DTZ has significantly revised upwards its Tokyo office property rentals Japan forecasts for 2007 and 2008 on the belief that the office market is at the early stage of a major rental up-cycle that could last for three to four years. A clear demand-supply imbalance in Shibuya, with vacancy rates at an all time low of 1.8%, coupled with extremely limited supply in the next five years, points, we believe, to very strong growth in this district in particular.
In fact DTZ considers that Tokyo, along with Singapore and Shanghai, are the top three cities for office investment in Asia.

DTZ has been buying Tokyo office assets in the past few months for two of their international client funds in the expectation that rental growth will take over from yield compression as the main driver of increasing capital values over the next few years. They have secured ten Grade B office buildings for Rubicon whose Japan Trust was successfully marketed recently as a LPT (Australian equivalent of a REIT) in Sydney. The acquisition, totaling over US$200 million had an average initial yield of some 4.95%.
New Star, a UK-based global real estate fund with a significant Asian allocation has recently purchased its first Asian asset, again through DTZ in Tokyo’s Shinjuku district. DTZ is also seeking assets for New Star in South Korea and elsewhere but the fund’s initial Asian focus remains on Japan, but not necessarily just in the office sector or Tokyo. DTZ is investigating retail opportunities in other Japanese cities for the fund.

Toshihiro Umezaki, who is heading DTZ’s investment team comments: “These acquisitions demonstrate the continued appetite from foreign investors for Japanese real estate, especially in Tokyo, despite the yield compression seen over the last couple of years.”