Survey of Large-Scale Office Building Supply in ’s 23 Wards 2018 April 25, 2018

Mori Trust Co., Ltd., (Head Office: Minato-ku, Tokyo) has surveyed supply trends for large-scale office buildings with total office space of 10,000 square meters or more in Tokyo’s 23 wards since 1986 and for mid-size office buildings with total office space of 5,000 square meters to less than 10,000 square meters since 2013, based on various published materials, field surveys, and interviews. The results of the most recent survey are presented below. In calculating total office floor area, where the survey deals with multipurpose buildings—buildings that also contain retail space, residential space, or hotels—the calculation includes only the floor area set aside solely for office use. [Survey Date: December 2017]

Supply to increase in 2018–2020 and decline subsequently —Supply in 2021–2022 to be half the past average or lower—

Main Results of This Survey

1. Supply of large-scale office buildings Supply of large-scale office space in 2017 in Tokyo’s 23 wards was 0.76 million square meters, falling short of the past 20-year average of 1.05 million square meters. Supply is projected to be 1.47 million square meters in 2018, 1 million square meters in 2019, and 1.73 million square meters in 2020. The last would mark the third-highest level in the past 20 years. A subsequent downturn is anticipated for the two years from 2021, as supply dips significantly below the past average.

2. Supply trends by area Supply trends in central Tokyo are expected to remain on the same trajectory during the 2018–2022 timeframe. Supply in Tokyo’s three central wards will remain at 70% of total supply. By district, Otemachi//Yurakucho will continue to account for the majority of this supply. In Minato Ward, supply is expected to expand in the three districts of /, /, and Shibakoen/Hamamatsucho. In Tokyo’s other wards, supply is projected to expand in , Osaki/, , and .

3. Supply trends by type of development site In Tokyo’s three central wards in 2018–2022, majority of supply will come from rebuilding. However, supply on undeveloped/underdeveloped land (including redevelopment, etc.) is growing and is expected to reach a pace roughly triple that of the past five years. Outside Tokyo’s three central wards, supply on undeveloped/underdeveloped land (including redevelopment, etc.) will account for approximately 80% of total supply.

4. Supply of mid-size office buildings Supply in 2017 was 91,000 square meters, the fourth consecutive year below the 10-year average of 133,000 square meters. In 2018, supply will be 138,000 square meters, above the average, but it will fall again in 2019. In terms of supply share by ward in 2018–2019, Chuo Ward will have the highest share. In Minato Ward, supply will continue to grow at a steady rate as it has the past four years.

For further information, contact: Keiji Kurokawa, Michihiro Yonehara Strategic Business Planning Group, Office of the President Mori Trust Co., Ltd. http://www.mori-trust.co.jp Toranomon 2-chome Tower, 3-17 Toranomon 2-Chome, Minato-ku, Tokyo 105-0001 1. Supply of large-scale office buildings

In 2017, the supply of large-scale office space in Tokyo’s 23 wards was 0.76 million square meters, below the past 20-year average of 1.05 million square meters. Supply in 2018, however, is expected to be 1.47 million square meters, above the past average. Projections see a modest decline in 2019 to 1 million square meters but an increase in 2020 to 1.73 million square meters, the third-highest level seen over the past 20 years. For the three years from 2018, average annual supply is projected to be 1.4 million square meters, second only to the 2002–2004 timeframe, when supply averaged 1.53 million square meters. A major downturn is expected thereafter. In 2021–2022, and in 2022 in particular, supply will be just 0.29 million square meters, the lowest figure in 20 years, in part in reaction to the glut of office space introduced to market through 2020. (Chart 1-1) The average supply of office space for each of the five years from 2018 is projected to settle to 1 million square meters, below the past 20-year average of 1.05 million square meters. From 2018, for Tokyo’s wards, the majority of supply will be located in the three central wards. But even in the other wards, from 2018–2020, supply is expected to increase. In 2020, supply is projected to be high and cover a broad area. (Chart 1-2) With respect to supply trends by building size, supply of buildings over 50,000 square meters will account for the vast majority of supply, approximately 80% of the total, and supply of buildings over 100,000 square meters will account for around 60% of the total, indicating the trend toward the development of ever-larger office properties. (Chart 1-3)

