Detailed Market Trend Survey

October 22, 2014 Detailed Market Trend Survey

■Summary of the Results ○ The vacancy rate in Tokyo’s 23 Wards peaked at the end of 2012 (7.8%), fell during the past two consecutive years, and is forecast to be 4.6% at the end of 2014. ○ The vacancy rate in the Central 3 Wards is forecast to fall to 4.3% at the end of 2014 from its 5.9% level at the end of 2013.

■Supply Trends ＜Tokyo’s 23 Wards＞ ○ The annual supply over the next 5 years from 2014 to 2018 is forecast to be 1,060,000ｍ2/year, exceeding the past annual average of 1,040,000ｍ2/year. ○ Supply in 2014 (880,000ｍ2) is forecast to reach 152% of last year’s level (580,000ｍ2), which is below the past average (1,040,000ｍ2). ＜Central 3 Wards＞ ○ The average annual supply over the next 5 years from 2014 to 2018 (730,000ｍ2/year) will exceed the average of the past decade (680,000ｍ2/year).

■Demand Trends ＜Tokyo’s 23 Wards＞ ○ Absorption capacity in 2013 (990,000ｍ2) exceeded supply volume (580,000ｍ2). Consequently, the vacancy rate at the end of 2013 fell compared with the end of 2012. ○ Absorption capacity in the first half of 2014 (970,000ｍ2) exceeded the supply volume (660,000ｍ2). Consequently, the vacancy rate fell once again, hitting 5.0% (1.2 pts. lower than at the end of 2013). ＜Central 3 Wards＞ ○ Absorption capacity in 2013 (610,000ｍ2) exceeded supply volume (540,000ｍ2). Consequently, the vacancy rate at the end of 2013 fell compared with the end of 2012. ○ Absorption capacity in the first half of 2014 (710,000ｍ2) exceeded supply volume (600,000ｍ2). Consequently, the vacancy rate fell once again, hitting 5.1% (1.2 pts. lower than at the end of 2013).

Since 1986, Mori Building Co., Ltd. (Minato-ku, Tokyo; President & CEO Shingo Tsuji) has regularly conducted market surveys of supply and demand trends for 10,000ｍ2-class or higher office buildings that were constructed in Tokyo’s 23 Wards since 1986 (hereinafter referred to as “large-scale office buildings”). Through analysis of the results of this survey from diverse angles, future office market trend forecasts are also developed. We are pleased to present you with the results of our survey in the following report.

■“Survey of the Large-scale Office Building Market in Tokyo’s 23 Wards” Framework

Research area: Tokyo’s 23 Wards Research Subject Buildings: Office buildings with gross floor area exceeding 10,000ｍ2 and a construction completion date of 1986 or later *“Supply volume” is calculated based on publicly available information, and on-site and “interview” research undertaken in December 2013. In addition, information current as of August 2014 has been added. *This is a tabulation of gross total office floor space of all large-scale office buildings completed since 1986 including Mori Building properties but excluding floor space reserved for non-office uses such as retail, residential, hotel, etc. *“New Demand” (absorption capacity) is the newly occupied office floor space for a given year of all large-scale office buildings constructed since 1986: (vacant office floor space at the end of the previous year) + (newly supplied floor space) ‒ (vacant floor space at the end of the current year). In order to compare “supply volume” and “demand volume,” leasable floor space (net) values are converted to a gross floor space value by applying an average “effective rental space ratio” for large-scale buildings.

For more information & inquiries, please contact: Mr. Kazuaki Yamaguchi or Mr. Keita Oka, Marketing 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 URL http://www.mori.co.jp Detailed Market Trend Survey

1-1 General Trends in Supply Volume

Tokyo’s 23 Wards ○ Annual supply in Tokyo’s 23 Wards over the next 5 years will average 1,060,000ｍ2/year, exceeding the past average (1,040,000ｍ2/year). ○ Supply in 2014 (880,000ｍ2) will reach 152% of last year’s level (580,000ｍ2), which is below the past average (1,040,000ｍ2). ○ Annual supply for 2015 and beyond is forecast to continue exceeding the past average.

The large-scale office building supply volume in Tokyo’s 23 Wards is forecast to average 1,060,000 ｍ2/year over the next 5 years (2014-2018), exceeding the past average of 1,040,000ｍ2/year (Figure 1). The supply volume in 2014 is forecast to reach 152% of last year’s level (580,000ｍ2), which is below the past average (1,040,000ｍ2). Regarding amount of supply from 2015-2018, supply will increase by 80,000ｍ2 in 2016 with the addition of 4 units, but fall to 30,000ｍ2 in 2018 with 3 new units. This information is based on a Mori Building survey in late 2013 and data regarding future supply as of August 2014. A supply of 1,110,000ｍ2 is expected for 2015, with annual supply through 2017 forecast to exceed the past average. A supply of almost 1,000,000ｍ2 is already forecast for 2018.

Figure 1: Large-scale Office Building Supply Volume Trends in Tokyo’s 23 Wards

(ten 47 44 46 Completed Properties thousand 41 Supply- No. of Properties 42 ｍ2) 40 36 37 Planned Properties 250 32 32 Supply 29 30 28 31 29 28 26 24 216 25 21 19 21 19 16 19 17 15 14 16 23 14 200 12 183 21 Supply - Gross 175 Floor Space Average from 2014 154 Historic Average 1,060,000ｍ2/year 150 1,040,000ｍ2/year 125 124 114 118 119 121 119 117 108 111 110 100 104 99 92 91 96 100 86 85 88 83 74 72 77 65 56 55 58 50 36

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 ’13 ’14 ’15 ’16 ’17 ’18

1986-2013 2014-2018 ①Properties …………… 816 ①Properties ……………… 94 ②Gross Floor Space 29,020,000㎡ ②Gross Floor Space 5,280,000㎡

1-2 Supply Volume Trends by Office Building Scale

○ Over the next 5 years, large-scale office buildings (over 30,000ｍ2) will account for a high proportion (85%) of total supply volume.

