The top of the market gets even better: the continuing evolution of Tokyo's prime office districts

Cities draw people, goods, money, and information. The world's most attractive cities are configured to foster the creativity that fuels innovation. Today the most highly qualified professionals are able to choose the city in which they will live and work. Global corporations are constantly evaluating their return on investment in cities in which they operate. So cities are now vying to offer environments that attract and retain the best in human capital--the foundation for corporate business success.

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According to the 2005 Global Market Rents report produced by CB Richard Ellis, Tokyo has the world's second highest office rents after London.

Despite Tokyo's being a world capital of innovation in technology, fashion, design and business, efforts are being made to further enhance its attractiveness as an international business center. These efforts are being made by a surprising group of companies--developers, as they break out of their traditional roles to become creators of environments offering good experiences and lifestyles. Developers, through revitalization of the vicinity of Tokyo Station, are setting an example for Japan to reposition itself globally.

Tokyo Real Estate's Transition into the "Experience Economy"

Developers, in order to attract the very best organizations as tenants, are erecting buildings that encourage interaction between all kinds of people in lobbies and atriums with open ceilings, gardens, restaurants, shops, conference rooms, multipurpose halls, and members-only business clubs that host various events and cross-industrial meetings. These interactive zones encourage communication through face-to-face meetings and gatherings. Certain zones are reserved for corporate offices. Japanese and foreign universities are even establishing research centers and satellite offices in new high rises.

Developers realize that a single building by itself cannot transform a city's business district. Integral to their plans are the gradual redevelopment of whole districts. One pattern is the "city-within-a-city" concept successfully implemented by Mori Building Company with their Roppongi Hills area redevelopment, completed in April 2003, and by Mitsui Fudosan (Mitsui) with its Tokyo MidTown Project, scheduled for completion in 2007 on land formerly owned by the Japan Self-Defense Forces. Another redevelopment pattern is followed by several major developers that have concentrated their office building portfolios in certain Tokyo districts, creating something akin to "villages" for maximizing synergies. Examples are Mitsubishi Estate Co. (MEC) with 31 buildings on the west side of Tokyo Station in the Marunouchi/Yurakucho/Otemachi area, and Mitsui with 30 buildings in the Nihonbashi/Yaesu area on the station's east side.

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These two areas surrounding Tokyo Station have long been the price leaders among Japan's office markets owing to their access to train and subway networks, a crucial factor considering most Tokyo office workers commute by rail. The developers' recent projects and future plans show that these areas are now reinventing themselves to become destinations for experiencing the finest in art, fashion, food, recreation, education, and healthcare. The major goal of these developments is to provide a stage for producing new business and culture through interactions between various enterprises and people sharing all kinds of value-added knowledge.

Tokyo Station's West Side--the Marunouchi District Mitsubishi Estate Co. (MEC)

At the forefront of MEC's office building business operations is the redevelopment of the Marunouchi district, which for MEC's branding purposes includes the adjacent areas of Otemachi and Yurakucho. This project offers an overwhelming variety of business opportunities. MEC's ultimate goal is to transform Marunouchi into a world-class center of dynamic interaction, thereby creating even more opportunity.

As a part of these efforts, MEC established the Tokyo 21c Club, a facility located within the Marunouchi Building, to allow young up-and-comers to interact and exchange views. At the same time, MEC launched Marunouchi Frontier--a network aimed at supporting ventures and new businesses--and actively solicited Japan's leading universities to locate research facilities in the Marunouchi district. In addition, through Marunouchi Direct Access Limited, MEC provides the latest in optical fiber communications. For example, its IT Plug-And-Go Services provide the optimal IT office environment. In an age when security is of increasing concern, MEC also offers the Marunouchi R & A Service, a facility to recycle confidential documents after they have been appropriately processed and erased.

MEC's principal priority is to upgrade the features of their 31 buildings owned and managed in the Marunouchi area through rebuilding and renovation. The Marunouchi Building opened in August 2002, The Industry Club of Japan was renovated and the Mitsubishi Trust and Banking Building was completed in February 2003, and a multi-function development comprising office buildings, retail facilities and a hotel, Marunouchi OAZO, was completed in August 2004. The rebuilding of the Tokyo Building will be completed in October 2005, and rebuilding of the Hibiya Park Building and the Shin-Marunouchi Building during 2007. This will complete the first stage of the Marunouchi Redevelopment, a 10-year program, which commenced in 1998. Thereafter, MEC will continue to advance the second stage of the Marunouchi Redevelopment Project, investing JPY450 billion over a 10-year period from 2008 for the rebuilding of seven to eight structures, the renovation of existing buildings, and further improvements to infrastructure.

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New hotels and the facilities they offer will add to the value proposition of the Tokyo station area as a business destination. Scheduled to open in 2007 is The Peninsula Tokyo, to be built on the site of the old Hibiya Park Building. The Peninsula brand already has a high reputation with Japanese travelers to Hong Kong. It will open in Marunouchi with 315 guestrooms (including 46 suites) on 24 floors offering views of some of the city's most notable landmarks. The hotel will also offer a selection of function rooms including ballrooms, an extensive wedding center and a range of smaller meeting and banquet rooms, while recreational facilities include a swimming pool, fitness center and spa, together with a small selection of exclusive shops.

