MARKET TREND SURVEY OF LARGE-SCALE OFFICE BUILDINGS IN 23 TOKYO WARDS April 27, 2004 MARKET TREND SURVEY of LARGE-SCALE OFFICE BUILDINGS IN TOKYO’S 23 WARDS (“Ku”) (As of December 2003) The Year 2003 Revealed the Dawn of “Urban Regeneration” ～Supply Volume and Absorption Capacity in 2003 Reached Highest Levels Since the Survey was Started ～ ¾Concentration of office buildings to continue in the 3 central wards (Tokyo’s Central Business District) ¾By offering global-standard “Total Area Management Services”, fully mixed- use areas will set the pace for competition Since 1986, Mori Building Company Ltd. (Headquarters: Minato-ku, Tokyo; President and CEO: Minoru Mori) has been regularly conducting surveys of large office buildings with floor space of over 10,000 m2 (hereafter referred to as “Large-Scale Office Buildings”) throughout Tokyo’s 23 wards on the basis of publicly posted project plans (projected construction start and completion dates), on-site observation, and direct interviews with developers. In addition, we are now projecting office market trends, by analyzing from a variety of angles, data taken from a survey of the trends in demand (absorption capacity). The following are the findings of our latest research. ■Outline of Market Trend Survey Survey period : December end 2003 Coverage : Tokyo’s 23 wards Type of property : Large office buildings with total floor space of over 10,000 m2 (built after 1986) (Notes on the contents) ※ Supply volume in this survey refers to the gross total floor space of office accommodation in all large-scale office buildings completed after 1986, excluding floor space in those buildings reserved for other purposes, such as retail, residences, hotels and others. ※ Absorption capacity: net increase of occupied total floor space in all large-scale office buildings completed after 1986 (total vacant floor space as of the end of the previous year + (plus) total newly supplied floor space – (minus) total vacant floor space as of the end of the current year). In order to facilitate comparison with supply volume, the total floor space (gross) is calculated based on the leased areas in the original data (net) converted to gross numbers using a ratio of 65.5%, which represents the average effective rentable ratio of typical large-scale office buildings. 【CONTACT】 Mori Building Company Limited Director International Public Relations Mr.Toru Nagamori Roppongi Hills Mori Tower, 10-1 Roppongi 6-Chome, Minato-ku, Tokyo 〒106-6155 Tel +81-3-6406-5023 / Fax. +81-3-6406-9304 http://www.mori.co.jp - 14 - MARKET TREND SURVEY OF LARGE-SCALE OFFICE BUILDINGS IN 23 TOKYO WARDS The Year 2003 marked the dawn of “Urban Regeneration”, with supply volume and absorption capacity reaching the highest levels since our survey began. Concentration of office buildings will continue in the 3 central wards (Tokyo’s Central Business District). Areas that will become more competitive are those that have incorporated global-standard “Area Management Services” and have achieved totally mixed-use composition. ■ Main Features of the Survey [Supply Trends] ○ The supply volume reached a record 2.16 million m2 in 2003, the largest amount since our survey began in 1986. ○ The supply volume in 2004 will be 1.23 million m2, 57% of what it was in 2003. ○ The annual average supply volume after 2004 will remain stable at an average level of 930,000m2. ○ Concentration of supply in the 3 central wards (Chiyoda-ku, Minato-ku, Chuo-ku) of Met- ropolitan Tokyo will continue. ○ The trend toward larger-sized buildings will remain conspicuous. [Demand Trends] ○ The new demand (absorption capacity) in 2003 was 2.23 million m2, the highest level since our survey began. Vacancy rate in 2003 was 6.7%, marking a 1.4% improvement (reduc- tion) over the 2002 rate of 8.1%. ○ Massive supply of new large-scale office buildings has triggered the materialization of poten- tial demand, which had remained high mainly in the 3 central wards of Metropolitan Tokyo. ○ Potential demand in the 3 central wards will remain high after 2004, with a continued demand for “centrally-located, newly-built and large floorplate” buildings. [Office Market Projections] ○ Concentration of office buildings will increase in the 3 central wards, particularly, in “emergency development areas for urban regeneration” as designated by the 2002 legislation, including the “area around Loop Road No. 2, Akasaka and Roppongi” and the “area around Tokyo and