Figure 2: Large-scale Office Building Supply Next, this report examines supply trends by building scale. In Figure 0% 20% 40% 60% 80% 100% 2 2 2, supply (gross floor space) over several years grouped into 5-year Over 30,000ｍ 10,000-29,000ｍ periods has been broken down into large-scale office buildings '89～'93 53％ 47％ 2 (gross office floor space of 10,000-29,999ｍ ) and super large-scale '94～'98 70％ 30％ office buildings (gross office floor space of over 30,000ｍ2). Over the '99～'03 81％ 19％ coming 5 years, super large-scale office buildings with office floor space exceeding 30,000ｍ2 are forecast to account for a high '04～'08 76％ 24％ proportion (85%) of total supply volume (Figure 2). '09～'13 73％ 27％

'14～'18 85％ 15％

‒ 1 ‒ Detailed Market Trend Survey

1-3 Supply Volume Trends by Area

Central 3 Wards ○ Supply volume for the next 5 years will be 730,000ｍ2/year, exceeding the average of the past decade (680,000ｍ2/year). ○ The supply rate for the next 5 years will be 69%, an increase over the 55% rate of the past 5 years.

The supply volume of large-scale office space in the Central 3 Wards over the next 5 years is expected to average 730,000ｍ2/year, exceeding the 680,000ｍ2/year average of the past decade (Figure 3). Moreover, as a percentage of the whole, the Central 3 Wards are forecast to account for 69% of the supply volume over the next 5 years, seeing an increase over the last 5 years. Examining by year, the supply volume of the Central 3 Wards will account for a relatively low percentage of the whole in 2017. This may be due to large-scale development projects planned in surrounding wards including Shinagawa and Edo Wards.

Figure 3: Large-scale Office Building Supply Volume by Area

(10,000ｍ2) 175 Others 20 Wards 2004-2013 2014-2018 154 Central 3 Wards Average Supply in the Central 3 Wards: Average Supply in the Central 680,000ｍ2/year 3 Wards: 730,000ｍ2/year 150 78 124 121 49 119 117 111 110 33 29 96 86 85 88 30 28 60 100 77 28 65 21 81 17 8 58 49 21 4 105 97 50 88 90 81 81 69 71 64 68 65 54 44 36 37

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 4: Large-scale Office Building Supply Volume Figure 5: 5-Year Forecast of Large-scale Office Building Share by Area Supply Volume Share by Area

0 20 40 60 80 100（%） 0 20 40 60 80 100（%）

Central 3 Wards Other 20 Wards Central 3 Wards Other 20 Wards

74% 26% 81% 19% 2014 2 2 '04～'08 （790,000ｍ2/year） （280,000ｍ2/year） （710,000ｍ /year） （170,000ｍ /year）

73% 27% 2015 （810,000ｍ2/year） （300,000ｍ2/year） '09～'13 55% 45% （580,000ｍ2/year） （460,000ｍ2/year） 74% 26% 2016 （810,000ｍ2/year） （280,000ｍ2/year） '14～'18 69% 31% （730,000ｍ2/year） （320,000ｍ2/year） 52% 48% 2017 （640,000ｍ2/year） （600,000ｍ2/year）

71% 29% 2018 （680,000ｍ2/year） （280,000ｍ2/year）

‒ 2 ‒ Detailed Market Trend Survey

Figure 6 provides a more detailed look at supply volume trends by major business area. The Marunouchi-Otemachi area greatly surpasses other areas at 1,200,000ｍ2, and is followed by the Nihonbashi-Yaesu (620,000 ｍ2) and Akasaka-Roppongi areas (360,000ｍ2). This shows the concentration in the Tokyo CBD*. The supply volume in the Tokyo CBD over the next 5 years will be 2,560,000ｍ2, which will account for 48% of the total supply for Tokyo’s 23 Wards (5,290,000ｍ2) and 70% of the total supply for the Central 3 Wards (3,650,000ｍ2).

Figure 6 : Supply Volume by Major Business Areas

405

162 5 120 67 7 Iidabashi 51 Akihabara 60 34 158 11 5 Iidabashi40 Sudacho 29 Jimbocho 9 23 182 Akihabara Bancho 2 Higashi-Nihonbashi Shinjuku 21 62 Nishi-Shinjuku 53 4 234 18 Yotsuya 286 34 36 36 186 Ningyocho 76 120 36 Loop Road No. 2 Kojimachi 6 24 Tokyo Shimbashi-Akasaka- 71 12 Roppongi District Tokyo Station- Marunouchi- Nihonbashi- 34 Yurakucho 198 Otemachi Yaesu 25 Uchisaiwaicho- 162 8 Kayabacho- Station District Kasumigaseki- 26 34 Hatchobori 4 Nagatacho 21 Ginza 34 Aoyama Akasaka- 116 Shimbashi- Tsukiji Roppongi Toranomon 29 Shibuya 10 40 66 20 88 Nishiazabu 66 Legend 19 Hamamatsucho Hamamatsucho ●About Supply (unit:10,000ｍ2) 77 113 6 Kachidoki-Harumi Toyosu- 39 Top value: 1986-2018 total supply Shiba- 15 Shinonome- 30 Value in white indicate breakdown 71 Mita Tatsumi 2014-2018 Planned Supply Volume： Tamachi 98 Over Less than 165 100,000ｍ2 100,000ｍ2 22 Shibaura-Kaigan 1986-2013 Supply Volume: 144 Over Less than 2 2 300,000ｍ 300,000ｍ 30 91 Shinagawa 143 ●About area 91 Major Business Area 113 Konan Central Business District(CBD) Area Specified for urgent urban redevelopment Ｎ Daiba-Ariake-Aomi Gotanda-Osaki 0 1km 2km Osaki

*What is the Tokyo CBD? Tokyo CBD is comprised of areas in central Tokyo with a high level of both actual supply volume and future planned supply volume including the (1) Akasaka-Roppongi Area, (2) Marunouchi-Otemachi Area and (3) Shimbashi-Toranomon Area. These areas combined with the overlapping areas that have been specified for urgent urban redevelopment under the “Act on Special Measures Concerning Urban Renaissance” form the “Loop Road No.2‒Shimbashi-Akasaka-Roppongi District” and “Tokyo Station-Yurakucho Station District.” These areas are the focus of office building supply in central Tokyo and together define the Central Business District of Tokyo.