【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 50 43 Office supply in buildings to be constructed Number of supply 36 40 32 29 29 29 27 26 30 22 22 22 22 22 27 21 19 17 Number of supply 20 (10,000㎡) 20 21 19 18 250 16 14 9 10 4 221 2018-2020 average supply: 1,400,000㎡/year 0 2018-2022 average supply: 200 1998-2017 average supply: 1,000,000㎡/year 1,050,000㎡/year 181 173 162

150 147 126 118 118 119 118 99 99 100 100 92 Supply volume 89 90 82 82 72 76 64 66 53 50 36 29

0 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22

【Chart 1-2】 Tokyo’s three central wards and 【Chart 1-3】Supply and ratio by building scale other wards Tokyo’s three central wards Other wards 36% 21% 43% '98–'02 (300,000㎡/year) (170,000㎡/year) (360,000㎡/year) (10,000㎡) 1998-2017 average supply: (10,000㎡) 150 710,000㎡/year 150 34% 27% 39% '03–'07 (480,000㎡/year) (380,000㎡/year) 550,000㎡/year) 121 116 1998-2017 average supply: 33% 27% 40% '08–'12 (360,000㎡/year) (290,000㎡/year) (430,000㎡/year) 340,000㎡/year 100 100 41% 31% 28% '13–'17 (370,000㎡/year) (280,000㎡/year) (26㎡/year) 57 52 58% 19% 23% 50 45 50 43 '18–'22 (580,000㎡/year) (190,000㎡/year) (230,000㎡/year) 27 31 0% 25% 50% 75% 100% 9 2 0 0 Buildings of 100,000㎡ or larger '18 '19 '20 '21 '22 '18 '19 '20 '21 '22 Buildings of 50,000㎡ - 99,999㎡ Buildings of less than 50,000㎡

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 2/9 2. Supply trends by area

Supply is expected to remain concentrated in central Tokyo for the 2018–2022 timeframe. The supply in Tokyo’s three central wards will continue to account for 70% of total supply. Of the three wards, Chiyoda Ward is projected to stay at around 30% of total supply, retaining the top share, but Minato Ward’s share is projected to grow. In Tokyo’s other wards, Shibuya Ward has accounted for a growing presence. (Chart 2-1) By district, supply in the Otemachi/Marunouchi/Yurakucho district continues to be highest; this trend remained unchanged. However, in Minato Ward, whose districts account for a growing proportion of new office space in the Tokyo area, three districts—Toranomon/Shinbashi, Shibaura/Kaigan, and Shibakoen/Hamamatsucho—entered the top 10. Shibuya, Osaki/Gotanda, Toyosu, and Ikebukuro, districts outside the central three wards, also ranked in the top 10, indicating that new office space is now being built across a wider range of neighborhoods.

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

[2013–2017] [2018–2022] Tokyo’s three central wards : Tokyo’s three central wards : 3,420,000㎡ (76%) 3,650,000㎡ (72%) Other wards : 1,080,000㎡ (24%) Supply (10,000㎡) Other wards : 1,390,000㎡ (28%) Supply (10,000㎡) Other wards Chiyoda Chiyoda 6% 157 Other wards 164 Koto Koto 5% 2% 6% Chuo Shinagawa Chuo 78 Shinagawa 72 6% 5% Shibuya Minato 108 Minato 130 6% Shibuya Chiyoda Chiyoda Shinjuku 19 8% 22 Shinjuku 35% 32% 4% Shibuya 26 Shinjuku Shibuya 39 4% Minato Shinagawa 27 Shinagawa 26 24% Minato Chuo Chuo 14% 17% Koto 11 26% Koto 28 Others 25 Others 23

【Chart 2-2】Top ten districts

(10,000㎡) 88 70 (20%) [2013–2017] 2013 2014 60 2015 2016 50 2017 53 (12%) 45 40 (10%) 26 26 (6%) (6%) 25 30 (5%) 19 18 (4%) (4%) 15 14 (3%) (3%) Supply volume 20

