎡) － 58% 42% '04 '08 (630,000㎡/year) (460,000㎡/year) 100 100 79 － 62% 38% 76 75 74 '09 '13 (680,000㎡/year) (420,000㎡/year) 64 78% 42 '14－'17 22% 50 50 43 (860,000㎡/year) (240,000㎡/year) 31 0% 20% 40% 60% 80% 100% 17 Buildings of 50,000㎡ or larger Buildings of less than 50,000㎡ 0 0 '14 '15 '16 '17 '14 '15 '16 '17

3/11 【Chart 2-1】Supply of large-scale office space by ward

［2010－2013］ ［2014－2017］ Tokyo’s three central wards : Tokyo’s three central wards : 2,420,000㎡（ 53%） 3,040,000㎡（ 70%） Other wards : Other wards : 2,150,000㎡（ 47%） 1,330,000㎡（ 30%） Supply(10,000㎡） Other wards Supply(10,000㎡） Other wards Koto 4% 13% Chiyoda 138 8% Chiyoda 140 Chuo 52 Shinagawa Chuo 59 Koto Chiyoda 10% 14% Minato 52 Minato 30% Shibuya Chiyoda 105 4% 32% Shinjuku 45 Shinjuku 21 Shinagawa Shinjuku Chuo 7% Shibuya 5% 11% 19 Shibuya 19 Minato Chuo Minato 24% 13% Shibuya 11% Shinagawa 30 Shinagawa 42 4% Shinjuku Koto 65 Koto 33 10% Others 56 Others 18

【Chart 2-2】Top ten districts 押上

中野 ［2010－2013］

（10,000㎡） 78 70 （17％） 西新宿 神保町 2010 新宿 小川町 2011 60 番 町 2012 麹 町 2013 平河町 大手町 八重洲 50 内幸町 丸の内 日本橋 霞ヶ関 有楽町 室 町 永田町 98万㎡ 40 26 26 26 東陽町 25 赤坂 24 24 20 木 場 （6％） （6％） （6％） （5％） （5％） （5％） 30 （4％） 17 16 六本木 （4％） （4％） Supply volume 20 豊洲

10 渋谷 月 島 勝どき 宇田川町 芝・三 田 晴 海 0 道玄坂 Otemachi Nishi- Osaki 南平台町Toyosu Jinbocho Yaesu Akasaka Nakano Rinkai Shinjuku marunouchi Shinjuku Ogawamachi Nihonbashi Roppongi芝浦 Yurakucho Kyobashi

港南

大 崎 臨海 五反田 （10,000㎡） ［2014－2017］ 60 2014 2015 50 2016 2017 93 40 （21％） 42 34 33 31 23 22 30 （10％） （8％） （8％） （7％） （5％） （5％） 19 18 12 （4％） （4％） （3％） 20 Supply volume

10

0 Otemachi Yaesu Akasaka Osaki Toyosu Toranomon Konan Shibakoen Kojimachi Marunouchi Nihonbashi Roppongi Gotanda Shinbashi Hamamatsu-Hirakawacho Yurakucho Kyobashi cho Kioicho

Rank 1（1） 2（6） 3（7） 4（3） 5（4） 6（－） 7（－） 8（－） 9（－） 10（－） （ ） for previous timeframe

4/11 【Chart 2-3】Supply volume in the key business districts

［2010－2013］

Oshiage Nakano

Chiyoda Ward Shinjuku Jinbocho Nishi-Shinjuku Kojimachi Ogawamachi Hirakawacho Muromachi Kioicho Otemachi Honcho Marunouchi Yurakucho Yaesu Nihonbashi Uchisaiwaicho Kyobashi Nagatacho Chuo Ward Jinnan Akasaka Toranomon Toyocho Udagawacho Roppongi Shinbashi Toyosu Dogenzaka

Shibuya Kachidoki Minato Ward Harumi

Approx.supply volume Meguro Konan Kamiosaki ：400,000㎡～

：200,000㎡～400,000㎡ Osaki Gotanda Rinkai ：100,000㎡～200,000㎡

： 50,000㎡～100,000㎡

［2014－2017］

Okubo

Ichigaya Kudan Jinbocho Fujimi Ogawamachi Kojimachi Muromachi Jingumae Hirakawacho Honcho Kioicho Otemachi Marunouchi Yurakucho Yaesu Nihonbashi Chiyoda Ward Kyobashi Chuo Ward Ginza Akasaka Roppongi Toranomon Shinbashi Toyosu

Shibakoen Hamamatsucho Minato Ward

Approx.supply volume Meguro Kamiosaki Konan ：400,000㎡～ Osaki ：200,000㎡～400,000㎡ Gotanda ：100,000㎡～200,000㎡

