Mori Building's 580b yen mega project to eclipse Tokyo's Roppongi Hills

[TOKYO] Tokyo is about to get another mound of capitalism.

Mori Building Co is spending 580 billion yen (S$7.55 billion) on a new, 20 acre (eight hectare) hub of commerce in the city's core. Similar in size to New York's Rockefeller Center, the complex will have shops, restaurants, 213,900 square metres of office space, 1,400 residences, a world-class hotel, an international school and the city's biggest food court.

If this capital of 14 million people has a king of the hills, it's the Mori real-estate empire. The new project will eclipse the builder's signature development, Roppongi Hills - home to Google and Goldman Sachs Group Inc offices, and a magnet for shoppers and international visitors. The closely held company, whose late founder was once the country's richest man, is betting that more people - especially foreigners - will flock to live and work in Tokyo over the coming years.

"This is going to become Tokyo's newest landmark," said Shingo Tsuji, Mori's chief executive officer. "We've spent 30 years thinking about this project, and how cities should be created."

Set to open in 2023, Mori's new endeavour doesn't yet have a name. For now, it's called the Toranomon-Azabudai project, from the neighbourhoods Mori will gobble up in Minato-ku, one of Tokyo's classiest enclaves. Starting with the 1986 debut of nearby Ark Hills, the real-estate developer has been relentless in its push to transform Tokyo's skyline with hefty buildings clad in steel and glass.

Mori's properties often cater to foreign businesses and visitors, offering sanctuaries for them to stay, work and shop in a megalopolis that can be difficult to navigate. Signage and restaurant menus in the city still often lack English or other languages. Green spaces are still few and far between, and the view from the 52nd floor of Roppongi Hills betrays a sea of drab, gray low-rise homes and buildings that stretch to the horizon.

Mori's goal is to create a city within a city that people can "escape to, rather than flee from". Ground broke this month on the big new project, which will connect two subway stations and create a new arterial road to relieve the development's impact on vehicle traffic. Although the total footprint will be smaller than its predecessor, the new complex will have more floor space, with a 64-storey main tower and two residential towers.

When Mori embarked on its Roppongi project almost two decades ago, developers were jumping over each other to put up new buildings in Tokyo. Land prices were down 75 per cent after Japan's economic bubble burst in the early 1990s, interest rates were on their way to zero and new zoning laws made it easier to combine lots for big projects.

That bet may have paid off, Mori's new project is getting underway under a different scenario, coming after a long run-up in office space demand. Tokyo's real-estate market is thriving, with vacancy rates near record lows below 3 per cent, according to Colliers International Group Inc, the real-estate investment and services firm.

The big question is whether that trend will continue, as well as Mori's ability to keep riding the wave of mega projects. Although rental growth has been robust, Colliers predicts it will peak at around the current 5 per cent before easing to an average of 0.8 per cent over the next few years. All told, central Tokyo will have 70 major real-estate projects breaking ground from 2018 through 2023, according to the firm.

"The office market is doing really well, vacancies are coming down," said Patrick Wong, a Bloomberg Intelligence analyst. "The issue is whether rents can keep going up further."

Tokyo isn't the only frothy real-estate market in the region. Singapore and Sydney are also seeing low office-leasing vacancies as companies hire more people. Last month, the government of Singapore clamped down on speculative buying and selling, with the central bank citing "euphoria" in the property market.

At the same time, protests in Hong Kong have put the brakes on demand for central office space in China's special administrative region. Spooked investors are turning elsewhere to places such as Singapore, which saw private home sales surge a sequential 43.5 per cent in July. Although no multinational corporations have said they're leaving Hong Kong, it's probably on their mind, according to Mr Wong. "This could be an opportunity for Tokyo," he said.

That's music to the ears of Japanese Prime Minister Shinzo Abe, who in 2014 pushed to establish new strategic special zones in Tokyo and other cities as part of his Abenomics revitalisation plan. The areas of Tokyo that fall under those zones, which offer deregulation and other incentives, are right where Mori has been developing properties for decades.

No surprise, then, that the Toranomon-Azabudai mega project has been 30 years in the making. Work on it started even before Roppongi Hills. For its major projects, Mori's employees spend years going door to door, persuading local residents and property owners to hand over their land in exchange for prime residential space in the new buildings.

It's hardly a coincidence that Mori's suffix for its biggest developments - there's also Toranomon Hills and Atago Green Hills - harks back to that other chichi neighbourhood, Beverly Hills. It's also a nod to the Japanese word, Yamanote. Transliterated as "the hill's hand", the term refers to the more desirable, hilly neighbourhoods west of the Imperial Palace in feudal Tokyo that now include Mori's properties.

"We've poured everything we've learned from our Hills projects into this new development," Mr Tsuji said.

Mori's ultimate vision is to link up all of its properties into an uber-complex of offices, homes and retail space. Although the developer is going to unveil the project's name just before it opens for business, odds favour it will end with "Hills".

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