Tokyo Tower Sale Shows ’07 Prices Return, Credit Suisse Says

By Kathleen Chu  

Mitsubishi Estate Co. (8802)’s 159 ($1.34 billion) sale of a building in Tokyo’s most expensive business district shows that commercial property prices have surpassed their 2007 peak, according to Credit Suisse Group AG.
Mitsubishi Estate said yesterday it will sell the former Mizuho Bank headquarters in Marunouchi to Mizuho Financial Group Inc. (8411) The price Mizuho is paying is estimated to be 77.4 million yen per tsubo, Credit Suisse analyst Masahiro Mochizuki said. That is higher than 69.3 million yen per tsubo Sumitomo Mitsui (8316) Banking Corp. paid for an adjacent building in March 2007, he said. A tsubo, a standard measure of area in Japan, is 3.3 square meters or 36 square feet.
Tokyo’s real estate prices have risen about 20 percent since Prime Minister Shinzo Abe took office two years ago and introduced measures to end deflation and boost economic growth. Overseas buyers are prepared to pay even higher prices for Japanese real estate than
domestic purchasers because of the weakening yen, Mochizuki said.
“Commercial real estate prices are already back up above pre-Lehman levels,” said Mochizuki, referring to the collapse of Lehman Brothers Holdings Inc. in 2008. “Japanese real estate investors are conservatively valuing real estate, resulting in a gap between these valuations and those of overseas investors.”
The transaction comes one month after GIC Pte, Singapore’s sovereign wealth fund, paid $1.7 billion for a building in the same business district. The return for the GIC acquisition is estimated to be about 3.7 percent and about 5.1 percent for Mizuho Bank’s headquarters, Mochizuki said.
“This underscores the wide gap between overseas and Japanese investors in terms of real estate valuations,” said Mochizuki in a report.
Prices didn’t decline for the first time since 2007 at 150 land sites monitored by the government, according to a report published today by the land ministry. Prices either gained or where unchanged as of Oct. 1.
The average assumed achievable rent for Marunouchi, home to global financial companies such as JPMorgan Chase & Co. (JPM), UBS AG (UBSN) and Citigroup Inc., is about 30 percent higher than in Tokyo as a whole, according to CBRE Group Inc. (CBG)