： 50,000㎡～100,000㎡

5/11 3. Supply trends by land for development

In 2014-17, in Tokyo’s three central wards, some 70% of office space will be supplied through rebuilding, a high percentage continuously maintained. More and more office space is being rebuilt on such land not just in Otemachi and Marunouchi, but in Yaesu, Nihonbashi, and Kyobashi. This trend is likely to continue into the future. Additionally, supply space will be drastically increased by redevelopment, while undeveloped or underdeveloped land including idle land is expected to supply less space for offices. (Chart 3-1.a.) In contrast, during the same period, in other wards, some 80% of the office space will be supplied by using undeveloped or underdeveloped land; supply through rebuilding will account for just 20% of the overall figure. Of the undeveloped and underdeveloped land, the category “Other, ” including idle land, is the largest supplier of office space. As for other categories included in undeveloped or underdeveloped land, “Redevelopement” supply tends to increase. In contrast, the development of publicly owned undeveloped/underdeveloped land (“Public”), which increased in 2010-13, is projected to disappear entirely in the 2014-17 timeframe. (Chart 3-1.b.)

【Chart3-1】Supply volume and ratio by land for development

［a. Tokyo’s three central wards ］ ［b.Other wards ］ (10,000㎡) (10,000㎡) 350 350

300 87 300 103 （29％） （33％）

250 250 38 （16％）

200 200

168 （78％） 150 150 Supply volume Supply volume

209 204 217 （67％） （84％） （71％） 103 100 100 （77％） 111 （90％） 50 50 47 12 （22％） 30 （10％） （23％） 0 0 2006－2009 2010－2013 2014－2017 2006－2009 2010－2013 2014－2017

Undeveloped or underdeveloped land : Other Undeveloped or underdeveloped land : Redevelopment Undeveloped or underdeveloped land : Public Rebuilding

【Definition】 Rebuilding : Land (or the development of such land) previously used as one site, occupied by a building for office, hotel, or residence which has been demolished.

Undeveloped or underdeveloped land : Land (or the development of such land) not used effectively; for instance, mixed zones of parking lots and older buildings, densely populated residential areas, former plant sites, railway sites, or idle land.

6/11 4. Supply trends for mid-scale office buildings in Tokyo’s 23 wards

Discussed here are supply trends for mid-scale office buildings (from 5,000 to 10,000 square meters of office space ). The year 2013 saw the supply of mid-scale office space reach 155,000 square meters, significantly above the past ten-year average. The supply in 2014, however, is expected to fall to 115,000 square meters, and to fall still further to levels below past averages by 2015. (Chart 4-1) As for large-scale buildings, most mid-scale office buildings are emerging in central Tokyo. In 2014-15, some 80% of this supply will be introduced in Tokyo’s three central wards. Of the 23 wards, Minato Ward, the largest supplier, is expected to account for slightly more than 30%, followed by Chuo Ward and Chiyoda Ward, each accounting for some 20%. Minato Ward’s share has significantly increased for the past several years, driven by steady growth in office building construction in Toranomon and Shinbashi, a core district. (Chart 4-2) In 2014-15, in Tokyo’s three central wards, some 80% of office sites will be prepared through rebuilding. In the other wards, more than 60% will be prepared through the development of undeveloped/underdeveloped land. (Chart 4-3) In 2012, the Tokyo Metropolitan Government made seismic diagnosis mandatory for certain specified roadside buildings and established subsidization schemes for such a reason. In the future, this scheme may facilitate the renovation of older small and mid-scale buildings. Major developers have accounted for a growing share of mid-scale office buildings over the past several years. (Chart 4-4)

【Chart4-1】Supply trends for mid-scale office buildings in Tokyo’s 23 wards

27 30 22 22 20 23 17 20 14 19 15 14 13 10 (10,000㎡) 8

0 Number of supply 20.0 1994-2013 average supply: 19.5 126,000㎡/year

15.4 15.3 15.5 15.0 14.1 13.1 11.5 10.0 10.4 10.0 9.4 9.2 Supply volume 4.9 5.0 Office supply in completed buildings Office supply in buildings under construction Office supply in buildings to be constructed Number of supply .0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

7/11 【Chart4-2】Supply of mid-scale buildings: Ratio by ward and top three districts

［2010－2011］ ［2012－2013］ ［2014－2015］ Other wards Koto 6% Other wards 3% Other wards 19% Shibuya 23% 10% Chiyoda Chiyoda Shinagawa Shinjuku 20% 4% 17% Chiyoda Koto 3% 22% 2% Shinjuku Shinagawa 4% 4% Chuo Chuo Shibuya Chuo 28% Minato 34% Minato 24% 6% 22% Minato 32% Shinjuku 13% 4%

Tokyo’s three central wards : Tokyo’s three central wards : Tokyo’s three central wards : 187,000㎡（ 61%） 208,000㎡（ 73%） 171,000㎡（ 78%） Other wards : Other wards : Other wards : 120,000㎡（39%） 78,000㎡（27%） 48,000㎡（22%）

