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Tokyo Office Market Begins to Erase Two Decades of Malaise

Tokyo’s office market is showing signs of recovery after a two-decade decline, prompting companies such as Apple Inc. and Morgan Stanley to relocate before rents rise and vacancies fall.

Real estate broker Jones Lang LaSalle Inc. and Barclays Plc are forecasting leasing costs for prime office space will climb this year and next. The vacancy rate for grade-A buildings in the city’s major business districts fell for a second quarter to 8.8 percent as of December from a record 10.3 percent in the three months to June, according to broker 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 Jones Lang LaSalle in Tokyo. Tenants “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 said.

The rebound may signal the end of a 21-year slide that cut rents for all categories of offices in the city’s five central wards by 63 percent, according to Miki Shoji Co., a Tokyo-based broker.Japan has been struggling with deflation that has caused companies and households to put off spending since the late 1990s, after asset prices collapsed.

Landlords are now seeking rent increases and investors are considering acquisitions as Prime Minister Shinzo Abe pursues fiscal and monetary stimulus to pull Japan out of its third recessionin five years. Contracted rents for prime office space in the central wards rose 13 percent to 23,969 yen ($257) per tsubo in the fourth quarter from the previous three months, according to Sanko Estate Co., a Tokyo-based broker. Prime refers to the most stable high-income producing properties.

Rising Expectations….”

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