Tokyo Office Market 2010 A Guide to Leasing Business Space

Tokyo Office Market 2010 A Guide to Leasing Business Space

Market Snapshot The Year Past 2009 The onset of the global economic crisis from late 2008 has inevitably clipped demand for Tokyo office accommodation. Those companies hardest hit by the recession have mostly chosen relocation to cheaper premises as the fastest means of cutting costs. But many sitting tenants determined that negotiating better lease terms with landlords avoided the inconvenience of moving. Owners of newer Class A buildings initially tried to resist pressure to lower rents, but once one landlord was seen to buckle, others felt obliged to quickly follow. Consequently, average rents for prestige properties in Tokyo s three central wards declined by 30~50% during 2009 from the 2007 peak. Fortunately for owners, the recession struck at a time when the volume of new space entering the Tokyo office market was limited. Vacancy rates in the three central wards rose to 6.1% by December 2009 compared with 3.1% in January, but this was still lower than some real estate specialists had feared. Moreover, those companies whose businesses have been less affected by the recession seized upon the softening of the office market in 2009 to upgrade to A-class buildings that had become affordable. Chemicals giant BASF, for instance, has moved to Roppongi Hills, apparel maker Fast Retailing (Uniqlo) to Midtown Tower, and snacks maker Calbee Foods to Marunouchi Trust Main Tower. This trend will continue in 2010. n 1 TOKYO OFFICE MARKET 2010

The Year Ahead 2010 The slow pace of economic recovery means that Tokyo s office rental market will remain soft for at least the first part of 2010. Though rents have generally stabilized, those in prime properties will remain 30~50% lower than their 2007 highs, and vacancy rates will likely remain around 5-6%. But 2010 will be the bottom of the business cycle and vacancy rates are expected to peak by summer or autumn. The lessees market will persist but only during the first part of the year. By late 2010 through early 2011, incentives such as rent-free periods will decrease and landlord attitudes will harden. Behind this is the fact that in 2010, only 175,000 tsubo of new space will be added in Tokyo s 23 wards, and this constraint on new space will prevent any further decline in vacancy rates. Tokyo is not expected to see the introduction of significant quantities of new space until 2011-2012, and much of this will be in suburban areas. Some properties, such as those now being built in Osaki and Toyosu, are likely to be successful, but others in areas that Japanese companies consider a little remote could face challenges. Companies seeking space in peaceful campus-like areas will enjoy a luxury of choice. On the other hand, owners of existing Class A properties are rushing to refurbish their buildings to meet the new competition, and during 2010 many tenants will find the temptation to upgrade to better space hard to resist. n 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 2

Market Trends New Supply, Vacancies and Rents New building supply in central Tokyo between 2008 and 2010 is relatively low, with only about 200,000 tsubo added per year. Consequently, despite the economic downturn an oversupply of commercial office space has been avoided. Vacancy ratios have been steadily increasing, nevertheless, because of falling demand, and prospective lessees may enjoy favorable conditions throughout most of 2010. In Tokyo s three central wards the next increase in new Class-A space will not be seen until 2011~2012. So tenants seeking space in these wards might have to consider existing buildings. H o w e v e r, o u t s i d e o f t h e c e n t r a l wards, premium properties will be commissioned in suburban areas and will be attractive to those companies not needing a central location. As vacancies will peak in the first half of 2010 and rents will hit bottom within the year, 2010 will likely see the bottom of the cycle, presenting a great opportunity for companies to consider office relocation. n New Office Space Supply in Tokyo s 23 Wards (Buildings with floor plates per story of 200 tsudo or more) Fioor Space (tsubo) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2001 2002 Floor Space No. of Buildings No.of Builidings 50 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 45 40 35 30 25 20 15 10 Source: Sanko Estate 3 TOKYO OFFICE MARKET 2010