10

0 Otemachi Akasaka Osaki Toranomon Jinbocho Konan Kojimachi Marunouchi Gotanda Shinbashi Ogawamachi Hirakawacho Jingumae Yurakucho Kyobashi Kioicho

(10,000㎡) 131 70 (26%) [2018–2022] 2018 60 2019 2020 2021 50 2022 59 (12%) 42 42 40 35 (8%) (8%) (7%) 28 25 22 19 (6%) (5%) 30 (4%) (4%) 12 (2%) 20 Supply volume

10

0 Otemachi Toranomon Shibaura Yaesu Shibuya Toyosu Osaki Muromachi Shibakoen Ikebukuro Marunouchi Shinbashi Kaigan Nihonbashi Gotanda Honcho Hamamatsu- Rank Yurakucho Kyobashi cho ( ) for previous timeframe 1(1) 2(5) 3(–) 4(2) 5(–) 6(–) 7(4) 8(–) 9(–) 10(–)

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 3/9 【Chart 2-3】Supply volume in the key business districts

[2013–2017]

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

Minato Ward

Approx.supply volume

：500,000㎡～ Konan

：300,000㎡～500,000㎡ Osaki ：200,000㎡～300,000㎡ Gotanda ：100,000㎡～200,000㎡

[2018–2022]

Ikebukuro

Yotsuya Shinanomachi Chiyoda Ward Muromachi Otemachi Honcho Marunouchi Yaesu Kojimachi Yurakucho Nihonbashi Hirakawacho Kyobashi Kioicho

Chuo Ward

Toranomon Toyosu Shibuya Shinbashi Shibakoen Minato Ward Hamamatsucho

Shibaura Kaigan

Approx.supply volume

：500,000㎡～

：300,000㎡～500,000㎡ Osaki Gotanda ：200,000㎡～300,000㎡

：100,000㎡～200,000㎡

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 4/9 3. Supply trends by type of development site

In Tokyo’s central three wards, supply through rebuilding predominated. However, the amount of new office space introduced on undeveloped/underdeveloped land (including redevelopment, etc.) is expected to grow substantially to approximately threefold levels of the past five years. In Tokyo’s other wards, supply on undeveloped/underdeveloped land (including redevelopment, etc.) will be approximately 80% of the total. (Chart 3-1) Overall, supply on undeveloped/underdeveloped land (including redevelopment, etc.) exceeds the amount created by rebuilding. While rebuilding-based new office supply has been the dominant format for new office supply, this is now marking time.

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

[Tokyo’s three central wards] [Other wards]

(10,000㎡) (10,000㎡) 400 400

350 350

63 (18%) 300 300 52 171 (18%) (47%) 250 250

200 200 243 (82%)

Supply volume 198 150 279 Supply volume 150 (82%) (80%) 194 (53%) 105 100 100 69 (77%) (64%)

50 50 51 39 31 (20%) (36%) (23%) 0 0 2008–2012 2013–2017 2018–2022 2008–2012 2013–2017 2018–2022

Undeveloped/underdeveloped land : Redevelopment, etc. Rebuilding

[Definitions] 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/underdeveloped land: Land for highly effective use (or development of such land), including development of clusters of small buildings; 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.

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 5/9 4. Supply trends for mid-size office buildings in Tokyo’s 23 wards

This section summarizes supply trends for mid-size office buildings (building containing 5,000 to less than 10,000 square meters of office space). Supply of mid-size office buildings in 2017 was 91,000 square meters, the fourth consecutive year in which the amount introduced was below the past 10-year average of 133,000 square meters. While the supply in 2018 is expected to be above the past 10-year average, this amount is expected to fall short in 2019. Supply of mid-size office buildings will be moderate. (Chart 4-1) By supply area, Tokyo’s central three wards in 2018 and 2019 will continue to account for approximately 70% of total supply. Development will continue to concentrate in these wards. Supply in Chuo Ward in particular will increase significantly; Chuo Ward is expected to include the top three districts in terms of new space supply. Minato Ward continues to maintain a stable share of the supply, while Chiyoda Ward’s share is declining significantly. (Chart 4-3 on the next page) Looking at supply trends by land for development, projections for 2018 and 2019 indicate the majority of supply will come from rebuilding in both Tokyo’s central three wards and the other wards. (Chart 4-4 on the next page) Major developers continue to increase their presence in the mid-size office building market. (Chart 4-5)

