2020 Survey of Office Needs in ’s 23 Wards

December 23, 2020

■ Many firms are taking a wait-and-see stance regarding the implementation of changes in their head offices. 11% of firms have decided to make changes, and the figure rises to 26% if those considering changes are included. ■ 24% of firms plan to lease a new office space, which is about average. ■ 73% of firms have introduced “Working from Home,” including around two-thirds for the first time as a response to COVID-19. Around 60% of firms expect the percentage of employees working in the office to be 80% or more in the post-COVID era.

Due to the ongoing uncertainties about when the pandemic will end and what the economic trends will be thereafter, during survey period from October‒November 2020, which was well into the pandemic, only a small fraction of firms had made important business decisions, including about relocating/resizing their head offices. Instead, most firms took a wait-and-see stance. While many firms are implementing major changes in workstyles, only 10% expect the percentage of employees working in the office will be less than 50% in the post-COVID era, whereas around 60% expect the percentage to be 80‒100%. Meanwhile, as a result of experiences with working from home, many companies had gained a better understanding of the important roles offices play in terms of communication and idea creation. An increased percentage have introduced and/or installed workplace facilities such as “Open Spaces,” “Lounges,” and ”Spaces for External Collaboration.” Close attention needs to be paid to trends in workstyles and office use in the post-COVID era.

1. Plans to Lease New Office Space ● 24% of firms plan to lease new office space. Of these, 33% plan to expand, 25% plan no change and 42% plan to reduce. ● Around 50% of firms planning to lease a new office space intend to do so within 1-2 years. 2. Reasons for Plans to Lease New Office Space ● “Lower Rent/Lower-Priced Building” is the #1 reason for relocating, followed by “Better Location” and “Anti-seismic Design” in that order. “To Expand Business/To Accommodate an Increase in Employees,” which was #1 last year, fell to #8. 3. Desired Areas for Planned Lease of New Office Space ● The Nihombashi area is drawing significant attention due to its increasing supply of new offices. The Toranomon and Shimbashi areas rose in the rankings due to their new rail stations and large-scale projects. 4. 2020 Rent Revisions ● 23% of firms received a rent revision within the last year. ● The ratio of firms who replied whose rent increased as a result of their rent revision was around 90%. 5. Workstyle or Workplace Changes due to COVID-19 ● Concerning plans to implement changes in head offices, 11% have decided to do, and the figure rises to 26% including firms considering changes. ● 73% have introduced “Working from Home,” including around two-thirds for the first time as a response to COVID-19. Compared to last year, an increased percentage of firms have introduced “Lounges,” “Cafeterias,” “Spaces for External Collaboration,” etc. ● Around 80% expect to provide a personal desk in the office for at least 80% of all employees in the post-COVID era. 6. Initiatives Regarding SDGs ● Around three-fourths of firms replied that they are positive in regard to SDG initiatives, up from last year. ● Around 90% of firms with at least 300 employees responded that they are positive in regard to SDG initiatives.

Since 2003, Mori Building Co., Ltd. (Minato-ku, Tokyo, President & CEO: Shingo Tsuji) has conducted an annual “Survey of Office Needs in Tokyo’s 23 Wards” in order to better understand trends in the office building market. The survey, which monitors new demand for office space, is sent to companies headquartered in Tokyo’s 23 wards and ranked in the top 10,000 globally in terms of capital. We have compiled the results of the 2020 survey, and we would like to share some of our findings and insights in the following report.

This latest survey was conducted during October 16-November 6, 2020. Invitations to respond were sent to 10,865 firms (excluding our tenants) with 1,727 responding, a response rate of 15.9%. A report on the results will be shared with the participating firms separately.

For more information & inquiries, please contact: Shinji Takeda/ Masashi Hasegawa, Office Business Department, Leasing Operations Division, Mori Building Co., Ltd. Roppongi Hills Mori Tower, 6-10-1 Roppongi, Minato-ku, Tokyo 106-6155 / Tel: 03-6406-6672 (http://www.mori.co.jp/en)

̶ 1 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

1 Plans to Lease New Office Space

● 24% of firms plan to lease new office space. Of these, 33% plan to expand, 25% plan no change and 42% plan to reduce. ● Around 50% of firms planning to lease new office space intend to do so within 1-2 years.

Among the 24% expecting to lease new office space (Figure 1), those planning to reduce their office space increased from last year (Figure 2). 33% plan to expand, 25% plan no change and 42% plan to reduce, showing considerable diversity in terms of office space plans (Figure 3). With regard to the timing of leasing a new space, 36% responded that they would do so “within 1 year,” and 15% responded “within 2 years.” Thus, a majority of them plan to lease a new space within 1‒2 years (Figure 4).

