Survey of Large Office Building Supply in the 23 wards of '07 April 4, 2007

We, Mori Trust Co., Ltd. (Head Office: Minato-ku, Tokyo), have since 1986 undertaken continuous field surveys and interviews concerning the implementation of plans for large-scale office building projects (total floor area: ten thousand square meters) within the 23 wards of Tokyo. Results of the most recent surveys and analysis are presented below. Where the survey considers multi-purpose buildings—buildings coupled with stores, residences, hotels, etc.—only the area purely for office use is assessed. [Survey Date: December 2006]

Extremely Low Supply of Large-scale Office Buildings Until 2010

Main Results of This Survey

㪈㪅㩷Trends in Supply Volume: Average annual supply for 2007–2010 of 760,000 square meters, half the 2003–2006 level of 1.46 million square meters  Since the supply boom of 2003, as a result of numerous very large-scale developments (on former JNR land, for example), the average annual supply for 2003–2006 reached 1.46 million square meters. As the majority of these developments were completed in 2006, average annual supply for 2007–2010 is predicted to drop to approximately half of that for 2003–2006, i.e., to 760,000 square meters.

㪉㪅㩷Trends in Supply Location: Supply in Chiyoda Ward for 2007–2010 stands out at 40% or more, with a distinct focus on the area around . Moreover, active development of medium- and small-sized buildings is seen in the significantly integrated office-space area surrounding the business center. Looking at the supply area for 2007–2010, Chiyoda Ward stands out, accounting for 42% of total supply. By business area, there is a distinct focus on Otemachi--Yurakucho area, where the supply over the next four years will reach one million square meters. In Akasaka, Osaki/, and Nishi-, the supply in each area exceeds 200 thousand square meters. Apart from these districts, no other area stands out. Additionally, in the area surrounding the business center, in which office buildings sprang up densely and rapidly after 2003—including the Otemachi-Marunouchi- Yurakucho area, , and —we are seeing active development of medium- and small-sized buildings.

㪊㪅㩷Trends in Supply from Rebuilding: Future supply of large-scale office buildings will center on rebuilding. Business methods will continue to diversify, with the use of special purpose companies (SPCs) and other innovations. Between 2003 and 2006, construction on underutilized or unused land (including former JNR land) accounted for approximately 70% of redevelopment, while construction due to rebuilding accounted for only approximately 30% of redevelopment. Between 2007 and 2010, construction due to rebuilding will account for the majority of redevelopment, at 54%—exceeding construction on underutilized and unused land. In addition, between 2003 and 2006, real estate companies were the major operators involved in rebuilding, carrying out 63% of rebuilding projects. Between 2007 and 2010, rebuilding projects undertaken by real estate companies decreased to 38% of the total, and instead SPCs, etc. involved in rebuilding have increased their share of projects dramatically, from 14% to 32% of the total number undertaken. For the reasons mentioned above, business methods have diversified involving securitization of real estate in order to fund rebuilding initiatives.

For further information, please contact: Research & Planning ޓޓޓޓMiyuki Banޓޓޓޓޓޓޓޓ 1/7 Building Leasing Department1 Mori Trust Co., Ltd.ޓhttp://www.mori-trust.co.jp 2-chome Tower, 3-17 Toranomon 2-Chome, Minato-ku, Tokyo 105-0001 Tel: +81-3-5511-2357 / Fax: +81-3-5511-2409 E-Mail: [email protected] Future Market Outlook

A general survey of the market conditions for office space in Tokyo over the last few years shows strong demand in a buoyant market due to the economic expansion. From the latter half of 2003 vacancies began to decrease; as a result, since last year there has been a clear trend toward higher rents. Additionally, demand shows no signs of slackening as we move into 2007, indicated by the speed with which new large-scale buildings have been reaching full capacity and other factors.

This startling ongoing market recovery can be seen as the result of a match between demand and supply: demand due to corporate office-space strategies that promote rebuilding and consolidation to accommodate expanding corporate business, and high supply in favorable locations in central Tokyo. Even greater demand can be expected based on future office-space supply, in light of redevelopments underway in optimum central metropolitan areas.

Moreover, with increasing concern over earthquakes and other disasters, many companies are looking for characteristics such as a high capacity to withstand earthquakes in their search for building space, as well as the ability to provide backup for infrastructure and equipment. These concerns may lead to an increase in demand for moves to large-scale buildings featuring high safety standards and high reliability.

