Survey of Large Office Building Supply in the 23 wards of '09 April 9, 2009

We, Mori Trust Co., Ltd. (Head O ce: Minato-ku, Tokyo), have since 1986 undertaken continuous eld surveys and interviews concerning the implementation of plans for large-scale o ce building projects (total office oor area: 10,000 square meters or more) within the 23 wards of Tokyo. Results of the most recent surveys and analysis 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 2008]

Focus of supply area shifting from central Tokyo to neighboring areas

Main Results of This Survey

1. Changes in Supply Volume: Supply is expected to remain low until 2010, at less than 1 million square meters in each of the three

consecutive years starting from 2008, but to rebound0.00.20.40.60.81.0 to 1.5 million square meters or so in the years 2011-2012.

For the years 2009-2010, total annual supply is projected to reach only 800,000 square meters, with low supply (dened as gures below recent averages: 1.04 million square meters/year) persisting until 2010. In contrast, supply is expected to rebound to roughly 1.5 million square meters in 2011-2012; however, current market conditions are likely to lead to the postponement or cancellation of several projects, leading to probable declines in supply, depending on future trends.

2. Trends in Supply Location: Supply is trending downward in central Tokyo but appears likely to increase in neighboring areas. A look at supply locations in the years 2009-2012 shows that the share of total supply accounted for by the three central wards of Tokyo may decline to less than one-half of total supply, while the volume of supply itself falls to roughly 70% of actual levels in the years 2005-2008. A look at shares for individual wards shows that while Chiyoda Ward will continue to account for over 30% of total supply, Minato Ward’s share will fall to roughly 10% – less than the share accounted for by Koto Ward. A look at supply by business area shows that while the Otemachi--Yurakucho area features abundant supply, areas with the next highest levels of supply lie outside the three central wards, including the Rinkai, , and Osaki/ areas, indicating a clear trend toward supply dispersed over locations neighboring the center.

3. Trends by Development Site: Supply in the three central wards has focused on rebuilding, while other areas tend to feature thriving new, large-scale developments on unused land. A look at supply trends by development site in the years 2009-2012 shows that the supply structure will likely focus even more on rebuilding in the three central wards of Tokyo. While the renewal of o ce stock emerging from rebuilding has remained fairly consistent, development of unused or underutilized sites such as former National Railway land has declined signicantly. Outside the three central wards of Tokyo, development of unused or underutilized sites continues to account for over 80% of new supply, with large-scale developments of unused land thriving in the Rinkai area and elsewhere.

For further information, please contact: Research & Planning Teppei Tokura 1/7 Building Leasing Department1 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]

Future Market Outlook

A look back at supply trends of large-scale o ce buildings since 2000 shows a clear focus on central Tokyo, with supply in the three central wards uniformly exceeding that in other areas since 2000. However, these areas are expected to trade places once again from 2010.

A look at the relation between supply trends and land price changes shows that supply in the three central wards of Tokyo, which had thrived since 2000, had been boosted by the tailwind of falling land prices persisting for some time following the collapse of Japan’s real-estate bubble. However, since 2006, when land prices began to rebound, supply in these areas has slowed. In contrast, in areas outside the three central wards, where land prices are moderate compared to central Tokyo, while the rebound in land prices temporarily dampened supply, supply is expected to surpass that in the three central wards from 2010. While this supply outside central Tokyo will capture demand from rms seeking to cut o ce costs during times like the current downturn, demand remains steady for o ce buildings with prime locations in central Tokyo. As such, there are no signs of major changes in the movement of corporations back to central Tokyo. The real-estate market currently is in a readjustment phase; prices in central Tokyo, which had been rising, have now peaked and begun to fall. This price adjustment is expected to create a supply of properties meeting corporate demand in terms of both location and lease rates, stimulating latent o ce demand and revitalizing the market.

The current slowdown in the o ce and real-estate markets may even represent an opportunity to promote redevelopment of urban functions suited to the characteristics of locations, and from a long-term perspective it is hoped that such slowdown will lead to appropriate urban environment development.