Figure 1: Future Plans to Lease New Office Space Figure 2: Plans for Expansion vs. Reduction of Space (over time)

Yes, We Have Plans No Plans Expansion No Change Reduction

0% 50% 100% 0% 10% 20% 30%

2015 2015 22%（482） 78%（1,727） 13％（285） 6％（130） 3％（65） n=2,209 n=2,209

2016 22%（446） 78%（1,622） 2016 14％（287） 6％（114） ２％（45） n=2,068 n=2,068

2017 2017 2４%（484） 76%（1,551） 14％（285） 7％（139） 3％（59） n=2,035 n=2,035

2018 2７%（449） 73%（1,237） 2018 17％（289） 7％（113） 3％（45） n=1,686 n=1,686

2019 2019 n=1,820 27%（491） 73%（1,329） n=1,820 18％（320） 7％（121） 3％（50）

2020 24%（415） 76%（1,305） 2020 8％（137） 6％（101） 10％（175） n=1,720 n=1,720

Figure 3: Plans for Expansion vs. Figure 4: Timing of Planned Lease of Reduction of Space (single year) New Office Space

No Plans Expansion 26% Within 1 year 33％ （79） 36% Reduction （137） 42% （112） （175） 4 years or Longer 10% （32） No Change Within 3 years Within 2 years 25% 14% 15% （101） （42） （45） n=413 n=310

̶ 2 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

2 Reasons for Planning to Lease New Office Space

● “Lower Rent/ Lower-Priced Building” is the #1 reason for relocating, followed by “Better Location” and “Anti-seismic Design” in that order. “To Expand Business/ To Accommodate an Increase in Employees,” which was #1 last year, fell to #8.

Among reasons to lease a new office space, “Lower Rent/ Lower-Priced Building” ranked #1, followed by Better Location” and “Anti-seismic Design” in that order. “To Expand Business/ To Accommodate an Increase in Employees,” which was #1 last year, fell to #8. While there is a rising trend to relocate to lower-rent buildings due to uncertainties about the economic outlook and corporate earnings, many companies continued to cite “Better Location” as their reason. Rising awareness of BCP during the COVID-19 pandemic prompted more companies to focus on anti-seismic design, facility quality and security.

Figure 5: Reason for Plans to Lease New Office Space (compared to previous survey)

(%) 50 2019(n=395) 2020(n=366)

44 ※ Multiple answers allowed. ※ Total number of responding firms is counted as 100. 40 37

28 29 30 27

21 20 19 20 19 18 18 18 15 15 15 16 14 14 13 12 12 12 12 11 10 10 11 10 7 8 6 5 3 4 4

(in the case of leasing) of case the (in Trust of Degree High a Enjoys Owner Building

Redeveloped

Acquire Talented Employees Talented Acquire Current Building is to be be to is Building Current 0 Building Lower-Priced Rent/ Lower Location Better Anti-seismic Design Higher Grade Facilities Superior Security Floor per Space More Systems Backup Disaster Prevention Systems/ Employees in Increase an To Accommodate Business/ To Expand Offices To Consolidate Corporate Status Enhances that Location Environment Office Innovative an Create Environment-friendly Building Eco-conscious/ Project Business New a To Pursue Office Separate Annex/ Establish to Necessity

Figure 6: Reason for Plans to Lease New Office Space (changes in response rate over the past 15 years)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 No. 1: Lower Rent/ 45% Lower-Priced Building No. 2: Better Location 40% No. 3: Anti-seismic Design

35% No. 4: Higher Grade Facilities

30% No. 5: Superior Security

25% No. 6: More Space per Floor

20% No. 7: Disaster Prevention Systems/ Backup Systems

15% No. 8: To Expand Business/ To Accommodate an 10% Increase in Employees

̶ 3 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

3 Desired Areas for Planned Lease of New Office Space

● The Nihombashi area is drawing significant attention due to its increasing supply of new offices. The Toranomon and Shimbashi area rose in the rankings due to their new rail stations and large-scale projects.

