Mitsui Fudosan Sells Tokyo Office Space to Its REIT for $352M

Mitsui Fudosan Co. is selling portions of two Tokyo office towers to Nippon Building Fund, a REIT sponsored by the Japanese real estate giant, for a total of JPY 47 billion ($352 million), as quality office assets in Japan’s capital retain their appeal despite a weak leasing market.

NBF will pick up the assets spanning a combined 22,429 square metres (241,424 square feet) in the special wards of Koto and Chiyoda, according to a stock exchange filing by the Tokyo-listed office REIT.

The newly acquired floor space in the two properties, Iidabashi Grand Bloom and Toyosu Bayside Cross Tower, will be leased to Mitsui Fudosan as the sole tenant, which in turn will sublease the space. NBF already owns parts of the buildings and will enlarge its overall stake from 29.3 percent to 41.6 percent through the acquisition of more than seven floors.

Under the terms of the deal, which is expected to close by March 31, NBF will acquire more than three floors totalling 9,199.5 square metres in Iidabashi Grand Bloom for JPY 25.4 billion, along with four floors totalling 13,229 square metres in Toyosu Bayside Cross Tower for JPY 21.6 billion.

The purchase of additional space in the fully occupied and relatively new properties is being undertaken with the goal of “enhancing NBF’s portfolio of properties in the 23 wards of Tokyo,” the REIT said in its announcement.

REIT Boosts Its Footprint

The office space changing hands in Iidabashi Grand Bloom comprises the 28th through 30th floors and part of the 8th floor of the 30-storey tower, which was completed in 2014 and has achieved an “S” (Superior) rating under the Comprehensive Assessment System for Built Environment Efficiency (CASBEE). The building is nearly 100 percent leased to 34 tenants.

Located at 10-2, Fujimi 2-chome in Chiyoda special ward, the 122,280 square metre property forms part of the Iidabashi Sakura Park redevelopment project, along with an adjacent church building and a 40-storey apartment building with the unwieldy name of Park Court Chiyoda-fujimi The Tower. The complex neighbours the Iidabashi station, a major interchange that serves four subway lines, providing access to Tokyo Station in 13 minutes.

In its filing, NBF cited the property’s highly accessible location, shops and restaurants on the lower floors, and business continuity features in the event of a disaster – including a power generator, warehouse space for storing emergency items, and roughly 1,300 square metres of common areas “for those who have difficulty returning home.”

NBF previously acquired 31,150 square metres of office and retail space in the building for JPY 77.6 billion in August 2021 and added another 13,229 square metres of office space for JPY 36.2 billion in January 2022. The latest transaction increases NBF’s share of the building area available for exclusive ownership from around 58.6 percent to 70.9 percent.

NBF’s other acquisition consists of the 18th through 21st floors of the Toyosu Bayside Cross Tower, a 36-storey, 178,504 square metre structure built in 2020. The property is located at 15-12, Toyosu 2-chome in the Koto special ward, southeast of the Tokyo metropolitan centre.

The transaction boosts NBF’s ownership from 8.6 percent of the building to nearly 21 percent. NBF bought 9,117 square metres in the building for JPY 14.7 billion in September of last year. Deemed by NBF to be an “S” asset under CASBEE, the building is 100 percent occupied by three tenants.

In addition to its office floors, the property also contains the LaLaport Toyosu 3 shopping mall and the Mitsui Garden Hotel Toyosu Bayside Cross. The asset is located in the centre of the Toyosu area, which is being redeveloped for residential and office uses, and is connected to the Toyosu Station on the Tokyo Metro’s Yurakucho and Yurikamome lines.

Tokyo Office Deals Continue

Mitsui Fudosan owns 46 percent of Nippon Building Fund Management, which manages a portfolio of 70 properties across Japan, including 55 in Greater Tokyo. The fund spent JPY 1.5 trillion amassing the collection of properties, which had a total rentable area of 1.2 million square metres and an average occupancy rate of 96.3 percent as of June 2022.

Widespread downsizings and consolidations have driven a general rise in office vacancy rates across Japan, including Tokyo, where the grade A vacancy rate in the central wards climbed 1.4 percentage points year-over-year to 4.6 percent in the third quarter of 2022, according to Cushman & Wakefield.

Colliers reported that office vacancy declined slightly in the five central wards, but forecast that vacancy will rise again in 2023, with rents likely to remain in a downtrend amid economic uncertainty and a surge of new supply. Despite the discouraging trends, investors remain keen on well-located, quality office assets, as evidenced by a number of transactions in recent months.

LaSalle Investment Management in November agreed to buy a mixed-use tower in Tokyo’s upscale Shinagawa City neighbourhood from Blackstone for nearly JPY 13.5 billion, an industry source told Mingtiandi. The Chicago-based fund manager acquired the TK Ikedayama Heights building, home to a WeWork location, on behalf of its Japan core property fund.

The previous month, UK-based asset manager M&G Real Estate disclosed its purchase of the Minato Mirai Center Building, a 21-storey Grade A office tower in Yokohama, for more than JPY 100 billion on behalf of the M&G Asia Property Fund.

In September, a domestic consortium led by Tosei Asset Advisors and Hulic won a tender for the Japanese Ministry of Finance’s share in Otemachi Place, an office building just east of Imperial Palace, with a JPY 400 billion ($2.7 billion) bid.