Yurakucho stations” within the Tokyo Central Business District (the Tokyo CBD.) ○ As the fierce competition between areas within the Tokyo CBD intensifies, it is vital for each area to come up with distinct appeal. There will be advantages for those areas that have adopted fully mixed-use purposes according to global standards. - 15 - MARKET TREND SURVEY OF LARGE-SCALE OFFICE BUILDINGS IN 23 TOKYO WARDS 1. General Trends in Supply ○ Supply in 2003 of 2.16 million m2 : the largest volume since this survey began in 1986 ○ Supply volume in 2004 to be 1.23 million m2 — approximately 57% of 2003 ○ Yearly average supply volume after 2004 to fluctuate stably at an average level of 0.93 million m2 First, we look at trends in supply. Figure 1 shows the supply trend of large-scale office buildings within Tokyo’s 23 wards. The supply volume of 2.16 million m2 in 2003 is the largest since our research began in 1986; however, it is expected to be about 1.23 million m2 the next year — 57% of the 2003 peak. Looking beyond 2004, it does not appear that the outstanding volumes recorded in 1994 (1.83 million m2) or 2003 (2.16 million m2) will be repeated. The annual average level after 2004 is expected to stay around 0.93 million m2, more or less the same level as the actual past annual average of 1.03 million m2. Figure 1: Fluctuation of supply volume of large-scale office buildings within Tokyo’s 23 wards Source: Compiled on the basis of Mori Building data When we look at the construction volume of Figure 2: Fluctuation of total construction within Tokyo’s 23 all office buildings including small-scale office wards (including small-scale office buildings) buildings of less than 10,000 m2 (Figure 2), which are not included in this survey, the figure in 2003 is 1.38 million m2, indicating that the decline trend we have seen since 2000, continued. The five-year average for construction volume around 1990 exceeded the 4 million mark, at a high 4.54 million m2 — whereas the recent five-year average is 1.88 million m2, about 40% of the average figure in 1990. In other words, the supply volume in the entire office building market, including small- scale office buildings, has faced a declining trend since 2000, with the total construction volume remaining at less than half the volume during the bubble period. Note: Includes all office usage including wooden constructions. Same applies to figures 5 and 7. Source: Data compiled by Mori Building, based on documents by Construction Research Institute - 1 - MARKET TREND SURVEY OF LARGE-SCALE OFFICE BUILDINGS IN 23 TOKYO WARDS 1-1 Supply Trend by Area ○ Concentration of supply in the 3 central wards to continue We now look at the trends in supply by area. Figure 3 shows the supply trends of large-scale office buildings in the 3 central wards (Chiyoda-ku, Chuo-ku and Minato-ku) and the other 20 wards. Between 1992 and 1999, supply in the 3 central wards was exceeded by the supply in the other 20 wards. However, this was reversed in 2000; we see that in 2003, 1.81 million m2, equivalent to 84% of the total supply volume of 2.16 million m2, had been supplied in the 3 central wards. This trend of the supply in the 3 central wards exceeding that in the other 20 wards is expected to continue after 2004. Figure 3: Fluctuation of supply volume of large-scale office buildings by area reversal 3 central wards < 20 other wards 3 central wards > 20 other wards 2.16 (million m2) 2.00 1.83 1.81 Total supply volume 1.50 1.33 1.25 1.18 1.19 1.23 1.14 1.08 20 other wards 1.04 0.92 1.00 3 central wards 0.99 1.03 1.00 0.91 0.88 0.88 0.87 0.86 0.83 0.90 0.83 0.81 0.72 0.74 0.68 0.66 0.64 0.61 0.56 0.55 0.58 0.57 0.59 0.63 0.55 0.53 0.53 0.50 0.52 0.52 0.53 0.50 0.47 0.50 0.48 0.47 0.5 0.44 0.36 0.40 0.35 0.35 0.35 0.32 0.31 0.32 0.31 0.28 0.26 0.23 0.21 0.25 0.23 0.17 0.19 0.17 0.10 0.06 0 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 Source: Compiled on the basis of Mori Building data In order to understand the trend more Figure 4: Supply volume of large-scale office buildings by area for clearly, Figure 4 shows the share of the 3 each period central wards against the remaining 20 wards, 0% 25% 50% 75% 100% shown in each six-year period and four years Three central wards (Chiyoda, Chuo, Minato) Other 20 wards after 2004. During the periods “1986-91” and 58% 42% 1986-1991 (490,000 m2 / year) (360,000 m2 / year) “1992-97”, the percentage of the 3 central wards decreased from 58% to 34%.