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

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

(Buildings) 49 50 46 47 (Buildings) 43 49 50 41 40 46 37 43 40 41 47 36 33 40 33 36 40 33 2933 29 33 37 27 27 30 29 25 30 24 20 27 23 23 30 24 29 23 22 22 27 26 20 23 17 16

20 Supply quantity 12 14 20 21 （（ 10,00010,000 ㎡）㎡） 17 16 16 7 Supply quantity 14 10 25250 0 12 10 2004 - 2007 average supply: ㎡ 221 221 1,200,000 / year 0 0

1986 - 2008 average supply: 20200 0 1986 - 2007average supply: ㎡ 1,040,000 / year 2008 - 2011 average supply: 1,060,000 ㎡ / year 183183 710,000 ㎡ / year 162 162 152 15150 0 147

118 119 118 118 118 119 119 114114 118 119 118 Supply volume Supply volume 100 108108 104 99 100 104 99 10100 0 9292 89 89 85 87 8383 82 82 81 80 74 74 72 72 67 63 5656 5555 55 550 0 36 36

0 '86'86 '87'87 '88'88 '89 '90'90 '91'91 '92'92 '93'93 '94'94'95 '95'96 '96'97 '97'98 '98'99 '99'00 '00'01 '01'02 '03'02 '04'03 '05'04 '06'05 '07'06 '08'07'09 '08'10 '09'11 '10'12 '11

61 61 60 3838 38 40 3232 32 32 38 2727 2525 232322 22 21 17 19 1921 17 17 19 20 1515 12 11 1313 11 11 13 13 88 11 9 9 9 9 7 6 7 6 0 Supply volume (own buildings) Supply volume (own buildings)

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

46,000 ㎡ / building㎡ / 43,000㎡ / building 45,000 43,000building ㎡ / building42,000 ㎡ / building 38,000 ㎡ / building 36,000 ㎡ / building 30,00032,000 ㎡ / building㎡ / building 26,00026,000 ㎡ /㎡ building / building

（1988-1991(1988-1992) ） (1992-1995(1993）-1997) (1996-1999(1998） -2002)（2000-2003 (2003） -2007)（2004-2007） (2008（-2012)2008-2011）

3/7 Figure 3: Large-Scale Office Supply by Ward

〔2005-2008〕 〔2009-2012〕

Three central wards :3170,000㎡(75%) Three central wards :2250,000㎡(48%) Other areas :1090,000㎡(25%) Other areas :2460,000㎡(52%)

Supply volume Supply volume Other 16 wards Other 16 wards Koto ward 4% Chiyoda ward 1300,000 ㎡ Chiyoda ward 1300,000 ㎡ Shinagawa ward Chuo ward 310,000 ㎡ Chuo ward 310,000 ㎡ 11% 11% ward Minato ward 1560,000 ㎡ Minato ward 1560,000 ㎡ 2% 8% Koto ward Chiyoda ward Chiyoda ward ward 20,000 ㎡ 20% 33% Shinjuku ward 20,000 ㎡ 31% Shibuya ward 70,000 ㎡ Shibuya ward 70,000 ㎡ 8% 5% 7% Shinagawa ward 340,000 ㎡ 10% Shinagawa ward 340,000 ㎡ Minato ward 4% Shinjuku 37% Shinagawa 10% ward Koto ward 470,000 ㎡ ward Koto ward 470,000 ㎡ 0.5% Chuo ward Chuo ward Other 16 wards 190,000 ㎡ Shibuya Shinjuku Other 16 wards 190,000 ㎡ ward ward Minato ward