‒ 3 ‒ Detailed Market Trend Survey

1-4 Supply Volume Trends in New Projects and Reconstruction Projects

○ In the next 5 years, reconstruction projects will account for about 61% of new supply volume in the Central 3 Wards. ○ Areas in which reconstruction projects account for a high percentage of new supply volume include the Marunouchi-Otemachi Area (99%) and the Nihonbashi-Yaesu Area (80%).

In the next 5 years, reconstruction projects will account for about 61% of new supply volume in the Central 3 Wards, about the same rate (62%) as the previous year (Figure 7). *“Reconstruction Project” means a project consisting of a large-scale office building (as defined in this survey) on the project site. It does not include the redevelopment projects that construct a large-scale office building on the former site of a residence(s), a hotel or a small-scale office building.

Figure 7: Reconstruction Project Share of Total Supply Volume 0 20 40 60 80 100（%）

Reconstruction Projects New Projects

Total (23 Wards) 48% 52%

Central 3 Wards 61% 39%

Others 20 17% 83%

Examined by business district, the reconstruction ratio is clearly high in the Marunouchi-Otemachi (99%), Nihonbashi-Yaesu (80%), Hamamatsucho (57%), Jimbocho (54%), and Akasaka-Roppongi districts (52%) (Figure 8).

Figure 8: Reconstruction Projects by Major Business Areas (10,000ｍ2) 120 1 Legend

Reconstruction Projects

100 New Projects

80

60

118 10 40

40 16 20 9 29 18 18 17 6 21 12 17 14 9 7 0 0 2 0 1 0 -Otemachi area Marunouchi -Yaesu area Nihonbashi -Roppongi area Akasaka -Tatsumi area Toyosu-Shinonome -Toranomon area Shimbashi -Osaki area Gotanda area Hamamatsucho Konan area Kojimachi area Ginza area Jimbocho area

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2-1 General Trends in Demand

Tokyo’s 23 Wards ○ 2013 new demand (absorption capacity) reached 990,000ｍ2 (71% of the previous year). Also, the new demand (absorption capacity) for the first half of 2014 was 970,000ｍ2, an increase from the second half of 2013 (400,000ｍ2). ○ The supply volume for 2013 reached 580,000ｍ2 (33% of the previous year). The vacancy rate at the end of 2013 was 6.2% (a 1.6 point decrease compared to 2012). Also, the supply volume for the first half of 2014 was 660,000ｍ2, with a vacancy rate of 5.0% (a 1.2 point decrease compared to the end of 2013). ○ The first half of 2014 sustained the trend from the second half of 2013, with absorption capacity (970,000ｍ2) exceeding supply volume (660,000ｍ2), and the vacancy rate continuing to fall. Central 3 Wards ○ New demand (absorption rate) in 2013 was 610,000ｍ2 (78% of the previous year’s). Also, new demand (absorption rate) for the first half of 2014 was 710,000ｍ2, an increase over the second half of 2013 (250,000ｍ2). ○ The supply volume for 2013 reached 540,000ｍ2 (56% of the previous year). The vacancy rate was 5.9% (a 0.6 point decrease compared with the previous year). The supply volume in the first half of 2014 was 600,000ｍ2, with a vacancy rate of 5.1% (a 0.8 point decrease compared to that at the end of 2013). ○ The first half of 2014 sustained the trend from the second half of 2013, with absorption capacity (710,000ｍ2) again exceeding supply volume (600,000ｍ2).

This next section examines new demand trends using the concept of “absorption capacity.” As shown in Figure 9, the concept of “absorption capacity” is newly occupied floor space for the current year [(vacant floor space at the end of the previous year) + (newly supplied floor space) ‒ (vacant floor space at the end of the current year)] in all large-scale office buildings as defined in this survey (over 10,000ｍ2 and completed since 1986).

Figure 9: Concept of New Demand (Absorption Capacity)

（1）When absorption capacity is positive... （2）When absorption capacity is negative...

Stock at the Stock at the Occupied Floor Space Vacant Floor Space Occupied Floor Space Vacant Floor Space end of last year end of last year

Absorption Absorption Capacity（＋） This Year New Supply Volume Capacity（－） This Year New Supply Volume

Stock at the Stock at the Occupied Floor Space Vacant Floor Space Occupied Floor Space Vacant Floor Space end of this year end of this year

*Total Floor Space (gross) is calculated by applying the effective leasable space ratio for a typical large-scale office building (65.5%) to the leasable floor space(net).

‒ 5 ‒ Detailed Market Trend Survey

Absorption capacity for large-scale office buildings in Tokyo’s 23 Wards in 2013 was 990,000ｍ2 (71% of the previous year). Supply volume was 580,000ｍ2 (33% of the previous year), less than absorption capacity. As a result, the vacancy rate at the end of 2013 fell 1.6 points (to 6.2%) compared with that of 2012 (Figure 10). The absorption capacity exceeded supply volume in both halves of 2013, with the absorption capacity more than twice that of the supply volume in the second half of 2013. Absorption capacity in the first half of 2014 was 970,000ｍ2, an increase over the second half of 2013 (400,000ｍ2). Supply volume was 660,000ｍ2, and as the absorption capacity exceeded supply volume, the vacancy rate fell 1.2 points (from the end of 2013) to 5.0%. Demand remained strong in 2014 (sustaining the 2013 trend), with the vacancy rate clearly falling due to limited supply.

Figure 10: Large-scale Office Building Supply Volume, Supply Volume Vacancy Rate

New Demand (Absorption Capacity) and Vacancy Rate Trends New Demand (Absorption Capacity)

（10,000ｍ2) （%） （%） 10 10 8.8 8.1 7.8 6.9 7.0 6.7 6.3 6.2 5.9 6.2 5.3 250 5.0 4.9 224 216 3.8 5 5 3.4 3.6 3.2 3.1 2.8 2.7 2.4 2.5 200 183183 1.2 175 154157 142 139 0 0 150 130 123 125 121 122 119 115 119 117 99 99 97 92 91 91 91 100 88 86 85 74 80 77 72 69 66 65 59 54 58 44 48 36 41 40 50 34 31 17

0 1st 2nd 1st '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Half '13 Half '13 Half '14