Top three districts Supply Top three districts Supply Top three districts Supply

Yaesu・Nihonbashi・Kyobashi 37,000㎡ Yaesu・Nihonbashi・Kyobashi 28,000㎡ Toranomon・Shinbashi 31,000㎡ Jinbocho・Ogawamachi 35,000㎡ Toranomon・Shinbashi 26,000㎡ Yaesu・Nihonbashi・Kyobashi 20,000㎡ Toranomon・Shinbashi 30,000㎡ Iwamotocho・Higashi-Kanda 23,000㎡ Shiba・Mita 19,000㎡

【Chart4-3】Supply of mid-scale buildings: Ratio by type of development site (2014-15)

［Three central wards］ ［Other wards］

Undeveloped or Underdeveloped land Undeveloped or 20% Underdeveloped land 61%

Rebuilding 39%

Rebuilding 80%

【Chart4-4】Supply of mid-scale buildings: Ratio developed by major developers*

［2004－2007］ ［2008－2011］ ［2012－2015］

Major developers Major developers Major developers ㎡ 15%・51,000 24%・152,000㎡ 28%・143,000㎡

Others Others ㎡ Others 85%・285,000 76%・491,000㎡ 72%・362,000㎡

* Major developer: the depeloper capitalized at ten billion yen or more

8/11 5.Conclusion

The rental office market in Tokyo showed clear signs of recovery. In 2013, as the supply contracted dramatically, demand for office space was on track for recovery. Abenomics, a weak yen, and the decision to award Tokyo the 2020 Olympics helped strengthen business confidence and improve the supply-demand balance, resulting in rents beginning to increase, which had trended downwards for years. The supplies in 2014 and onward are expected to remain near past averages, mainly through rebuilding in Tokyo’s three central wards. This development will result in slight growth in the office stock. (Charts 5-1 & 5-2) Further, the ratio of job openings to job seekers(Tokyo) has risen to a level comparable to that of 2006, the highest in recent years, a sign of growing demand. We project the supply-demand balance will continue to tighten. (Chart 5-3) A look at office space leasing for buildings completed in 2014 shows many have achieved high initial occupancies— more than 80% of such office space was occupied at the time of completion. Demand remains strong for well located, well-equipped, up-to-date office buildings. Given the clear economic recovery in many industries, demand for office space is expected to continue rising, and measures have to be taken to meet such demand. However, soaring construction costs over the past two years has raised serious concerns. (Chart 5-4) This trend may curb supply, thereby interfering with the smooth pace of rebuilding and improvements to urban functions. If such improvements stagnate, this may impair efforts to create a global business city and hamper plans for the National Strategic Special Zones currently being developed by public and private sectors to make Japan more competitive worldwide. The rise of construction costs is partly due to a weak yen, which has made building materials more expensive. But the biggest problem remains the shortage of skilled workers. That problem is most probably exacerbated by construction demand generated by rehabilitation associated with post Earthquake efforts and from efforts to build infrastructure for the 2020 Olympic Games. The goal is to make Tokyo a more attractive global city by 2020. This will require continued development. Addressing the shortage of skilled labor through dramatic and timely measures on the part of the Government is greatly anticipated.

9/11 【Chart 5-1】Office stock in Tokyo’s three central wards

Minato Ward Chuo Ward ㎡ (10,000 ) Chiyoda Ward 5,000 4,606 4,459 3,982 4,000 3,798

3,195 3,000 2,641

2,000 Office space Office

1,000

0 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Source: Compiled by Mori Trust based on “An Overview of Tokyo’s Land” (Tokyo Metropolitan Government)

【Chart 5-2】Growth of office stock Three central wards Minato Ward Chuo Ward （％） Chiyoda Ward 12

10

8

6

4 Growth rate 2

0

-2 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Source: Compiled by Mori Trust based on “An Overview of Tokyo’s Land” (Tokyo Metropolitan Government)

【Chart 5-3】Vacancy rates and the ratio of job openings to job seekers(Tokyo)

（％） （x） 10.00 2.00

9.00 1.80

8.00 1.60

7.00 1.40

6.00 1.20

Left axis : 5.00 1.00 Vacancy rates(five central wards) *As of December ;

Vacancy rates Vacancy 4.00 0.80 and as of March for '14 Right axis : 3.00 0.60 Ratio of job openings to job seekers

Ratio of job openings to seekers *Annual average for Tokyo ; and as of March for '14 2.00 0.40

1.00 0.20

0.00 0.00 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: Compiled by Mori Trust based on “Office Data” (Miki Shoji Co., Ltd.) and data of Ministry of Health, Labor and Welfare

10/11 【Chart 5-4】Price of Construction Materials and Wages Index*(for Tokyo ; 2005 is set to 100)

114.0

112.0

110.0

108.0

106.0 Hotel RC structure Apartment SRC structure Index 104.0 Office SRC structure

102.0

100.0

98.0

96.0 10.9 10.12 11.3 11.6 11.9 11.12 12.3 12.6 12.9 12.12 13.3 13.6 13.9 13.12 14.3

Source: Compiled by Mori Trust based on “Price of Construction Materials and Wages Index Monthly” (Construction Research Institute) *Changes in price (index) are calculated per item (per item of materials, etc.). Thus, a construction company’s margin is not included.

11/11