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

(10,000 ㎡) 〔2005-2008〕 K e y 50 2005 2006 40 2007 2008 30

20 Supply volume 10

0 Otemachi Akasaka Roppongi Osaki Toyosu Yaesu Konan Rinkai Marunouchi Gotanda Yurakucho Muromachi

(10,000 ㎡) 〔2009-2012〕 K e y 50 2009

40 2010 2011 2012 30

20 Supply volume 10

0 Otemachi Rinkai Toyosu Osaki Nishi-Shinjuku Nakano Bancho Shinjyuku Uchisaiwaicho Jinbocyo Marunouchi Gotanda Kojimachi kasumigaseki ogawamachi Yurakucho Hirakawacho nagatacyo

4/7 Figure 5: Large-scale office supply volume in the individual key business districts

〔2005-2008〕

Akihabara Kinshicho ・ Jinbocho・ kudan Ogawamachi

Chiyoda ward Otemachi・ Marunouchi・ Nihonbashi・ ・ ・ Yurakucho Kyobashi Uchisaiwaicho 0,000㎡ Muromachi Kasumigaseki・ 75 Nagatacyo Akasaka Cyuo ward Aoyama

Roppongi Toranomon Shiodome Toyosu

Minato ward Tukishima・ Kachidoki・ Shiba・Mita Harumi Shirogane

Approx. supply volume Shinkiba

：400,000 ㎡ ～

：200,000 ㎡ ～ 400,000 ㎡ Konan ：100,000 ㎡ Osaki Rinkai ～ 200,000 ㎡ Gotanda ： 10,000 ㎡ ～ 100,000 ㎡

〔2009-2012〕

Oshiage

Nakano

Nishi-Shinjuku Chiyoda ward Jinbocho・ Shinjuku Ogawamachi Bancyo・ Koujimachi・ Hirakawacho Otemachi・ Marunouchi・ Nihonbashi・ ・ Yurakucho Kyobashi・ Uchisaiwaicho Muromachi Kasumigaseki・ 980,000㎡ Nagatacyo Toyocho・ Akasaka Cyuo ward Kiba

Roppongi Toyosu

Shibuya ・ Minato ward Tukishima Kachidoki・ Udagawacho・ Dougenzaka・ Shiba・Mita Harumi Nanpeidaicho Approx. supply volume Shibaura

：400,000 ㎡ ～

：200,000 ㎡ ～ 400,000 ㎡ Konan ：100,000 ㎡ ～ ㎡ Osaki Rinkai 200,000 Gotanda ： 10,000 ㎡ ～ 100,000 ㎡

5/7 Figure 6:Percentagesoflarge-scaleoffice supplyvolumebysitetype (10,000 ㎡)

(or developmentthereof). decrepit buildings,denselydeveloped residentialareas,formerfactorysites,railroadland,orunusedland Land notpreviouslyputtoeffective use,includinglanddotted withundevelopedplotslikeparkinglotsand Unused orunderutilizedland: (or developmentthereof). Land afterdemolition,previouslyoccupiedbyabuildingusedasanoffice, hotel,residence,etc. Rebuilding: [Terminology] Supply volume 100 150 200 250 300 350 50 0 2005－2008 〔 Three centralwards〕 （58％） （42％） 1850,000㎡ 1320,000㎡ 2009－2012 （17％） （83％） 1860,000㎡ 390,000㎡ (10,000 ㎡) Supply volume 100 150 200 250 300 350 50 0 2005－2008 〔 Other districts〕 （7％） （93％） 1020,000㎡ 70,000㎡ underutilized land(publicland) Development ofunusedor Rebuilding underutilized land(otherland) Development ofunusedor 2009－2012 凡 例 K ey （15％） （85％） 2090,000㎡ 370,000㎡ 6/7 6/7 Figure 7: Trends in large-scale office supply and land prices in the three central wards of Tokyo and other areas

Key 80％ Year-on-year rate of change in commercial land prices in Tokyo’s 23 wards Supply in the three central wards of Tokyo Supply in other areas 40％

(10,000 ㎡) 200 0％

▲40％ 150

100 Supply volume 50

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 '11 '12

Source: The above data was prepared by Mori Trust Co., Ltd. based on official land prices released by the Ministry of Land, Infrastructure and Transport of Japan.

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