‒ 6 ‒ Detailed Market Trend Survey

The absorption capacity in large-scale office buildings in the Central 3 Wards was 610,00ｍ2 (78% of the previous year). As the absorption capacity exceeded supply volume (540,000ｍ2), the vacancy rate at the end of 2013 dropped 0.6 points (to 5.9%) compared to the end of 2012. As the absorption capacity reflected the supply volume in the first half of 2013, the vacancy rate remained fairly stable, falling in the second half of 2013 as the absorption capacity exceeded the supply volume. On the other hand, the absorption capacity in the remaining 20 wards was 380,00ｍ2 (62% of the previous year). As absorption capacity greatly exceeded supply volume (400,000ｍ2), the vacancy rate at the end of 2013 fell to 6.6% (a 2.7 point decline from the previous year). As the supply volume remained limited all year in the remaining 20 wards, absorption capacity stabilized, resulting in a vacancy rate decline of 1.6 points from the end of 2012 (9.3%) through June 2013 (7.7%). By the end of 2013, the vacancy rate had again fallen by 1.1 points to 6.6%. As absorption capacity in the first half of 2014 in the Central 3 Wards was 710,000ｍ2 (284% of that of the second half of 2013), exceeding the supply volume of 600,000ｍ2, the vacancy rate at the end of June 2014 fell by 0.8 points to 5.1% compared to the end of 2013. In the remaining 20 wards, as absorption capacity was 260,000ｍ2 (173% of that of the second half of 2013), exceeding the supply volume of 60,000ｍ2, the vacancy rate at the end of June 2014 fell by 1.6 points to 5.0% compared to the end of 2013. The large-scale office building supply volume in the remaining 20 wards remained at the same low level as in 2013, with the demand for vacancies continuing. In the first half of 2014, vacancies continued to be filled in Shinjuku Ward in particular, with the vacancy rate falling considerably. As a result, the vacancy rate in the remaining 20 wards fell below that of the Central 3 Wards for the first time since 2009, reversing a five-year trend (Figure 11).

Figure 11: Supply Volume, New Demand (Absorption Capacity) and Vacancy Rate Trends by Area

Central 3 Wards Supply Volume Other 20 Wards Supply Volume Central 3 Wards Vacancy Rate Central 3 Wards New Demand Other 20 Wards New Demand Other 20 Wards Vacancy Rate

（10,000ｍ2) （%） （%） 10 10 260 9.3 9.3 8.4 8.0 7.7

240 6.5 6.6 6.5 6.6 6.4 6.1 5.7 6.6 5.1 220 5.0 5.9 5.6 5.9 4.2 4.0 4.2 5 5 5.0 3.3 3.2 200 3.3 2.5 2.5 180 1.8

0 0 160

140 78 54 25 49

120 61 33 29 30 43 100

38 26 80 81 8 21 6 117 49 19 60 105 21 70 4 103 97 23 88 90 85 78 78 3 40 69 71 5 65 15 54 61 60 44 50 37 39 36 20 29 35 36 1 25 21 16

0 －4

st nd st －20 End 1 2 1 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 of '12 Half '13 Half '13 Half '14

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2-2 Future Demand Trends

○ 20% indicated plans to lease new office space, reaching at least 20% for the fifth consecutive year. ○ When we asked about planned space expansion or reduction, those indicating plans to expand increased (54%→56%) and those with plans to reduce space declined (17%→16%), each for the second consecutive year.

In the following section, we would like to present our views on future demand trends, drawing on the results of the “Survey of Office Needs in Tokyo’s 23 Wards” (executed between early October and early November 2013) conducted by Mori Building Co., Ltd. since 2003. The percentage that indicated an intent to lease new office space in the survey decreased by 3 points from the level recorded by the previous survey which was conducted in November 2012, but remained at 20% or above for the fifth consecutive year (Figure 12). When examined by company demographics (Industry/Japanese or Foreign),“Manufacturing” dropped from 19%→15% and “Nonmanufacturing” fell from 24%→22%, but “Financial/Insurance” rose from 20%→21% for the second consecutive year. When examined by funding source, “Foreign” increased from 26%→7%, 8 points higher than “Japanese,” which fell from 22%→19% (Figure 13). When asked about planned space expansion or reduction, those indicating plans to expand increased for the second consecutive year (54%→56%), while those with plans to reduce space declined for the second consecutive year (17%→16%) (Figure 14). When asked about timing, those planning to lease office space within one year increased from 31% to 33% compared to the previous survey. Meanwhile, those planning to lease at least three years hence decreased from 47%→46% compared with the previous year (Figure 15).

Figure 12: Planned Space Expansion vs.Reduction Figure 13: Intent to Lease New Office Space by Corporate Demographics 0 20 40 60 80 100 (%) 〈2012〉 0 20 40 60 80 100(%) 2003 21%（365） 79%（1412） Financial/Insurance 20%（34） 80%（135） 2004 18%（345） 82%（1526） Non-manufacturing 24%（340） 76%（1061）

2005 16%（340） 84%（1759） Manufacturing 19%（104） 81%（437） 22%（385） 78%（1341） 2006 19%（321） 81%（1354） Japanese Company Foreign Company 26%（93） 74%（270） 2007 24%（339） 76%（1102） Yes, we have plans No plans 2008 13%（176） 87%（1190） 〈2013〉 2009 21%（411） 79%（1475） 0 20 40 60 80 100(%)

2010 23%（443） 77%（1517） Financial/Insurance 21%（34） 79%（125） Non-manufacturing 22%（326） 78%（1163） 2011 22%（445） 78%（1605） Manufacturing 15%（73） 85%（419） 2012 23%（478） 77%（1633） Japanese Company 19%（345） 81%（1449） 2013 20%（433） 80%（1707） Foreign Company 27%（83） 73%（230） Yes, we have plans No plans Yes, we have plans No plans

Figure 14: Plans for Expansion vs.Reduction Figure 15： Timing of Planned Lease of New Office Space 0 20 40 60 80 100 (%) 0 20 40 60 80 100 (%) 2003 43%（157） 21%（77） 36%（131） 48%（197） 26%（107） 26%（107） 2009 2004 35%（116） 24%（79） 41%（135）

2005 36%（117） 24%（78） 41%（130） 2010 53%（235） 25%（111） 22%（97） 2006 36%（111） 28%（86） 36%（111） 2011 50%（222） 28%（120） 22%（99） 2007 24%（80） 21%（70） 55%（185）

2012 54%（255） 29%（137） 17%（82） 2008 40%（80） 27%（46） 33%（57） 2009 38%（150） 23%（91） 39%（161） 2013 56%（241） 28%（119） 16%（71） 2010 37%（156） 21%（91） 42%（185） Expansion No change Reduction 2011 38%（167） 23%（102件） 39%（173）

2012 31%（148） 21%（101） 47%（222）

2013 33%（140） 21%（88） 46%（197） Within1year Within 2 year Longer

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○ 79% of those with plans to lease new floor space desire to locate in the Central 3 Wards (Chiyoda, Chuo, and Minato) ○ Nihonbashi (16%) was the most favored area. Those naming Kyobashi also increased from 7%→10%.