Firms planning to lease a new office space were asked to indicate their desired locations. Nihombashi (20%) ranked #1, followed by #2 Toranomon (15%) and #3 Shimbashi (14%), the latter two rising from #7 and #9, respectively last year. Toranomon and Shimbashi rose due to several large-scale projects, including Toranomon Hills Business Tower, the opening of Toranomon Hills Station on th Hibiya Line and the preliminary start of the Tokyo BRT bus service connecting Toranomon Hills, Shimbashi, Kachidoki and Harumi BRT Terminal (Figure 7 & 8). The “2020 Survey of Large-Scale Office Building Market in Tokyo’s 23 Wards” by Mori Building revealed that in regard to 5.14 million m² of new large-scale office supply that is forecast in the 23 wards in 2020‒2024, around 75% (3.84 million m²) is expected in seven areas: Toranomon, Marunouchi-Otemachi, Tamachi-Hamamatsucho, Shinagawa, Nihombashi-Yaesu-Kyobashi, Shibuya, and Akasaka-Roppongi (Figure 9). These seven areas roughly correspond to the most “Desired Areas for Planned Lease of New Office Space.” In recent years, areas with concentrated office supply have tended to overlap the most “Desired Areas for Planned Lease of New Office Space.” Such areas are expected to offer improved transportation (new/upgraded stations and roads) and improved urban attractiveness (new high-function, multipurpose facilities), which will offer work, accommodation and leisure in convenient proximity. The trend was particularly conspicuous in Toranomon and Shimbashi in 2020.

Figure 7: Desired Areas for Planned Lease of New Office Space (compared to previous survey) ※ Multiple answers allowed. ※ Total number of responding firms is counted as 100. (%) 20 20 2018(n=405） 2019(n=441） 2020(n=354) 18 18 18 17 15 15 15 15 14 14 1414 14 14 14 14 13 13 13 12 12 12 12 12 121212 12 12 11 11 11 11 10 10 10 10 10 10 99 9 9 9 9 99 9 9 99 888 8 88 8 8 88 8 8 7 7 7 7 7 7 7 7 6 6 6 5 55 5 555 55 5 5 5 5 4 4 4 4 44 3 3 3 3 2 22 2 2 222 1 111 1 00

0 Marunouchi Otemachi Yurakucho Uchisaiwaicho Hibiya Bancho Kojimachi/ Kioicho Hirakawacho/ Iidabashi Akihabara Ochanomizu Kanda/ Yaesu Nihombashi Kyobashi Ginza Harumi Shiodome Shimbashi Toranomon Kamiyacho Akasaka Roppongi Aoyama Hamamatsucho Tamachi Daiba/ Aomi (around station) Shinagawa Ariake Seaside Shinagawa Tennozu/ Osaki Shibuya Ebisu Meguro Gotanda Shinjuku Ikebukuro Yotsuya Toyosu

Figure 8: Top 10 Desired Areas for Figure 9: Supply Volume by Major Business Areas Planned Lease of New Office Space for the Years 2020 ‒ 2024 ※ Multiple answers allowed. ※ Total number of responding firms is counted as 100. ※ Areas that acquired equal points are considered as the same rank. Outside Toranomon the top 7 areas 1,250,000㎡ (%) 1,300,000㎡ 25 24% 25% n=354 20 Akasaka・ 20 2020 - 2024 Roppongi Total Supply Volume: 210,000㎡ 15 Marunouchi・ 15 14 14 14 14 4% 5,140,000㎡ Otemachi 12 12 12 11 Shibuya 720,000㎡ 10 230,000㎡ 14% 5% Tamachi・ Nihombashi・ Hamamatsucho 5 Yaesu・ 710,000㎡ Kyobashi 14%

350,000㎡ Shinagawa Yaesu Toranomon Shimbashi Ochanomizu Kanda/ Marunouchi Otemachi Shibuya Shinjuku Akasaka 0 Nihombashi 7% 370,000㎡ Top 7 areas 7% Total Supply Volume： 3,840,000㎡ Supply Share： 75%

Reference: 2020 Survey of Large-scale Office Building Market in Tokyo’s 23 Wards

̶ 4 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

4 2020 Rent Revisions

● 23% of firms received their rent revision within the last year. ● The ratio of firms whose rent had increased as a result of their latest rent revision was about 90%.

When asked about rent revisions within the last year, 23% of firms responded “Have Had a Rent Revision,” which was similar to an average year, and 5% answered “Currently Under Negotiation” (Figure 10). Of the firms in these categories, round 90% indicated that the revised rent was an increase (Figure 11).