Vacancy Rates (Buildings with floor plates per story of 200 tsudo or more) % 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 01/01 02/01 Central 3 Wards (Chiyoda, Chuo, Minato) 23 Wards Neighboring Prefectures 03/01 04/01 05/01 06/01 07/01 08/01 01/09 01/10 Source: Sanko Estate Contracted Rent Trends (Central 3 Wards) (Buildings with floor plates per story of 200 tsudo or more) 140 130 120 110 100 90 80 70 01/01 02/01 03/01 04/01 05/01 06/01 07/01 Contracted Rent Index (2001-1Q=100) 08/01 09/01 09/10 Source: Sanko Estate 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 4

Market Information n Map of Central Tokyo Itabashi-ku Kita-ku Adachi-ku Arakawa-ku Nerima-ku Toshima-ku Ikebukuro Sugamo Nippori Nakano-ku Takadanobaba Bunkyo-ku Ueno Taito-ku Shinjuku-ku Iidabashi Akihabara Sumida-ku Suginami-ku Shibuya-ku Yoyogi Shinjuku Sendagaya Yotsuya Akasaka Otemachi Tokyo Koto-ku Omote-Sando Shibuya Roppongi Chuo-ku Shimbashi Harumi Setagaya-ku Ebisu Tamachi Ariake Meguro-ku Meguro Gotanda Shinagawa Daiba Aomi Tennozu Isle Osaki Shinagawa-ku Ota-ku 5 TOKYO OFFICE MARKET 2010

n Distribution of Multi-National Firms by Industry Law and Accounting Firms Banks and Securities Companies Toshima-ku Toshima-ku Ikebukuro Ikebukuro Bunkyo-ku Ueno Taito-ku Sumida-ku Bunkyo-ku Ueno Taito-ku Sumida-ku Shinjuku-ku Akihabara Shinjuku-ku Akihabara Shinjuku Shinjuku Yotsuya Otemachi Yotsuya Otemachi Shibuya-ku Akasaka Omote-Sando Roppongi Shibuya Tokyo Chuo-ku Shimbashi Koto-ku Shibuya-ku Akasaka Omote-Sando Roppongi Shibuya Tokyo Chuo-ku Shimbashi Koto-ku Harumi Harumi Ebisu Ebisu Meguro-ku Ariake Meguro-ku Ariake Shinagawa Daiba Aomi Shinagawa Daiba Aomi Osaki Tennozu Isle Osaki Tennozu Isle Shinagawa-ku Shinagawa-ku Medicine and Medical Equipment Companies Software Companies Toshima-ku Ikebukuro Toshima-ku Ikebukuro Bunkyo-ku Ueno Taito-ku Sumida-ku Bunkyo-ku Ueno Taito-ku Sumida-ku Shinjuku-ku Akihabara Shinjuku-ku Akihabara Shinjuku Shinjuku Yotsuya Otemachi Yotsuya Otemachi Shibuya-ku Akasaka Omote-Sando Roppongi Shibuya Tokyo Chuo-ku Shimbashi Koto-ku Shibuya-ku Akasaka Omote-Sando Roppongi Shibuya Tokyo Chuo-ku Shimbashi Koto-ku Harumi Harumi Ebisu Ebisu Meguro-ku Ariake Meguro-ku Ariake Shinagawa Daiba Aomi Shinagawa Daiba Aomi Osaki Tennozu Isle Osaki Tennozu Isle Shinagawa-ku Shinagawa-ku 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 6