【Chart4-1】Supply trends for mid-size office buildings 【Chart4-2】Supply of mid-size buildings: Ratio in Tokyo’s 23 wards by ward and top three districts

Office supply in completed buildings Office supply in buildings under construction Office supply in buildings to be constructed Number of supply [2018–2019]

Other wards Shibuya 8% 3% 27 30 Chiyoda 22 22 6% 20 18 23 20 Koto 19 16 16 7% 12 13 11 Shinjuku 10 Chuo 13% 41% (10,000㎡) 2008-2017 average supply: 19.5 0 Number of supply 20.0 133,000㎡/year Minato 22%

15.4 15.3 15.5 15.0 14.5 Tokyo’s three central wards : 14.1 149,000㎡(68%) 13.1 Other wards : 11.2 11.3 69,000㎡(32%)

10.0 9.1 Supply volume Top three districts Supply 8.4 8.0 Yaesu•Nihonbashi•Kyobashi 32,000㎡ Muromachi•Honcho 28,000㎡ 5.0 Kayabacho•Hacchobori•Shinkawa 24,000㎡

.0 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 6/9 【Chart4-3】Supply of mid-size buildings: Ratio by ward and top three districts

[2014–2015] [2016–2017] [2018–2019]

Koto Other wards 3% Shibuya 8% Shinjuku Other wards Koto 3% 3% 6% Other wards 6% 10% Koto Chiyoda Shibuya Shibuya 7% 6% 7% Chiyoda 7% Chiyoda 19% 27%

Shinjuku Shinjuku 11% 13% Chuo Chuo 41% Minato 25% Chuo 37% Minato 14% 25% Minato 22%

Tokyo’s three central wards : Tokyo’s three central wards : Tokyo’s three central wards : 159,000㎡ (81%) 136,000㎡ (67%) 149,000㎡ (68%) Other wards : Other wards : Other wards : 37,000㎡ (19%) 68,000㎡ (33%) 69,000㎡ (32%)

Top three districts Supply Top three districts Supply Top three districts Supply Toranomon•Shinbashi 31,000㎡ Toranomon•Shinbashi 46,000㎡ Yaesu•Nihonbashi•Kyobashi 32,000㎡ Yaesu•Nihonbashi•Kyobashi 21,000㎡ Jinbocho•Ogawamachi 16,000㎡ Muromachi•Honcho 28,000㎡ Uchikanda•Kandasudacho 15,000㎡ Kayabacho•Hacchobori•Shinkawa 16,000㎡ Kayabacho•Hacchobori•Shinkawa 24,000㎡

【Chart4-4】Supply of mid-size buildings: Ratio by type of development site (2018-19)

[Three central wards] [Other wards]

Undeveloped or Underdeveloped land 16% Undeveloped or Underdeveloped land 31%

Rebuilding Rebuilding 69% 84%

【Chart4-5】Supply of mid-size buildings: Ratio developed by major developers*

[2008–2012] [2013–2017] [2018–2019]

Major developers Major developers Major developers 22%•33,000㎡/year 28%•33,000㎡/year 36%•43,000㎡/year