When businesses planning to lease new office space were asked about their preferred area, those specifying the Central 3 Wards increased from 77% to 79%, showing an increase over 2012 results (Figure 16). By specific area within the Central 3 Wards, Nihonbashi (16%) was the most cited response. Nihonbashi was followed by Marunouchi (13%), with Otemachi, Toranomon, and Roppongi each being named by 12% of respondents. The only location showing a 3 point or greater increase compared to the previous survey was Kyobashi (7%→10%). Among areas in the remaining 20 wards, Shinjuku was the most preferred (16%). Shibuya (16%→14%), which lost points compared with last year, was the second most cited area (Figure 17).

Figure 16: Desired Areas for Planned Lease of New Office Space 0 20 40 60 80 100 (%)

2003 64% 36%

2004 61% 39%

2005 60% 40%

2006 63% 37%

2007 64% 36%

2008 62% 38%

2009 75% 25%

2010 81% 19%

2011 77% 23%

2012 77% 23%

2013 79% 21% Central 3 Wards Others 20 Wards

Figure 17： Desired Areas for Planned Lease of New Office Space

(%) 〈Chiyoda Ward〉 〈Chuo Ward〉 〈Minato Ward〉 〈Reference:Other Wards〉 18 16 16 16 1616 1616 16 15 15 14 14 14 14 14 1313 13 13 13 12 12 12 12 12 12 11 11 11 11 11 11 10 10 10 10 10 9 9 9 8 8 8 88 8 888 8 8 7 7 7 7 7 7 7 7 7 7 7 7 7 7 6 6 66 6 6 6 5 5 5 5 5 555 5 4 44 4 44 4 333 222 222 2 111 11 1 0 00 0 Marunouchi Otemachi Yurakucho Uchisaiwaicho HIbiya Kojimachi/Bancho Hirakawacho/Kioicho Yaesu Nihonbashi Kyobashi Ginza Harumi (around station) Shinagawa Ariake Osaki Shibuya Ebisu Shinjuku Yotsuya Iidabashi Akihabara Shiodome Shimbashi Kamiyacho Akasaka Roppongi Aoyama Hamamatsucho Daiba/Harumi Sea Side Tennozu/Shinagawa Toyosu Toranomon Tamachi

*Multiple answers allowed 2011（439） 2012（472） 2013（422） *Total number of responding firms is counted as 100.

‒ 9 ‒ Detailed Market Trend Survey

○ Among reasons cited for wishing to lease new office space, “expanded business/employee increase” saw an increase (34%→40%), taking top ranking for the first time in five years (since 2008). Meanwhile, “lower rent” saw a decline (36%→31%) to fourth place. ○ Last year’s top response of “anti-seismic design” (40%→32%), still considered important yet dropping to third place in this survey.

Among businesses responding that they planned to lease new office space, “expanded business/employee increase” saw an increase (34%→40%), topping cited reasons for the first time in five years. “Better location” was the second most common response (30%→32%). Meanwhile, “lower rent” fell for the second consecutive year (36%→31%), ranking in fourth place in the current survey (Figures 18 and 19). Following the “Lehman Shock,” businesses have tended to select office space based on budget. However, the 2013 survey revealed that businesses are looking to the future with a more positive attitude, as reflected by the increase in reasons given for wishing to lease new office space. As previously stated, more respondents cited a wish to expand floor space, and the desire to locate within the Central 3 Wards remains at a high level. The first half of 2014 saw a large number of new supply office space nearing construction completion with full or nearly-full occupancy. From an overall economic perspective, despite worries that recovery from the increased consumption tax would be sluggish, the market has shown a bullish demand for office space, with a continued trend expected in terms of relocations and location improvements.

Figure 18: Reasons for Planned Lease of New Office Space *This survey question is multiple answer. Accordingly if all applicable samples indicated an area, the percentage would be 100. (%) 50 43 2009（365） 40 40 40 38 2010（390） 40 36 35 35 36 2011（398） 34 34 32 32 30 31 2012（406） 2828 28 30 27 2726 2013（422） 24 24 24 2122 23 2021 21 20 19 19 20 20 18 15 15 16 13 13 11 11 121212 12 12 10 9 11 9 9 9 9 10 8 8 8 7 8 87 8 56 6 5 565 5 4 3 222 21122 11112 0 redeveloped Current building is to be business project For pursuit of a new environment-friendly building Eco-conscious/ (in the case of leasing) high degree of trust Building owner enjoys a separate office Necessity to establish an annex/ branch office/business office For establishment of a new As a temporary move of employee increase business/for accommodation new department/for expanded For establishment of a Better location seismic performance) (building with superior Anti-seismic design Lower rent/lower priced building More floorspace per floor Higher grade facilities management company) provided by the building Backup systems(in the building/ Disaster prevention systems/ Superior security (anti-crime) corporate status Location that enhances For consolidation of offices

Figure 19: Trends in the reason for Plans to Lease New Office Space 2009 2010 2011 2012 2013

No.1 No.1： For establishment of a new department/for expanded business/for accommodation of employee increase No.2 No.2： Better location

No.3 No.3： Anti-seismic design (building with superior seismic performance) No.4 No.4： Lower rent/lower priced building

No.5 No.5： More floorspace per floor

No.6 No.6： Higher grade facilities

No.7

No.8

No.9

Respondents citing “anti-seismic design” fell from 40% to 32%, but this reason for wishing to lease new office space still ranked in third place. Considering the additional fact that consideration of “disaster prevention/backup systems” (21%) is increasing annually, we may conclude that business contingency plans (BCP) needs are increasingly becoming a basic condition which must be satisfied when selecting new office space.