Market Information n Recent Large Moves in Tokyo Shibuya-ku 1 2 3 4 5 6 7 8 9 10 11 12 13 Schroder Investment Management Lloyd s Japan SABIC Innovative Plastics Spectris BASF Japan SAS Institute Japan Booz & Company Lenovo Japan Maersk The MathWorks Air Liquid Asia-Pacific Edwards Lifesciences Perry Johnson Registrars Chuo-ku NEW Shinjuku-ku Marunouchi, Marunouchi, Kasumigaseki, Kanda-tsukasamachi, Roppongi, Roppongi, Roppongi, Roppongi, Toranomon, Akasaka, Akasaka, Nishi-shinjuku, Shinjuku-ku Hiroo, Shibuya-ku Marunouchi Trust Tower (Main) GranTokyo North Tower Tokyo Club Bldg. Tsukasamachi Bldg. Roppongi Hills Mori Tower Roppongi Hills Mori Tower Roppongi Hills Mori Tower Roppongi Hills Mori Tower Toranomon 5 Mori Bldg. Akasaka Garden City Akasaka Enokizaka Mori Bldg. Nittochi Nishi-shinjuku Bldg. Ebisu Prime Square Tower Takadanobaba Bunkyo-ku Ueno Taito-ku 12 buya-ku Yoyogi Shinjuku Shibuya Shinjuku-ku Sendagaya Omote-Sando 13 Ebisu Yotsuya Akasaka 10 11 Roppongi Iidabashi 3 9 5 6 7 8 Tamachi Otemachi Tokyo 4 1 2 Chuo-ku Shimbashi Akihabara Harumi Sumida-ku Koto-ku Ariake Meguro-ku Meguro Gotanda Shinagawa Daiba Aomi Tennozu Isle Osaki Shinagawa-ku n Distribution of Multi-National Firms in Tokyo by Ward Others 11% Bunkyo 2% Koto 2% Shinagawa 6% Minato 33% Shinjuku 6% Shibuya 8% Chuo 11% Chiyoda 21% 7 TOKYO OFFICE MARKET 2010

n Rental Prices Kita-ku Actual rent per tsubo (class A buildings) (including common-area maintenance charges) Toshima-ku Ikebukuro Arakawa-ku 50,000 ~ 45,000 ~ 50,000 40,000 ~ 45,000 35,000 ~ 40,000 30,000 ~ 35,000 25,000 ~ 30,000 20,000 ~ 25,000 15,000 ~ 20,000 Bunkyo-ku Taito-ku Shinjuku Shibuya-ku Shibuya Shinjuku-ku Aoyama Ebisu Iidabashi Ochanomizu Kojimachi Otemachi Nihombashi Marunouchi Toranomon / Akasaka / Roppongi Mita / Tamachi Ginza Tsukiji Chuo-ku Akihabara Kanda Harumi Sumid Toyosu Koto Meguro-ku Gotanda Shinagawa Osaki Tennozu Isle Shinagawa-Seaside Shinagawa-ku 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 8

Districts Trends by Ward remains the ward of choice for financial institutions and professionalservices companies. The ward saw more than ten new properties added in 2009, and redevelopment will be a feature of the area for several more years. These buildings include the JA building, which added 490 tsubo per floor over 37 stories, the Marunouchi Park Building, which added 1,090 tsubo per floor over 34 stories, and the Hirakawacho Mori Tower, which added 480 tsubo per floor over 24 stories. Of the new buildings to be completed in in 2010, the largest will be the Marunouchi 1-chome reconstruction project offering 800 tsubo per floor over 23 stories which will be entirely occupied by Sumitomo Mitsui Banking Corp. as its new head office. A l s o a t t r a c t i n g a t t e n t i o n i s t h e Nagatacho 2-chome project, which will add 29 stories when it is commissioned in August 2010, with the Capitol Hotel Tokyu occupying the upper floors. The building will have superb transportation access to two subway stations (Tameike Sanno and Kokkai Gijido Mae) and will be unique in a district that until now has been known for the political party offices it hosts, rather than business headquarters. n Vacancy Rate (Buildings with floor plates per story of 200 tsubo or more) % 12.0 10.0 8.0 6.0 4.0 2.0 0.0 01/01 01/07 02/01 02/07 03/01 03/07 04/01 04/07 05/01 05/07 06/01 06/07 07/01 07/07 08/01 08/07 09/01 09/07 10/01 Chuo-ku Shinjuku-ku Shibuya-ku Shinagawa-ku 9 TOKYO OFFICE MARKET 2010