Taking the impending large reduction in supply into consideration, we predict that for the foreseeable future the tight relationship between supply and demand and the tendency toward higher rents can be expected to continue, centering around large-scale office buildings in central Tokyo. On the other hand, it will become even more critical to promote the further supply of quality office space in order for the present positive economic conditions continue, considering the likely future shortage of vacancies and corresponding sluggishness in demand. In this sense, we look forward to the early implementation of policies with an impact on the supply of office space in favorable metropolitan areas, including the disposal of and maximal use of government assets, of which discussion has already begun.

2/7 Figure 1: Trends in supply volume of large-scale office buildings in the 23 wards of Tokyo

Key Key Completed supply Incomplete supply under construction Incomplete supply not yet under construction Supply quantity

(Buildings) 49 50 46 47 43 41 40 37 40 36 Supply quantity 33 33 29 29 27 26 30 23 24 23 22 20 22 20 17 16 12 14 （10,000 Ὦ） 8 10 250 2003 - 2006 average supply: 221 1,460,000 ট / year 0

200 1986 - 2006 average supply: 2007 - 2010 average supply: 1,050,000 ট / year 183 1999 - 2002 average supply: 760,000 ট / year 790,000 ট / year 162 150

120 114 118 119 118 118 Supply volume 108 104 99 100 100 92 89 84 83 72 82 64 56 55 50 36 36 30

0 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

60 61 38 40 32 32 38 27 25 23 22 21 17 19 17 20 15 12 13 13 8 11 11 9 9 8 2 0 0 Supply volume (own buildings)

Figure 2: Trends in average total office floor area per building (fQWT-year intervals)

46,000 ≂ / building 38,000 Ὦ / building 40,000 Ὦ㩷/ building 38,000 ≂ / building 29,000 Ὦ / building 25,000 Ὦ / building （1987-1990）（(1991-1994㧕 (1995-1998㧕 1999-2002） （2003-2006） （2007-2010）

3/7 Figure 3: Large-scale office supply volume in the 23 wards of Tokyo and individual key business districts (2007 - 2010)

〔23 wards〕 Three central 〔Business districts〕 wards Higashi- 66％

Other 16 wards Koto ward ward 7% Koraku 6% ward 8% 3% Chiyoda ward Jinbocho・ Ogawamachi 35% Shinjuku ward Nishi-shinjuku Sudacho 10% 3-chome Bancho

Minato ward Otemachi・Marunouchi ・ ・Yurakucho ・Muromachi 33% 6% Hirakawacho 970,000Ὦ Kasumigaseki㨯 Chuo ward Jingumae Akasaka Nagatacho Kiba, Toyocho

Aoyama Roppongi Shiodome Supply volume

Chiyoda ward 1,300,000 Ὦ Harumi Ikejiri-Ohashi Chuo ward 190,000 Ὦ Shiba・Mita Shinkiba Minato ward 530,000 Ὦ Ebisu Approx. supply volume Shinjuku ward 290,000 Ὦ ：400,000 Ὦ ～ Shibuya ward 80,000 Ὦ Meguro Shinagawa(Konan) ：200,000 Ὦ Rinkai Shinagawa ward 240,000 Ὦ ～ 400,000 Ὦ Osaki ：100,000 Ὦ 180,000 Gotanda Koto ward Ὦ ～ 200,000 Ὦ 10,000 Other 16 wards 220,000 Ὦ ： Ὦ ～ 100,000 Ὦ

Figure 4: Trends in the top 10 districts in terms of large-scale office supply volume (2007 - 2010)

(10,000 Ὦ) 50 K e y 2007 40 2008 2009 30 2010

20 Supply volume 10

0 Otemachi Yaesu Uchisaiwaicho Shiodome AkasakaAoyama Nishi-Shinjuku AkihabaraOsaki Toyosu Marunouchi Nihonbashi Gotanda Yurakucho Muromachi Nagatacho

4/7 Figure 5: Large-scale office supply volume in the 23 wards of Tokyo and individual key business districts (2003 - 2006)

〔23 wards〕 Three central 〔Business districts〕 wards 78％ Other 16 wards 3% Koto ward Shinagawa ward Shibuya ward 7% 4% 7%