‒ 10 ‒ Detailed Market Trend Survey

3-1 Future Market Trends

○ The vacancy rate in Tokyo’s 23 Wards peaked at the end of 2012 (7.8%), fell during the subsequent two years, and is expected to reach 4.6% at the end of 2014.

The vacancy rate in Tokyo’s 23 Wards fell to 5.0% by June 2014, as noted in section 2-1. Last year’s survey showed that the low supply volume in the second half of 2013 did not fully explain new demand, but as a result, demand was sustained, and the vacancy rate fell considerably. In the first half of 2014, absorption capacity expanded more than expected, resulting in the vacancy rate falling to 5.0%. Some 75% (660,000㎡) of the total annual supply volume for 2014 (880,000㎡) was provided during the first half of 2014. Meanwhile, the absorption capacity for the first half of 2014 was 970,000㎡, with both the supply volume and absorption rates remaining stable throughout 2013. The supply of new office space reflected construction completion with full or nearly-full occupancy, both evidence of a bullish demand. Business sentiment saw a turning point in 2013, reflecting a more positive outlook; however, the office market continued to show a drop compared with past averages, with restricted supply volume. Following 2013, the office market saw demand stabilize with businesses planning “expanded business/employee increase,” resulting in fewer vacancies. The second half of 2014 saw a relatively lower supply volume (220,000㎡), with demand for office space remaining low. From June 2014 onward, the absorption capacity percentage transitioned in response to the supply volume, with a vacancy rate of 4.6% expected at the end of 2014. Although businesses are bullish about new leases of office space, the supply volume in 2015 is expected to exceed the past average. Absorption capacity will follow the supply volume level, with the vacancy rate expected to be 4.5% at the end of 2015 (Figure 20). In 2015 and beyond, supply is expected to continue exceeding the past average. At present, despite the unanswered issues of labor shortage and rising construction costs, the rapid development of Olympic facilities and related areas such as transportation and infrastructure is expected to produce a positive market impact. We will maintain a close watch on future trends.

Figure 20： Future Large-scale Office Building Supply, New Demand (Absorption Capacity) and Vacancy Rate Trends （%） (10,000ｍ2) 10 8.1 7.8 Vacancy 6.7 6.9 6.3 6.2 Rate (%) 5.9 5.3 5.0 4.9 4.6 4.5 5 3.8 250 3.4 3.1 3.6 3.2 2.7 2.8 2.4 224 2.5 1.2 216

Supply Volume 0 200 New Demand 175 (Absorption Capacity)

154157 142 150 139 130 125 128 123 121 119122 119 115 117 111110 99 99 97 91 92 91 88 91 88 100 86 85 80 74 77 72 69 65 66 58 54 Projected 44 48 50 Values 36 34 31

0 1st '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Half '14 '14 '15

‒ 11 ‒ Detailed Market Trend Survey

○ The vacancy rate in the Central 3 Wards fell to 5.9% at the end of 2013, and is expected to reach 4.3% at the end of 2014. ○ The vacancy rate in the remaining 20 wards fell to 6.6% at the end of 2013, and is expected to reach 5.1% at the end of 2014.

Supply clustered in the Central 3 Wards in the first half of 2014, with the majority of the supply properties nearing construction completion with full or nearly-full occupancy. The vacancy rate in the Central 3 Wards exceeded the previous year’s pace during the first half of 2014. In the latter half of the year, a large-scale property had all vacancies filled, while vacancies in multiple other properties were filling, resulting in a vacancy rate expected maintain the pace seen earlier in the year. Although the supply volume in the latter part of 2014 appears to be limited in the Central 3 Wards, an expected increase in absorption capacity is forecast to result in a 4.3% vacancy rate. The end of 2015 should see the vacancy rate stabilize following its sustained drop as a result of the increased supply volume. In the remaining 20 wards, the limited supply volume from the first half of 2014 saw the vacancy rate drop, maintaining its momentum from the previous year. The falling vacancy rate in properties in the Central 3 Wards is supplemented by a growing demand for good locations and large-scale office space perceived to be reasonably priced in surrounding wards. In Shinjuku Ward in particular, large-scale offices were being filled in multiple properties. The same trend was noted in Shibuya, Nakano, and Shinagawa Wards. In the first half of 2014, the vacancy rate in the remaining 20 wards was 5.0%, slightly below that of the Central 3 Wards for the first time in five years. With fewer vacancies with highly favorable conditions, room for improvement in the vacancy rate shrinking, and an expectation of a supply of large-scale office space, the vacancy rate is expected to slow to 5.1% in the second half of the year. The vacancy rate at the end of 2015 is expected to be 4.8% as a result of the absorption capacity counterbalancing the supply volume (Figure 21).

Figure 21: Supply Volume, New Demand(Absorption Capacity) and Vacancy Rate Trends by Area (10,000ｍ2) （%） 9.3 10 8.4 8.0

6.5 6.6 6.1 5.7 Vacancy Rate (%) 5.0 5.9 5.1 5.1 4.8 5.6 5 4.0 4.2 5.0 3.3 3.2 4.3 4.3 3.3 220 2.5 2.5 1.8 Supply Volume

175 0 180 New Demand 154 157 (Absorption Capacity) 139 140 128 49 54 122 78 115 119 118 111 110 61 99 35 29 97 30 43 91 100 86 85 88 30 32 77 26 69 81 38 17 8 65 21 66 58 6 49 19 60 105 21 70 4 103 97 90 34 31 78 93 85 78 81 78 69 71 71 5 65 60 50 20 44 35 36 37 54 61 Projected Values 29 21 0 -4 1st 2005 2006 2007 2008 2009 2010 2011 2012 2013 Half '14 2014 2015 -20

Supply (Central 3 Wards) New Demand (Central 3 Wards)

Supply (Other 20 Wards) New Demand (Other 20 Wards)

Vacancy Rate (Central 3 Wards) Vacancy Rate (Other 20 Wards)

