Developer Tokyu Land Corporation is selling a stake in a set of central Tokyo office floors for over JPY 100 billion ($673 million), as office rents in the Japanese capital continue to rise despite worries over an influx of new supply.
The developer’s the parent company, Tokyu Fudosan, informed the TSE late last week that it is selling a 49 percent interest in the office space on 25 floors of its newly built Shibuya Sakura Stage complex to an unnamed fund backed by domestic institutional investors and a vehicle sponsored by Tokyu Land.
“The sale is part of the ‘Co-Creation with partners’ business policy set forth in the long-term management policy and is being conducted from the perspective of increasing the number of assets involved and improving efficiency through the use of other parties’ capital,” Tokyu Land said in its statement to the stock exchange.
The developer announced the sale as average rents for workspace in Japan’s capital climbed by 1.3 percent in the fourth quarter of 2023, compared to the preceding three months, after tenants exceeded analyst expectations by leasing the equivalent of 165,289 square metres (1.8 million square feet) of grade A offices during the period.
Prime Location
The target asset of the transaction is the desk space on the 10th to 23rd floors and 28th to 38th floors in the Shibuya Tower building of the complex, which is estimated to span more than 30,000 square metres. At the estimated compensation, that would price the transaction at JPY 3.3 million per square metre.
Hideaki Suzuki, senior director of research for Japan at Cushman & Wakefield, said that minority stake sales are becoming the preferred play for major developers to free up capital for new projects. “Partial ownership sales are becoming common among large developers for capital recycling. This way allows developers to re-access cash and debts for further developments while keeping control over the assets and collecting management fees,” Suzuki said.
Located within six minutes’ walk of Shibuya station, Shibuya Sakura Stage is a two-building complex with a total floor area of around 254,700 square metres. Completed in November of last year, the property combines office space, retail shops and serviced apartments as well as other facilities.
Tenants had committed to leasing 95 percent of Shibuya Sakura Stage’s office space by the end of December, according to a Tokyu Fudosan financial report released late last week. With Tokyu Land still holding a 51 percent stake in the target office floors following completion of the transaction, the company will also continue to operate the entire tower.
Grade A office properties in Shibuya averaged 2.1 percent vacancy at the end of 2023, down 0.4 percentage points from the end of September.
Tokyu Land said that the office space is being sold for around JPY 30 billion above its book value at the end of last year, with 60 percent of the property to be transferred to the new owner in March next year, and the remaining 40 percent to be handed over in March 2026.
The complex is part of Tokyu Land’s urban development initiative to build 15 properties in Shibuya’s centre, with the company having completed the first project under that strategy in in 2012.
Tokyo Workspace in Demand
Tokyu Land’s Shibuya Sakura Stage sale follows a larger trend of investors trading strata office assets in the world’s most populated city.
In January, a fund managed by Goldman Sachs agreed to purchase four floors in GranTokyo South Tower in the Marunouchi area from Nippon Building Fund for JPY 41.2 billion. The Goldman fund is paying JPY 3.1 billion above the June 2023 book value for its segment of the 42-storey office building along the border between Chiyoda and Chuo wards.
At the end of last month Sankei Real Estate announced that it is selling off its strata units in the Shinagawa Seaside TS Tower in Tokyo to its sponsor Sankei Building for JPY 16 billion. The same announcement also revealed that the REIT is selling strata space in Osaka’s Breezé Tower for JPY 18 billion.
In a separate transaction in the first month of the year, Nippon Building Fund agreed to buy additional space in the Toyosu Bayside Cross Tower in Tokyo’s Koto ward for JPY 43.8 billion. Japan’s largest REIT by market cap is set to acquire seven office floors in the 38-storey mixed-use building from its sponsor Mitsui Fudosan.