Figure 10: Rent Revisions for the Past Year

Have Had a Rent Revision 23%（309）

Currently Under Negotiation 5%（74） Have Not Had a Rent Revision 72%（990）

n=1,373

Figure 11: Increase/ Decrease in Post-Revision Rent (or expected rent)

Increase Stay Decrease

0% 50% 100% 3%（16） 2007 65%（334） 31%（160） n=510 5%（23） 2008 61%（303） 34%（167） n=493

2009 42%（197） 9%（41） 49%（228） n=466 4%（27） 2010 10%（62） 86%（527） n=616 4%（22） 2011 6%（30） 90%（474） n=526

2012 8%（39） 6%（32） 86%（442） n=513

2013 13%（51） 8%（32） 80%（322） n=405

2014 36%（104） 11%（30） 53%（151） n=285

2015 66%（214） 9%（29） 25%（79） n=322

2016 80%（298） 8%（29） 12%（44） n=371

2017 86%（344） 7%（28） 7%（29） n=401 4%（14） 2018 91%（295） 5%（15） n=324 3%（12） 2019 93%（376） 4%（16） n=404

2020 88%（295） 6%（20） 7%（22） n=337

̶ 5 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

5 Changes in Workstyles or Workplaces during Pandemic

● Concerning plans to implement changes in head offices, 11% have decided to do, and the figure rises to 26% including firms considering changes. ● 73% have introduced “Working from Home,” including around two-thirds for the first time as a response to COVID-19. Compared to last year, an increased percentage of firms have introduced “Lounges,” “Cafeterias,” “Spaces for External Collaboration,” etc. ● Around 80% expect to provide a personal desk in the office for at least 80% of all employees in the post-COVID era.

Regarding the status of changes in head offices, 11% already have decided their changes, and the figure rises to 26% including firms under consideration. 53% are not considering any particular change (Figure 12). Only a few firms reported to be considering changes due to the economic slowdown and/or the rapid expansion of remote working during the pandemic. A majority of firms, however, have no such intention since the future course of the pandemic and economic trends remain uncertain. In the meantime, the challenges of remote working, such as lower productivity and reduced communication, are gradually being recognized, but many companies are still in a wait-and-see stance. Plans to make changes in head offices could be altered once the economy starts to recover, so the pandemic, economic trends and resulting moves in the corporate sector must be closely monitored.

Figure 12: Status of Changes in Head Offices

Have Been Decided Under Consideration Will Be Considered May Be Considered Will Not Be Considered

11％(194) 14％(248) 9％(155) 13％(216) 53％(907)

n=1,720

̶ 6 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

In terms of introducing new worksystems and workplaces, firms that have adopting “Working from Home” jumped from 28% to 73%. Those using “Non-territorial Offices” have risen from 19% to 28% and the use of “Open Spaces” have increased from 41% to 51% (Figure 13). 64% introduced “Working from Home” for the first time as a response to COVID-19, 35% had introduced the system earlier, and 23% expanded the scope of acceptance due to COVID-19 (Figure 14).

Figure 13: Status of Workstyles and Workplaces

Already Introduced To be Introduced Want to Introduce, But Difficult No Plan to Introduce

2019 28％(505) 13％(236) 28％(508) 31％(556) (n=1,805) Working from Home 2020 73％(1,256) (n=1,718) 7％(119) 12％(212) 8％(131)

2019 11％(191） 6％(107) 20％(358) 63％(1,136) Satellite (n=1,792) Offices 2020 14％(240) 6％(106) 15％(254) 65％(1,106) (n=1,706)

2019 5％(84) 4％(75) 14％(248) 77％(1,369) Co-working (n=1,776) Offices 2020年 10％(163) 5％(91) 16％(276) 69％(1,179) (n=1,709)

2019 19％(349) 10％(183) 23％(413) 47％(851) Non-territorial (n=1,796) Offices 2020年 28％(487) 14％(242) 16％(279) 41％(705) (n=1,713)

2019 41％(733) 13％(235) 22％(393) 25％(441) Open (n=1,802) Spaces 2020 51％(878) 11％(192) 14％(236) 24％(404) (n=1,710)

Web ------Conference Spaces 2020 40％(691) 17％(294) 20％(349) 22％(378) (new questions) (n=1,712)

------Work-ations 3％(52) (new questions) 2020 5％(75) 16％(276) 76％(1,306) (n=1,709)

Figure 14: Timing of Working from Home Adoption

Adopted in Response Adopted before Pandemic but Adopted before Pandemic Other to COVID-19 Expanded Scope

0％(5)

64％(802) 23％(285) 13％(158)

n=1,250

̶ 7 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

Firms that introduced or plan to introduce new office facilities have increased. Those offering “Lounges” rose from 44% to 50%, “Cafeterias” from 17% to 19%, and ”Spaces for External Collaboration” from 7% to 14% (Figure 15). The survey has revealed a strong need for “Conference Rooms,” which were newly added to the survey this year. 33% either have installed or plan to install them. 42% of firms have at least 80% of their employees working at the office, and in the post-COVID era, this figure is expected to rise to 57% of firms. While less than 50% of employees are working at the office at 24% of firms, in the post-COVID era this figure is expected to fall to only 10% of firms (Figure 16). Around 80% expect to provide a personal desk in the office for at least 80% of all employees in the post-COVID era (Figure 17), but since commuting ratios will vary by firms, it is hard to produce a clear forecast.

