Commercial Property Transactions in Japan up 27 percent in 2007

February 26, 2008
By Ken Worsley

According to the Nikkei Real Estate Market Report, 2,186 commercial property transactions were effected in Japan last year, up 27% from 2006. The report notes that transactions outside of Tokyo shot up 60 percent, accounting for 934 of the total sales. These sales were driven by sell-offs led by state-run enterprises such as the former Japan Post and the Federation of National Public Service Personnel Mutual Aid Associations.

At the same time, office building sales fell by 20 percent in 2007. Buyers, however, paid more for what they got last year, especially in downtown Tokyo. In 2007, the average purchase price for a square meter of office space within downtown Tokyo was just above 1.9 million yen, up from 1.66 million in 2006 and 1.46 million in 2005.

The highest purchase per square meter in 2007? Tokyu Fudosan paid 42.74 million yen per square meter to acquire the Ginza Toshiba Building back in September. Total purchase cost? 161 billion yen.

Other notable purchases in 2007 included Goldman Sachs’ acquisition of the Tiffany’s flagship store in Ginza for 37 billion yen, ING Real Estate’s purchase of a Yokohama shopping mall for 60 billion yen, and Morgan Stanley’s 280 billion yen purchase of 13 hotels from All Nippon Airways.

Foreign and Japanese REITs have both been active in the market, with Singapore’s Mapletree Logistics Trust Management pouring 27.38 billion yen into the purchase of five properties in Japan last year. On the other hand, Japanese REITs snapped up 549 properties, paying 1.68 trillion yen in the process and bringing the total of their holdings to just over 7 trillion yen.

As for 2008? Buying has continued apace, as REIT Japan Real Estate has bought the MM Park Building on the Yokohama waterfront for 37.4 billion yen, Morgan Stanley has picked up Citibank’s headquarters for about 48 billion yen, and the Government of Singapore Investment Corporation has purchased the Tokyo Westin for about 77 billion yen (from Morgan Stanley, who paid 50 billion yen or so for the property just four years ago).

As for the future, Mori Building Company said in a report released on Monday that the amount of newly available office space in large central Tokyo buildings is expected to drop by 45.3% in 2008. At the same time, it might be hard for office rents in Tokyo to be pushed any higher, as some tenants already appear to be fleeing the city. We also expect to see the China Investment Corporation, as well as other Sovereign Wealth Funds, begin to take direct real estate investments in Japan, possibly from the third quarter of this year.

Filed Under Business, Real Estate