Tokyo office vacancies will drop by 2009 to half of last year’s level as existing buildings are redeveloped, Mori Building Co, Japan’s largest private real estate developer, said in a report.

Office supply in Tokyo’s 23 wards will decline by an estimated 46 per cent to 0.64 million square metres in 2008, from a forecast of 1.19 million sq m this year, according to a survey by Mori. That will push vacancy rates down to 1.4 per cent in 2009, from 2.8 per cent in 2006, as demand grows because corporations are expected to hire more staff, Mori said.

‘Rents are rising and will likely rise further,’ said Takeshi Fujita, a Tokyo-based analyst at Deutsche Securities. ‘Earnings at large developers will continue to improve, I think.’

Mori estimates that 35 per cent of the space that will become available between this year and 2011 will be existing buildings remodelled to meet demand for modern, earthquake-resistant office blocks. Demand for large office buildings in Japan’s capital was 1.57 million sq m in 2006, exceeding the supply of 1.54 million sq m. That caused the vacancy rate to drop from the 2005 level of 3.2 per cent, the fourth consecutive year of declines, Mori said.

The vacancy rate is expected to fall to an estimated 1.9 per cent in 2008, says the survey. The survey targets sites with more than 10,000 sq m of space among buildings built after 1986.

Source: The Business Times, 18 May 2007