Akihabara Kinshicho Shinjuku ward Chiyoda ward Iidabashi Jinbocho・ 1% 25% ࡮MWFCP Ogawamachi Nishi-shinjuku Uchikanda 6% ࡮ Ningyocho Minato ward Bancho Otemachi・Marunouchi ࡮Kojimachi ・Yurakucho 47% 720,000 Ὦ Nihonbashi・Kyobashi Chuo ward ・Muromachi Kasumigaseki㨯 Uchisaiwaicho Akasaka Ginza Toyocho Aoyama Toranomon Shiodome ࡮Monzen-nakacho Supply volume 750,000 Roppongi Ὦ Shibuya 670,000Ὦ Harumi Toyosu Chiyoda ward 1,470,000 Ὦ Hamamatsucho Shinsen Chuo ward 380,000 Ὦ Nanpeidai ࡮ Shirogane Shiba・Mita Shinkiba Ebisu Shibaura Minato ward 2,760,000 Ὦ Approx. supply volume

Shinjuku ward 60,000 Ὦ ：400,000 Ὦ ～ Shibuya ward 210,000 Ὦ Shinagawa(Konan) 750,000Ὦ Rinkai ：200,000 Ὦ ～ 400,000 Ὦ Shinagawa ward 400,000 Ὦ Osaki Gotanda ：100,000 Ὦ 410,000 Koto ward Ὦ ～ 200,000 Ὦ 10,000 Other 16 wards 160,000 Ὦ Higashi ： Ὦ -Shinagawa ～ 100,000 Ὦ

Figure 6: Trends in the top 10 districts in terms of large-scale office supply volume (2003 - 2006)

(10,000 Ὦ) 50 K e y 2003 40 2004 2005 30 2006

20 Supply volume 10

0 Otemachi Nihonbashi Shiodome Roppongi Shinagawa Iidabashi Akihabara Osaki Toyosu Higashi- Marunouchi Kyobashi (Konan) Kudan Gotanda Shinagawa Yurakucho Muromachi

5/7 Note) Figure 7: Supply Construction Areas for Medium- and Small-Sized Buildings

<2003> Idabashi Akihabara

Jinbocho Kanda

Ningyocho

Kojimachi Otemachi ࡮Marunouchi ࡮Yurakucho Kayabacho

Aoyama Akasaka Shinbashi Ginza Toranomon

Roppongi Shiodome

Hamamatsucho <2006> Idabashi Akihabara

Mita Jinbocho Kanda

Ningyocho Kojimachi Otemachi ࡮Marunouchi ࡮Yurakucho Konan Kayabacho

Aoyama

Shinbashi Ginza Akasaka Toranomon

Business Areas in Which Increases Shiodome Roppongi Have Been Noted for 5 Cases or More

Hamamatsucho Area 2003 2006

Mita Kanda 517

Kayabacho 2 12 ࡮Hacchobori Ningyocho 5 12 Kodemmacho ࡮ Konan Kojimachi 4 11 ࡮Bancho Jinbocho 2 8 ࡮Ogawacho

Akasaka 2 8

Hamamatsucho 0 5

Note) Based on the applications for posting of construction signs related to building construction authorized from January to December each year, records per case have been kept by town and local precincts of plans in which the total floor area (including office space) is less than ten thousand square meters. Plans whose major purpose is residential are not included.

6/7 Figure 8: Percentages of large-scale office supply volume by site type

〔2003-2006〕 〔2007-2010〕

Rebuilding: 1,830,000 Ὦ (31%) Others: Others: Rebuilding: Underutilized or unused site: Underutilized or unused sites: 1,290,000 Ὦ 2,950,000 1,610,000 Ὦ 4,010,000 Ὦ (69%) Ὦ 1,430,000 Ὦ (46%) (42%) (45%) (54%)

Former Japan National Railway sites: 1,420,000 Ὦ (24%)

Former Japan National Railway sites: 140,000 Ὦ (4%)

Figure 9: Supply Ratio by Major Operator in Rebuilding

〔2003-2006〕 〔2007-2010〕

SPCs, etc.: Others: 260,000 Ὦ 430,000 Ὦ (14%) Others: SPCs, etc.: (23%) 480,000 Ὦ 510,000 Ὦ (30%) (32%)

Real Estate Companies: Real Estate Companies: 1,140,000 Ὦ (63%) 620,000 Ὦ (38%)

[Definition of terms] Rebuilding: (Developments taking place on) land resulting from the demolition of buildings previously used as offices, hotels, residences, etc.

Underutilized and unused site: (Developments taking place on) land not previously used effectively, including land with intermixed parking lots, dilapidated buildings, and a number of empty lots, concentrated residential-use land, former factories, former railway land, etc.

SPCs, etc.: A scheme in which Special Purpose Companies (SPCs) are central to development, or in which SPCs are included among the major operators.

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