Advertising giant Dentsu Group has moved a step closer to notching Japan’s largest-ever sale of a single building as the company proceeds with a plan to sell its Tokyo headquarters for as much as $3 billion, Mingtiandi has learned.
The world’s fifth-largest ad agency by revenue announced on 29 June that its board of directors had approved the sale of the company’s 48-storey Tokyo headquarters, acknowledging that it had received an offer for the asset on 28 June. Dentsu is expected to complete a sale and purchase agreement with local development giant Hulic for around the $3 billion figure by the end of this month, market sources told Mingtiandi.
In its statement to the Tokyo exchange, Dentsu said it intends to lease back space in the 2002-vintage tower in the Shiodome area of Minato ward over an 11-year term.
After posting a $1.3 billion loss for 2020, Dentsu expects to record a gain of JPY 89 billion ($800 million) once the deal is completed, the group said. The transaction would deliver a one-time positive impact on operating income of JPY 87 billion and generate net profit attributable to shareholders of JPY 59 billion. The group will continue to use the building as its headquarters after the sale.
Built on a 17,244 square metre (185,613 square foot) site overlooking Tokyo Bay, the Dentsu Building has a total floor area of 231,701 square metres, meaning Hulic is paying roughly $12,948 per square metre.
The group is offloading the building as part of a set of measures to simplify the business, structurally and permanently lower operating expenses, enhance the efficiency of the balance sheet and maximise long-term shareholder value.
“In line with the evolution of work environments, it is intended that the building’s use will develop into a collaborative working space,” Dentsu said.
The ad agency’s plan to sell its headquarters was first reported in January of this year. Dentsu had appointed JLL to help market the asset to potential investors.
Should the deal conclude as planned it would surpass several times over BentallGreenOak’s $693 million acquisition of the Avex Building at 3 Chome-1-30 Minamiaoyama in Minato ward, a transaction that was agreed in December and closed during the first quarter.
In late March, Blackstone had announced its acquisition of eight Japanese hotels from Kintetsu Group Holdings, with that transaction having been priced at $560 million, according to research by Savills.
The biggest sale of a single building ever recorded in Tokyo was Japanese real estate fund manager Davinci Holdings’ 2006 purchase of Pacific Century Place in Marunouchi for the equivalent of $1.8 billion, according to JLL.
Despite growing supply of office space and a softening rental situation, Tokyo ranked as Asia Pacific’s top city for real estate investment deals during the first quarter of 2021, with nearly $4 billion in transactions concluded in the first three months of the year. That number was nearly double the total in Seoul, which ranked second with $2.1 billion in deals.
Tokyo Office Rebound
The sale of the Dentsu Building is a sign of renewed interest in Tokyo’s core office market, said Johnathan Noone, vice president of capital markets at Post Lintel, a Tokyo-based real estate services firm catering to the needs of inbound institutional investors.
Noone noted that Japanese firms in general remain less liberal in their remote work policies than their counterparts in gateway cities around the globe, fuelling confidence in an office market rebound.
“Assets with a tenant profile like this are likely to attract serious interest from institutional investors, as we saw with the Avex transaction at the beginning of the year,” Noone said, likening the Dentsu deal to the disposal by Japanese music company Avex, which also retained rights to lease the property after its sale.
Another instance was Singapore-listed Mapletree North Asia Commercial Trust’s $350 million acquisition of the Hewlett-Packard Japan Headquarters in Tokyo. Hulic was the seller in that transaction, and the developer’s gains from that disposal would provide it with ready cash to help fund its deal with Dentsu.
Tetsuya Kaneko, managing director and head of research and consultancy at Savills Japan, expects big transactions of this sort to continue.
“Japan’s relative stability as well as its favourable funding conditions continue to attract international capital while more Japanese corporations are starting to dispose of corporate real estate leading to eagerly awaited investment opportunities,” he said.