The efforts of MEC and other players on the West side of Tokyo Station are certainly paying off--the demand for office space in the Marunouchi/Otemachi/Yurakucho submarket is so high that the 2005 Q2 average vacancy rate for office buildings of all grades was only 0.4 percent.*

Tokyo Station's East Side--the Nihonbashi and Yaesu Areas

Mitsui and a number of other organizations have been aggressively working to rejuvenate the Yaesu and Nihonbashi areas on the East side of Tokyo Station, a much larger area than those described above on the West side. The work has been undertaken in such a way that it achieves a healthy balance between modernization and respect for the area's historical roots.

Yaesu

JR East, Mitsui, Kokusai Kanko Kaikan, Kashima Yaesu Development and Nippon Oil are jointly developing on the Yaesu side of Tokyo Station a project involving the construction of high-rise twin towers. The existing Tetsudo Kaikan building will be demolished to make way for a pedestrian deck connecting the two towers. This project is being promoted together with the extension of the Yaesu side station plaza to relieve traffic congestion, enhance transport node functions, and create abundant pedestrian space.

Station facilities and shops will be located in the central portion to form a bustling pedestrian network on the ground and deck levels. The upper floors of the north and south towers will provide state-of-the-art office space, and the Daimaru Tokyo store that occupies the existing Tetsudo Kaikan building will be relocated to the lower floors of the north tower.

Whilst the West side of the station is dominated by buildings with a traditional style using heavy stone work, the new Yaesu side redevelopment will act as an entrance gate not only to Tokyo Station, but to Japan, symbolizing an advanced and cutting-edge society with high-rise twin towers that make liberal use of crystal glass to provide a feeling of transparency, and a large awning that brightly encloses an expansive space.

A consortium formed by Nikken Sekkei Co. Ltd. and JR East Design Corporation is the overall developer, with Murphy & Jahn, Inc. as the architect.

Nihonbashi

Four hundred and two years ago, the Tokugawa Shogunate constructed the Nihonbashi Bridge. Today the area includes the original Mitsukoshi Department Store, Bank of Japan and Tokyo Stock Exchange. As a number of cafes and businesses have opened successively in the area in the past few years, it has become even more advantageous as a business district.

The area enters its fifth century boasting a large, new commercial facility, the Nihonbashi-itchome Building, developed by Mitsui in cooperation with Tokyu Fudosan, which opened in March 2004. The building's exterior was designed by William Pedersen, chief designer of Kohn Pedersen Fox Associates. The exterior features a combination of materials such as stone, glass, and aluminum to provide a progressive, yet distinguished feeling. The southern aspect features a bow-shaped facade that emphasizes transparency and changes according to the degree of light, thanks to the addition of delicate fins. The southern aspect is not only attractive but also functional, bringing natural light into the office spaces. A high-class shopping center, Coredo Nihonbashi, occupies the first basement through the fourth floor. Some 92,570 square feet of this space is dedicated to retail shops, and there are a total of 33 eating and drinking establishments, 17 of which have set up shop in Tokyo for the first time or are new types of operations. The goal was to introduce fresh ideas and to invite shops with new concepts that harmonize with the historical image of Nihonbashi. In order to lure nearby office workers and attract families to the area on weekends, most of the restaurants are now open until 11:00 on weeknights, and Coredo Nihonbashi is open for business on weekends and holidays. The Nihonbashi-itchome Building also houses the Waseda University Graduate School of Finance, Accounting and Law.

Other major redevelopment efforts have also helped to revitalize the Nihonbashi area. In April, the nearby Takashimaya department store underwent a grand refurbishment. Rival Mitsukoshi had already opened a new annex on October 11, 2004, to mark the 100th anniversary of its founding.

Moves are also underway to lure tourists. Metrolink Nihonbashi, a free bus service connecting the Yaesu, Kyobashi, and Nihonbashi areas, began service in March. The buses are electric powered, and their exteriors are decorated with scenes of "old Edo." The route, which has 12 stops, takes passengers to landmarks designated as important cultural assets, including Nihonbashi Bridge, Mitsukoshi, and the Bank of Japan, as well as many old shops that have been in business since the Edo Period (1603-1867).

Mitsui has combined old and new, erecting the Nihonbashi Mitsui Tower, designed by Cesar Pelli & Associates and completed in September 2005, with a gross floor area of 1,440,797 square feet next to the Mitsui Main Building (completed in 1929; gross floor area 389,921 square feet), a registered Important Cultural Property.

Occupying the upper floors of the Nihonbashi Mitsui Tower will be the 38-story Mandarin Oriental Hotel, scheduled to open later this year.

The revitalization and redevelopment efforts by Mitsui and other participants in the East side of Tokyo Station have successfully attracted tenants and helped the 2005 Q2 average vacancy rate for office buildings of all grades in the Nihonbashi/Yaesu/Kyobashi area come down to 3.9 percent,* which is very impressive considering the total size of these areas combined.

The redevelopment and revitalization efforts on the East and West sides of Tokyo station, the rail gateway to Japan, are setting an example and leading the way for the country as a whole to reposition itself in the global economy to attract and retain economic activity and the people and organizations that drive it.

*Source: Ikoma Data Service System K.K.

Dylan Robertson

Senior Associate, Office Services

CB Richard Ellis (Japan) K.k.

Tel. +81-3-6230-1141

Email: [email protected]

Website: www.cbre.co.jp

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Dylan Robertson is one of a handful of foreign real estate consultants with both advanced Japanese language skills and long experience in the Tokyo office market. He is the real estate advisor for a range of blue-chip multinationals.

CB Richard Ellis is not the exclusive agent for any of the buildings mentioned in this article.

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