‒ 12 ‒ Detailed Market Trend Survey

Major Large-Scale Office Buildings to be Completed in the Future (includes some completed projects) Floor Area Name of Project (Name of Building) Lead Project Developer(s) Location （㎡） （tsubo） 2014 Osaki Wiz Tower 58,457 17,683 Redevelopment Assiciation (Nippon Tochi-Tatemono Co., Ltd. etc) Osaki, Shinagawa-ku Muromachi Furukawa Mitsui Building 62,470 18,897 Mitsui Fudosan Co., Ltd. Muromachi Nihonbashi, Chuo-ku Muromachi Chibagin Mitsui Building 29,238 8,844 Mitsui Fudosan Co., Ltd. Muromachi Nihonbashi, Chuo-ku Front Place Nihonbashi 11,838 3,581 Mitsubishi Estate Company, Limited Nihonbashi, Chuo-ku Kyobashi Trust Tower 52,471 15,872 Mori Trust Co., Ltd. Kyobashi, Chuo-ku ASICS Japan Headquarters Building 13,832 4,184 ASICS Corp. Shinsuna, Koto-ku COMSYS Shinagawa Konan Building 19,412 5,872 Nippon COMSYS Corp. Konan, Minato-ku Otemachi Tower 198,467 60,036 Tokyo Prime Stage (Tokyo Tatemono Co., Ltd., Taiesei Corp., etc.) Otemachi, Chiyoda-ku Nishi-Shimbashi Square 55,373 16,750 Nishi-Shimbashi Development S.P.C. (Mitsubishi Estate Company, Limited, etc.) Nishi-Shimbashi, Minato-ku Toranomon Hills 244,360 73,919 Tokyo Metropolitan Government (Designated Builder: Mori Building Co., Ltd.) Toranomon, Minato-ku Iidabashi Grand Bloom 124,003 37,511 Mitsui Fudosan Co., Ltd. Fujimi, Chiyoda-ku Ebisu Subaru Building 25,100 7,593 Subaru Kohsan Inc. Ebisu, Shibuya-ku Toko Electric Contruction Building 11,149 3,373 Toko Electric Contruction Co. Ltd. Nishi-Kanda, Chiyoda-ku Nissay Marunouchi Garden Tower 56,120 16,976 Nippon Life Insurance Company Marunouchi, Chiyoda-ku Oase Shibaura MJ Building 12,895 3,901 Marujin Holdings Co., Ltd. Shiba-Ura, Minato-ku Toyosu Foresia 101,503 30,705 IHI, Toyosu 3-chome Development S.P.C. (Mitsubishi Estate Company, Limited) Toyosu, Koto-ku Nihonbashi Dia Building 30,013 9,079 Mitsubishi Logistics Corporation Nihonbashi, Chuo-ku Ebisu First Square 16,012 4,844 Sapporo Real Estate Co., Ltd. Ebisu, Shibuya-ku Onward Park Building 18,594 5,625 Onward Holdings Co., Ltd. Nihonbashi, Chuo-ku 2015 Hirakawacho Project 12,381 3,745 Sumitomo Realty & Development Co., Ltd. Hirakawacho, Chiyoda-ku Keio Sasazuka Project 38,449 11,631 Keio Juuki Seibi Co., Ltd. Sasazuka, Shibuya-ku Shiba-Koen 1-chome Project 12,965 3,922 Gassan Properties S.P.C. (Mitsui Fudosan Co., Ltd.) Shiba-Koen, Minato-ku YKK Office Building Reconstruction Project 22,625 6,844 YKK Fudosan Co., Ltd. Kanda-Izumicho, Chiyoda-ku Shinagawa Season Terrace 205,786 62,250 NTT Urban Development Corp., Taisei Corp., Hulick Co., Ltd., Tokyo City Development Co, Ltd. Konan, Minato-ku Sumitomo Mitsui Bank Head Office East Wing Project 89,116 26,958 Sumitomo Mitsui Banking Corp. Marunouchi, Chiyoda-ku Kyobashi MID Building Project 11,877 3,593 MID Urban Development Co,. Ltd. Kyobashi, Chuo-ku Tokyo Nihonbashi Tower 133,335 40,334 Sumitomo Realty & Development Co., Ltd. Nihonbashi, Chuo-ku Nihonbashi 1-chome Project 23,378 7,072 Tokyo Tatemono Co., Ltd., The Iyo Bank, Ltd., Hulick Co., Ltd. Nihonbashi, Chuo-ku Jimbocho Terrace Square 52,851 15,987 Sumitomo Corporation, Hakuhodo, Inc., Mitsui Sumitomo Insurance Co., Ltd., Taishukan Publishing Co., Ltd., (Yasuda Real Estate Co., Ltd.) Kanda-Nishikicho, Chiyoda-ku N Project 29,995 9,073 Nissei Real Estate Co., Ltd. Nihonbashi, Chuo-ku Futako-Tamagawa Rise Tower Office 157,016 47,497 Redevelopment Association (Tokyu Corp., Tokyu Land Corp., etc.) Tamagawa, Setagaya-ku Osaki Bright Tower 91,957 27,817 Redevelopment Association (Mitsui Fudosan Co., Ltd., etc.) Kita-Shinagawa, Shinagawa-ku Osaki Bright Core 44,769 13,543 Redevelopment Association (Mitsui Fudosan Co., Ltd., etc.) Kita-Shinagawa, Shinagawa-ku Sumitomo Fudosan Mita Building Project 25,000 7,563 Sumitomo Realty & Development Co., Ltd., Sumitomo Fudosan Finance Co., Ltd. Shiba, Minato-ku Shibuya 1-chome Reconstruction Project 13,800 4,175 Tohka Co., Ltd. Shibuya, Shibuya-ku Tekko Building 117,000 35,393 Tekko Building Co., Ltd. Marunouchi, Chiyoda-ku Urban Net Nihonbashi 2-chome Building 14,796 4,476 NTT Urban Development Corporation Nihonbashi, Chuo-ku Urban Net Ginza 1-chome Building 11,720 3,545 NTT Urban Development Corporation Ginza, Chuo-ku Otemachi 1-1 Project (Building-A) 108,351 32,776 Mitsubishi Estate Company, Limited, JX Holdings, Inc. Otemachi, Chiyoda-ku Onward Kashiyama Shibaura Daiichi Building 22,000 6,655 Onward Holdings Co., Ltd. Kaigan, Minato-ku East Ueno 2-chome Project 40,627 12,290 Shimizu Corporation, Naeba Properties S.P.C. Higashi-Ueno, Taito-ku 2016 Nishi-Shimbashi 2-3 Project 11,955 3,616 Yasuda Real Estate Co., Ltd. Nishi-Shimbashi, Minato-ku JR Shinjuku Station New South Entrance Building 111,000 33,578 East Japan Railway Company