Chuo-ku The focus of activity in Chuo-ku remains the redevelopment of the Nihonbashi- Muromachi district. As this is the historic seat of the Mitsui conglomerate, the remodelling is viewed as a challenge to that in progress on the opposite side of Tokyo Station driven by the Mitsubishi group. and the Nihonbashi Muromachi Higashi Project, looming to 22 stories with 536 tsubo per floor. In 2009 two large buildings were completed in the south side of the Ginza district, including the Sumitomo Fudosan Shiodome Hamarikyu Building, which added 477 tsubo per floor over 23 stories, and the Nittochi Ginza Building, which added 242 tsubo per floor over 12 stories. n The east Muromachi development project, to cover five blocks, will create a complex urban community combining commercial facilities, private housing and entertainment centers to be completed by 2014. In the first phase of the project, two office buildings will be completed in the fall of 2010; namely the Nihonbashi Muromachi Nomura Building adding 400 tsubo per floor across 21 stories Average Asking Base Rent (Buildings with floor plates per story of 200 tsubo or more) ( /tsubo) 50,000 40,000 30,000 20,000 10,000 01/01 01/07 02/01 02/07 03/01 03/07 04/01 04/07 05/01 05/07 06/01 06/07 07/01 07/07 08/01 08/07 09/01 09/07 09/12 (Marunouchi, Otemachi Area) Chuo-ku (Yaesu, Kyobashi Nihonbashi Area) (Shinbashi, Toranomon Area) Shinjuku-ku (Nishi-Shinjuku Area) Shibuya-ku (Shibuya, Harajuku Area) Shinagawa-ku (Gotanda, Osaki Area) 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 10

Districts The leafy avenues and diplomatic missions synonymous with this ward continue to make the most favored among multinational companies and non-financial institutions. Over the past five years Minato has hosted more redevelopment projects than any other ward in Tokyo, with massive projects such as Roppongi Hills and Midtown Project keeping contractors busy. Indeed, the attractiveness of these two properties to foreign financial institutions meant that both suffered falls in occupancy when the brokerage firms and banks were forced to downsize amid the global recession. But lease flexibility by landlords prevented a major loss of tenants and both remain popular addresses. In 2009, the six-story Azabu Green Terras, offering 796 tsubo per floor, was completed. But 2010 and 2011 will be very quiet, with few new properties coming on stream. In the fall of 2010, the Chunichi Shimbun Shinagawa development project will be completed near the Konan exit of Shinagawa station, affording easy access to Haneda airport and to western Japan via the Shinkansen high-speed rail link. The project successfully attracted tenants including Toyota Tsusho Corp and Omron Corp. n Shinjuku-ku The economic slowdown has hit Shinjuku particularly hard, with vacancy rates rising quicker than in other wards in Tokyo, from 3.8% in January 2009 to 9.5% in December. Many of the newer Class A buildings in the ward have lost tenants, while owners of the older skyscrapers in Nishi-Shinjuku are scrambling to spruce up their properties in a bid to enhance their attractiveness. Though 2010 will see no major new projects commissioned in the ward, two large properties will be completed on Ome Kaido Avenue in 2011 within a 3-4-minute walk from the Nishi-Shinjuku station on the Marunouchi subway line. The Nishi-Shinjuku district has witnessed many office relocations within its borders, but recently the area has started 11 TOKYO OFFICE MARKET 2010

receiving out-of-ward tenants because of the comparatively plentiful supply of available space. In 2009 Nishi-Shinjuku welcomed the 33-story Sumitomo Fudosan Nishi-Shinjuku Building and the 17-story Nishi-Shinjuku 6-chome Project. n Shibuya-ku Shibuya remains a magnet for Japanese youth and for businesses targeting them, including fashion houses and software designer firms. But for the first time in recent memory, the perennial tightness of office supply in the ward has eased markedly. In 2009, five buildings were completed in the ward, and large new buildings had a relatively easier time filling the vacancies. One of them, Jingu-mae M-Square, secured suitcase maker Ace Co and telecoms service firm Infocom Corp as tenants. Two other large buildings were completed in the Ebisu district, and both succeeded in attracting tenants before their completion. But looking beyond the premium properties, owners of Class B and Class C buildings are struggling for the first time. In 2010 the 25-story Sumitomo Fudosan Shibuya First Building will be completed on Roppongi Dori within a 10-minute walk from Shibuya station. The station is already a major train terminal shared by eight railways, and in 2012 the Tokyu- Toyoko and Tokyo Metro Fukutoshin lines will begin sharing the station as well. Also in 2010 a new underground station on the Toyoko line will be connected to the Fukutoshin line. Above the station, the Shibuya Shin-Bunkagaiku Project will add 650 tsubo per floor over 34 stories. This project is an urban development that will integrate offices, theatres and commercial facilities, and will likely become the new face of Shibuya. n 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 12

