TE Capital Jumps into Japan’s Commercial Market with Tokyo Office Buy

Singapore-based private equity firm TE Capital Partners has made its first investment in Japan’s office market, teaming with its Tokyo Trust Capital unit to pick up an office project near Tokyo Station as rents continue to rise.

The soon to be completed 12-storey office tower is less than a kilometre (0.62 miles) from Tokyo Station with TE Capital’s leadership in a statement pointing to the deal as aligned with its focus on finding high-end properties in the region’s top cities. Financial details of the transaction were not released.

“Leveraging on our expertise in commercial office markets and in line with the strategy of increasing our commercial portfolio across Asia Pacific, this acquisition exemplifies our strategy of targeting prime assets in key markets, with value-add potential,” said TE Capital managing director Terence Teo. “Combining our regional expertise with local insights and asset management capabilities from our partner at Tokyo Trust Capital, TE Capital aims to deliver enhanced risk-adjusted returns to our stakeholders.”

Following earlier investments in Japan’s residential market, the Singapore firm and its local affiliate are making their commercial bet as office rents in Tokyo continue to climb. Average leasing rates for grade A space in the Japanese capital’s central five wards climbed 2.5 percent in the third quarter compared to the same period a year earlier, according to property consultancy Savills.

Riding Office Demand

The acquisition in central Tokyo’s Chuo Ward gives TE Capital a foothold in one of the city’s most sought after business hubs, with the property located directly opposite from a rail station.

The investment was made on behalf of TE Capital’s TE Value Partners fund series, with Tokyo Trust Capital acting as the onshore asset manager, with the project’s new owners focusing the the office market’s strong fundamentals.

“This acquisition is well-positioned to capitalize on the robust demand for high-quality office spaces surrounding Tokyo Station and reflects our confidence in the growth and resilience of Japan’s office market, particularly in prime locations with excellent accessibility,” said TE Capital director Stanley Shen. “We will continue to seek opportunities to acquire more commercial office properties in Tokyo to further strengthen our presence in the commercial real estate market.”

With average rents in Chuo ward rising 1.3 percent in the third quarter compared to a year earlier to JPY 31,941 ($214) per tsubo (3.3 square metres) per month, Savills points to the area as among Tokyo’s healthiest office markets, particularly near the Tokyo Station transport hub.

“Although Chuo’s vacancy rate is among the highest in Tokyo’s premier office districts, the situation is healthy overall, with pockets of high vacancy largely limited to the Tokyo Bay area, such as Harumi,” the property consultancy said in a report published this month. “On the other hand, districts near Tokyo station such as Yaesu and Nihonbashi have very limited office availabilities, and have seen stronger rental growth than other districts.”

The acquisition is expected to be completed during the third quarter of next year.

Growing Portfolio

With its Tokyo Trust unit part-owned by the family office of Mori Trust’s chairman Akira Mori, TE Capital is expanding into the office market after making earlier investments in Japanese rental apartments.

In October 2022 TE Capital acquired 16 Tokyo apartment properties for a combined $100 million on behalf of a family office client, with that portfolio spanning 400 units. That deal followed a July 2021 transaction that saw the Singapore firm invest $60 million to acquire properties containing 175 rental apartments in central Tokyo.

The company’s initial Tokyo investment came in 2020 when it spent $50 million to purchase two apartment blocks in Minato ward and a third in Setagaya ward yielding around 100 homes.

In 2023 Tokyo Trust ramped up its capabilities by hiring former BlackRock and GE Capital executive Christopher Handte as managing director, with the graduate of Princeton and the University of Pennsylvania’s Wharton School being promoted to chief executive of the company in April of this year.