Bidding closes on Otemachi Place

Bidding ended for office space in Otemachi Place on July 7, with a little over 10 domestic and foreign buyers expressing interest. The floor space on offer is in the East Tower and the seller is the Ministry of Finance (MOF).

Interested buyers had until July 7 to submit their proposal, which required disclosing information in the event of joint buyers, and an after-purchase management and operation plan.

On February 6, the Nikkei Shimbun reported that the MOF was looking at selling off its share of Otemachi Place in a sale that insiders suggest could exceed 300 billion Yen (approx. US$2.2 billion at current exchange rates). This would be the first case of state-owned land and a building share being sold off after a redevelopment. It is considered a more effective strategy than selling off undeveloped or under-developed land that would normally only be purchased by a real estate developer. The previous record sale of state-owned land was the former Japan Defense Agency Camp Hinokicho in Roppongi which sold for approximately 180 billion Yen in 2001 to Mitsui Fudosan. It is now Tokyo Midtown.

At present, the most expensive building sale in Japan has been the Dentsu Building in Shiodome that sold to a consortium led by Hulic in late 2021. The sale price was not publicly disclosed but is estimated to have been around 300 billion Yen. The partial sale of Otemachi Place could potentially exceed this price.

The seller’s side will go through each proposal, and hold a final bid this September to decide on the buyer. Notable bidders included US and Asia-based funds. Tokyo offers a better yield gap than Singapore and Hong Kong, making it a sought-after investment destination in Asia. Domestic bidders include major real estate giants that have formed partnerships with institutional funds. 

In a world of increasing interest rates, Japan’s low-interest rate environment has led to one of the highest yield gaps on offer. The yield gap is slightly above 3% on prime buildings in Tokyo, matching that of New York, and exceeding that of London, Sydney, Singapore, and Hong Kong.

This, coupled with the historically cheap Yen, has made Japan irresistible for foreign funds and institutional investors. The appealing market conditions are expected to result in foreign investors plunging over US$7 billion, or 1 trillion Yen, into Japanese real estate this year, as forecast by CBRE. That’s still just a 10th of the foreign investment that went into US real estate in 2021, and smaller than the 4.37 trillion Yen in domestic transaction volume seen between corporations in Japan in 2021. It’s also below the record high of 1.6 trillion Yen in transaction volume seen in 2007, just prior to the global financial crisis.

As of 2018, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) estimated that Japanese corporations have around 520 trillion Yen in real estate holdings, including land and buildings. About one in five domestic companies own real estate.

Source: The Nikkei Shimbun, July 7, 2022.

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