More than 10 companies submitted proposals to buy the government-held portion of the Otemachi Place complex, in the capital’s financial district, before the deadline Thursday. The sale of the property, which was redeveloped in 2018, is being handled by Mizuho Trust & Banking. A final decision will be made in September.
While no specific monetary figures are required at this stage, the property is expected to go for around ¥300 billion (US$2.2 billion) based on the location and rents in the area. It could top the Japanese record for a finished high-rise building, set by last year’s estimated ¥300 billion sale of ad agency Dentsu’s headquarters in Tokyo.
Many of the prospective buyers hail from outside the country, including American and Asian investment funds. Because borrowing costs are so low in Japan, investing in real estate may be more lucrative for them in Tokyo than in Singapore or Hong Kong.
And these investors’ money can go further in Japan than elsewhere thanks to the weak yen. Real estate purchases by foreign buyers soared during past periods of yen depreciation in 2007 and 2014, according to CBRE. Annual tallies for the five years through 2021 averaged more than ¥1 trillion, and CBRE expects around ¥1 trillion in investment this year as well.
The Otemachi Place property has also attracted interest from domestic buyers seeking to diversify their portfolios with alternative assets. These investors have in many cases been shut out from real estate deals by deep-pocketed foreign competitors.
The property market has been supported in large part by financing from domestic lenders.
Outstanding loans to the real estate industry came to ¥92 trillion at the end of March, up 16% from five years earlier, according to the Bank of Japan, and the balance has risen at an accelerating pace over the past year or so. As demand grows for investment in the sector, banks have kept steadily pouring money into this familiar field.
But rate hikes abroad have prompted concerns that interest rates will rise in Japan. In a survey of banks and leasing companies by CBRE in April and May, more than 30% of respondents cited higher rates as their biggest concern about the next year, up from just 4% in 2021.
Even if interest costs increase in the future, real estate investments can remain profitable if rents are raised accordingly. But office vacancies in downtown Tokyo have grown with broader adoption of remote work and the completion of new buildings. If real estate loses its edge as an investment asset, the market could tumble.
Stay current - Follow FMT on WhatsApp, Google news and Telegram