Tokyo Rental Office Sector on The Rise After Two Decades, Investors and Landlords Still Wary

Tokyo's rental office market is recovering after a 21-year decline, reported Bloomberg Businessweek.

The promising market is attracting companies including Apple and Morgan Stanley to configure rental spots while they're going for low rates.

However, commercial real estate experts predict a rising price tag for leasing office spaces in the next couple of years. The going rate fell from a high 10.3 percent to 8.8 percent in December for grade-A buildings in key business districts, according to real estate services company CBRE Group Inc.

"We are now seeing some very early signs of a return in confidence to the market," said Neil Hitchen, regional director at major real estate broker company Jones Lang LaSalle of the Tokyo branch, in an interview with Bloomberg.

The occupants "are renegotiating terms early to try to take advantage of the tenant-favorable market conditions and get in good shape for the next few years," he added.

Japan has been feuding with devaluation since the 1990s, which has caused businesses and residents to withhold spending-mainly impacting 63 percent of Tokyo's central wards, or municipalities that are at the heart of the city's shopping and business sector, according to the city-based broker Miki Shoji Co, reported Bloomberg.

The good sign is making landlords increase rent and investors moving in on acquisitions and mergers. For instance, Bloomberg reported prime office space rent increased 13 percent to $257 per tsubo, or per 35-square feet, according to another Tokyo-based broker.

"There is an increase in expectations that real estate investment will become more active, helped by monetary easing since [Prime Minister] Abe took over the government," Masashi Hirano, president and chief executive officer of Tokio Marine Property Investment Management Inc., told Bloomberg. The company expects to fund raise and invest in more office space rentals, something which hasn't happened since 2008.

However, some investors and landlords are wary of the recovery, predicting it will be short-lived.

"We doubt that rents will go shooting up across the market, but individual buildings can have pricing strength if they are well occupied," James Fink, senior managing director at Colliers International, told Bloomberg. "It's going to take a while for the overall market to recover because it's been so beaten down."