Figure 15: Installation of New Office Facilities Already Installed To be Installed Not Installed 44％ 2019 36％(657) 8％(143) 56％(1,003) (n=1,803) Lounges 50％ 2020 45％(778) 4％(73) 50％(860) (n=1,711)

17％ 2019 15％(265) 83％(1,494) (n=1,799) Cafeterias 2％(40) 19％ 2020 18％(301) 81％(1,386) (n=1,717) 2％(30) 7％ 2019 5％(89) 93％(1,677) Spaces for (n=1,796) External 2％(30) 14％ 2020 Collaboration 12％(204) 86％(1,473) (n=1,712) 2％(35)

------Conference 33％ Rooms 2020 31％(531) 67％(1,148) (new questions) (n=1,709) 2％(30)

------Large Event 1％(12) Spaces 2020 (new questions) (n=1,713) 13％(225) 86％(1,476)

Recording/ ------Streaming 3％(43) 2020 Studios 10％(173) 87％(1,501) (new questions) (n=1,717)

Figure 16: Employees Working in Offices Now and Post-COVID 100% 80～99% 50～79% 0～49% 2％(35) (Average) Before (n=1,707) 75％(1,275) 18％(313) 5％(84) 95% COVID-19

Currently (n=1,713) 20％(344) 22％(368) 34％(587) 24％(414) 65%

After 32％(543) 25％(416) 33％(559) 10％(169) 76% COVID-19 (n=1,687)

Figure 17: Expected Ratio of Personal Desks per Employee after COVID-19 About 100% (or more than number of employee) 80～99% 60～79% Under 50%

67%（1,145） 10%（166） 19%（323） 4%（75）

n=1,709

̶ 8 ̶ 2020 Survey of Office Needs in Tokyo’s 23 Wards

6 Initiatives Regarding SDGs

● Around three-fourths of firms replied that they are positive in regard to SDG initiatives, up from last year. ● Around 90% of firms with at least 300 employees responded that they are positive in regard to SDG initiatives.

In recent years, companies have been increasingly focusing on SDG initiatives, as exemplified by more companies openly committing to such efforts and the rising adoption of ESG principles by institutional investors. The survey revealed that in regard to SDG initiatives, 73% of firms are “Under Way,” “Planning Concretely,” or “Desired, but No Action Yet.” The percentage rises to around 90% when considering companies with 300 or more employees (Figure 18). Regarding implementation issues, 39% replied “Not Have Enough Manpower,” 29% replied “Costs/ Benefits Unclear,” 28% replied “Lack Internal Understanding,” and 21% replied “Don’t Know Where to Begin” (Figure 19). With companies increasingly being expected to implement SDG initiatives, office selections are likely to put more focus on building features such as environmental certification for energy savings.

Figure 18: Implementation of SDG Initiatives

Under Way Planning Concretely Desired, but No Action Yet Not Planning

65％ 2019 (n=1,808) 17％（303） 5％（97） 43％（780） 35％（628） Total 73％ 2020 (n=1,696) 25％（431） 6％（102） 42％（712） 27％（451）

2019 (n=1,243) 14％（169） 4％（51） 43％（538） 39％（485） Below 100 Employees 2020 (n=1,169) 21％（245） 5％（54） 45％（521） 30％（349）

2019 (n=353) 17％（59） 7％（26） 46％（161） 30％（107） 100‒299 2020 (n=341) 27％（91） 9％（29） 41％（141） 24％（80）

84％ 2019 (n=198) 37％（74） 10％（20） 37％（73） 16％（31） From 300 88％ 2020 (n=186) 51％（95） 10％（19） 27％（50） 12％（22）

Figure 19: Issues Regarding SDG Initiatives

(%) 50 n=1,692

39 40

29 30 28 21 19 20 16 15

10 8 Manpower Not Enough Unclear Benefits Costs / Understanding Lack Internal Begin Where to Don’t Know indicators, etc.) (quantitative to Evaluate Unsure How Low Awareness is Social Benefits Potential Understand Don’t 0 Issue Not a Critical

̶ 9 ̶