Others Others Others 64%•76,000㎡/year 78%•114,000㎡/year 72%•86,000㎡/year

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 7/9 5. Conclusion

In 2017, vacancies were steadily filled in new office buildings due in part to supply being below the past average. Vacancy rates in existing buildings also continue to decline; office market conditions are currently firm. Projections for the office market over the next five years suggest a major influx of new supply over the three years from 2018. However, preoccupancy rates are high at many of these buildings. For the two years from 2021, supply is expected to decline sharply, to roughly half the past average. Underpinned by vigorous demand, robust market conditions are expected to continue. One factor driving this demand is companies seeking office environments that support diverse working styles and promote creativity—primarily companies seeking to apply workstyle reforms to strengthen productivity. This trend is expected to continue gaining momentum. (See the Appendix on page 11.) To accommodate such needs, future offices will be asked to provide “creative platform functions in urban areas” that improve the well-being of staff, provide a sophisticated workplace, and promote socializing among people with diverse perspectives through cutting-edge technologies and open communities that help generate new encounters and ideas in various scenarios. This is a key function for urban office spaces in attracting companies and talent from around the world. It’s also an issue that needs to be addressed more energetically, through public-private partnerships, to further strengthen international competitiveness.

【Chart 5-1】Office stock in Tokyo’s three central wards Minato Ward Chuo Ward Chiyoda Ward

(10,000㎡) 4,584 4,705 5,000 4,405 3,968 4,000 3,710 3,195 3,000

2,000 Office space Office

1,000

0 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

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 Chiyoda Ward (%) Chuo Ward Minato Ward 12%

10%

8%

6%

Growth rate 4%

2%

0% '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 -2%

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

Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 8/9 Appendix Excerpt from 2017 Tenant Questionnaire

The following is an excerpt from the results of a questionnaire of tenant companies conducted from August to October 2017. Regarding “Promoting working environments and other aspects that encourage diverse and flexible working styles,” 36% of the companies responding answered “Currently implementing”; 27% answered “Currently considering”; and just 4% answered “Don’t feel it’s necessary.” Consistent with recent societal attitudes, the results suggest strong interest in the theme of diverse working styles. (Chart A) Chart B addresses the implementation of functions that promote diverse working styles. Functions have been reorganized into “Expanding office functions,” “Promoting digitalization,” and “Developing personnel systems.” Compiling the results shows implementation status clearly differs among the three functions. (Chart C) However, the implementation of certain functions related to “Expanding office functions” has progressed compared to 2013 (Chart D).

[Chart A] Initiative Level for “Promoting Diverse [Chart B] Initiative Level by Item (n=255) Working Styles” (n=267) Fitness spaces 4% 7% 19% 69% 4% “Refresh” spaces 43% 6% 24% 26% 13% Social spaces 39% 8% 24% 29% 36% Concentrated work spaces 24% 12% 23% 40% “Free address” 28% 13% 14% 45% Expanding O ce Functions 19% Satellite o ce 15% 12% 13% 60% Telecommuting 36% 15% 12% 36% 27% Internal SNS 35% 9% 9% 46% Web conferencing 74% 8% 7% 11% Remote attendance management 44% 19% 11% 26% Promoting Digitalization Promoting Currently implementing Distribution of smart devices 67% 9% 11% 14% Currently considering Electronic approval 53% 13% 14% 21% A management issue, but not yet considered Permit side jobs/dual professions 12% 4% 12% 72% Don’t know whether it’s necessary Short working hours program 64% 8% 6% 23% Don’t feel it’s necessary Flextime program 48% 11% 6% 35% Restrictions on overtime 52% 16% 12% 19% Developing Personnel Systems Personnel Developing 0% 25% 50% 75% 100% Implemented/planned Considering implementation Want to implement Will not implement [Chart C]

Expanding O ce Functions 27% 11% 19% 43%

Promoting Digitalization 52% 12% 11% 26%

Developing Personnel Systems 44% 10% 9% 37%

0% 25% 50% 75% 100% Implemented/planned Considering implementation Want to implement Will not implement

[Chart D]

Fitness spaces 9% 3% Social spaces 45% 36% Concentrated work spaces 32% 28% “Free address” 37% 22% Satellite o ce 19% 10% Telecommuting 50% 22%

0% 10% 20% 30% 40% 50% 60% Most recent survey 2013 Survey of Large-Scale Office Building Supply in Tokyo’s 23 Wards 2018 9/9