Shinjuku, Shinjuku-ku Pembroke Building New Building Construction 31,437 9,510 Pembroke Roppongi 7 Real Estate Ltd. Roppongi, Minato-ku Shinjuku Sky & Forest Project Office Tower 142,700 43,167 Sumitomo Realty & Development Co., Ltd. Okubo, Shinjuku-ku Roppongi 3-chome East District South Block 199,070 60,219 Redevelopment Association（Sumitomo Realty & Development Co., Ltd., etc.) Roppongi, Minato-ku Meguro Eki-mae Project 23,020 6,964 Obayashi Corp. Kami-Osaki, Shinagawa-ku Otemachi 1-chome District 3 Redevelopment 205,354 62,120 Mitsubishi Estate Company, Limited Otemachi, Chiyoda-ku Mita 1-chome Project 47,000 14,218 Sumitomo Realty & Development Co., Ltd. Mita, Minato-ku Shibuya Miyashitacho Project 37,600 11,374 Shibuya Miyashitacho Realty (Tokyu Corp., etc.) Shibuya, Shibuya-ku Kioicho Project 227,000 68,668 Seibu Properties Inc. Kioicho, Chiyoda-ku Shogakukan Building 17,799 5,384 Shogakukan Fudosan KK Hitotsubashi, Chiyoda-ku East Shibuya Redevelopment Project 15,800 4,780 NTT East Properties Inc. Shibuya, Shibuya-ku Norinchukin Ie-no-hikari Building Reconstruction 15,089 4,564 Ie-no-hikari Association Sendagaya, Shibuya-ku KT Building New Building Construction 11,827 3,578 Kajima Corp. Moto-Akasaka, Minato-ku Kyobashi 2-chome West District Redevelopment 119,050 36,013 Redevelopment Association (Nippon Tochi-Tatemono Co., Ltd., Tokyo Tatemono Co., Ltd., Shimizu Corp., etc.) Kyobashi, Chuo-ku Ginza 6-chome District 10 Redevelopment Project 147,600 44,649 Redevelopment Association (J. Front Retailing, Mori Building Co., Ltd., etc.) Ginza, Chuo-ku 2017 Otemachi 1-1 Project (Building B) 149,038 45,084 Mitsubishi Estate Company, Limited Otemachi, Chiyoda-ku Nishi-Shinagawa 1-chome Redevelopment Project (Building A) 177,260 53,621 Redevelopment Association (Sumitomo Realty & Development Co., Ltd.) Nishi-Shinagawa, Shinagawa-ku Toyosu 2-chome Station District Redevelopment Project (AC Block) 173,800 52,575 Mitsui Fudosan Co., Ltd. Toyosu, Koto-ku Toyosu 2-chome Station District Redevelopment Project (B Block) 69,400 20,994 Mitsui Fudosan Co., Ltd. Toyosu, Koto-ku Akasaka 1-chome Redevelopment Project 175,300 53,028 Redevelopment Association (Nippon Steel Kowa Real Estate Co., Ltd., etc.) Akasaka, Minato-ku Avex Headquarters Reconstruction Project 27,825 8,417 Avex Group Holdings Inc. Minami-Aoyama, Minato-ku Matsuzakaya Ueno South Wing Reconstruction Project 42,000 12,705 Daimaru Matsuzakaya Department Stores Co., Ltd. Ueno, Daito-ku Meguro Eki-mae Redevelopment Site A 126,671 38,318 Redevelopment Association (Tokyu Corporation, etc) Kami-Osaki, Shinagawa-ku Dai Nippon Printing Ichigaya Plant Improvement Project 227,346 68,772 Dai Nippon Printing Co., Ltd. Ichigayakagacho, Shinjuku-ku Uchisaiwaicho 2-chome Project 57,500 17,394 Tokyu Land Corp., Development Bank of Japan, Inc., Kenedix Kioicho, Chiyoda-ku 2018 Shibuya 3-chome District 21 117,500 35,544 Tokyu Corp. Shibuya, Shibuya-ku Marunouchi 3-2 Project 172,000 52,030 Mitsubishi Estate Company, Limited Marunouchi, Chiyoda-ku Hamamatsucho 2-chome District 4 Development Project (B Block) 99,000 29,948 Nippon Life Insurance Company, Obayashi Corp. Hamamatsucho, Minato-ku Nihonbashi-honmachi 2-chome Area Development Project 44,000 13,310 Mitsui Fudosan Co., Ltd., Takeda Pharmaceutical Co., Ltd, Takeda Chemical Fudosan Co, Ltd. Kyobashi, Chuo-ku Otemachi 2-chome Area Redevelopment 349,000 105,573 Urban Renaissance Agency, NTT Urban Development Corporation Otemachi, Chiyoda-ku Nihonbashi 2-chome Area Redevelopment A Block Project 59,000 17,848 Mitsui Fudosan Co., Ltd. Nihonbashi, Chuo-ku Kasuga-Korakuen Station Area Urban Redevelopment 179,800 54,390 Redevelopment Association (Mitsubishi Estate Co., Ltd., Mitsui Fudosan Co., Ltd., Nippon Steel Kowa Real Estate Co., Ltd.) Koishikawa, Bunkyo-ku Nihonbashi 2-chome Area Redevelopment C Block Project 144,000 43,560 Mitsui Fudosan Co., Ltd. Nihonbashi, Chuo-ku TGMM Shibaura Project A Block 135,000 40,838 Tokyo Gas Co., Ltd., Mitsui Fudosan Co., Ltd., Mitsubishi Estate Co. Shibaura, Minato-ku

* Total floor area includes residential and commercial area. * Projects are excluded from this list if discrepancies are found between publicly available information and the results of Mori Building’s investigation. * The supply volume figure provided by Mori Building is calculated from the "genuine office floor area", and does not agree with the total floor area figures shown in this chart. * In the column “Lead Project Developer(s)”, the companies and organization in bracket(s) are major enterprises that are participating as association members, investors in the special purpose company (S.P.C.), specified constructor, partner or joint venture party.

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