Tokyo’s office rent boom spurs deals as Blackstone plans sale

[TOKYO] Interest rates at a 31-year high have yet to dent the office market in Tokyo, where surging rents are boosting investment activity.

Commercial-property investment across Japan hit two trillion yen (US$13 billion) in the third quarter, the highest volume for the equivalent period since 2007, according to data from brokerage firm Jones Lang LaSalle. Office deals occupied 36 per cent of the total deal volume – the largest portion – and nearly 70 per cent of total investments were in the Tokyo region. 

“Rent is increasing so investors are still able to see huge amounts of rental upside, especially if the current building’s office rent is lower than the market rate today,” Koji Naito, research director of capital markets at JLL Japan, said in an interview. 

A steady in-office work culture across Japan, limited supply and companies looking to attract talent are contributing to rent growth, especially across top-quality buildings. That’s making deals attractive even as the Bank of Japan’s rate hikes potentially erode investment returns, with its benchmark rate already at 1.25 per cent, the highest since 1995.

The largest office deal in the third quarter was the sale of Pacific Century Place Marunouchi for 230 billion yen, according to CBRE. 

Blackstone is planning to sell the office piece of Tokyo Garden Terrace Kioicho for roughly 300 billion yen, just about two years after the firm agreed to buy the mixed-use complex for about 400 billion yen.

THE BUSINESS TIMES INSIGHTS

Powering Asean's Future 2026

Find out how enterprises are navigating power constraints and sustainability targets

ACCESS THE INSIGHTS

Given the current sale involves just the office portion, Blackstone will secure a substantial profit at the asking price, according to a person familiar with the matter who asked not to be named citing private discussions. 

A representative for Blackstone declined to comment.  

Vacancy rates across Tokyo were 1.3 per cent in the third quarter, among the lowest across major cities globally, according to CBRE. High-quality buildings saw vacancies below 1 per cent for the fourth consecutive quarter. 

SEE ALSO

Tokyo is being reshaped by a historic real estate boom

Much of the office demand is being driven by Japanese companies that have been recording strong financial performances and seeking higher-quality space to attract talent. Firms like Itochu, Mizuno and Nippon Sanso have all announced relocation to trophy buildings in the past two years. 

“We’ve seen traditional Japanese corporates who never really used to spend on office now spending,” said Chinatsu Hani, head of research at CBRE Japan. “They are moving into the nicer developments and the new ones.”

Tokyo rents continue to grow. Rents for the highest-quality buildings are likely to reach a record by 2030, even as new supply hits the market, according to JLL. Rents are also surging in the city’s residential sector. 

The office demand isn’t limited to Tokyo. Trophy buildings in Osaka and Nagoya have also seen rental growth against a backdrop of tightened supply in the third quarter. In Osaka, rents for top-end buildings reached a record, CBRE said. BLOOMBERG