Districts Shinagawa-ku Commercial property development continues in Shinagawa centered in Osaki, where in 2009, two large buildings were completed near Osaki station. Though the recession impacted the leasing process, both buildings are now fully occupied. Several large buildings are scheduled for completion in the redevelopment area in the east side of Osaki station in 2011 and 2012, and a major development of the old Gotenyama site of Sony Corp s head office is planned. n Among the district s attractions is its location just three minutes by train from Shinagawa. Moreover, its Class A rents are currently nearly half those of comparable properties in Marunouchi. As Shinagawa-ku formerly hosted industrial enterprises, redevelopment will be a continuing feature for many years to come. During 2009, the 17-story Osaki Center Building was opened, boasting a direct link via pedestrian deck to the east exit of Osaki station. Osaki West City Building was also opened. 13 TOKYO OFFICE MARKET 2010

Sanko Clients AIR LIQUIDE ASIA-PACIFIC Co., Ltd. Mitsumasa Watanabe, Director Lowering the rent with no compromise in quality Amid the global recession, our company sought to renew our office rental agreement. With an eye on trends in the real estate industry, we negotiated with the property owner to reduce the rent but couldn t reach an agreement. We then turned to Sanko Estate to help us find a new office. Our company belongs to the Air Liquid Group, a leading industrial and medical-use gas maker based in France. Because the company serves as the group s Asia-Pacific headquarters, our employees frequently travel abroad on business. We chose Roppongi as our office location because it affords easy access to international airports via shuttles to the Narita and Haneda airports. To take advantage of the current lower rent levels, we asked Sanko Estate to look for space in the Roppongi-Akasaka area that was similar in floor area and building grade to the facility we were occupying. Sanko Estate provided us with a variety of information, including realestate market trends, vacancies in the area, and the relationship between the specifications of available properties and rents. We went to see some 10 prospective properties and chose one that was far better than we had expected. We recommended it to our (French) top executive, along with reference materials Sanko Estate prepared for us in English. He immediately gave us a go sign. The new office is in Akasaka Enokizaka, about a 10-minute walk from our old office. It met all our conditions. It s in an area where cultural facilities, private homes and office buildings exist in harmony, making for a nice international environment that is ideal for our Asia-Pacific headquarters. On top of that, the building is new, and our office is on the top floor. The view is great and the rooftop garden is ideal for small parties. Despite all these advantages, our rent is lower. What more could we ask? The office is accessible by four subway lines, far more than before. Another major advantage is the building s stateof-the-art, quake-resistant structure. Our new home has been well received by all our employees -- French, Dutch, South Korean and Japanese alike. Thanks to Sanko Estate s quick response, professional advice and negotiation skills, we are delighted to say our office relocation was more than satisfactory. n Office Search Schedule Feb/09 Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan/10 Feb 1 Selection of real estate agent/broker 2 Review of current lease and space status 3 Defining requirements (space, budget, location, etc.) 4 Preparation of relocation schedule 5 Obtaining preliminary head-office approvals 6 Identifying candidate premises 7 Visiting and reviewing candidate premises 8 Selection of final candidate 9 Negotiation of lease terms 10 Obtaining head-office approvals 11 Concluding lease agreement 12 Selection of interior designer 13 Obtaining estimates for interior/restoration work 14 Office interior/restoration work 15 Moving in 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 14

Counting Costs Here is the guideline to help you calculate the costs involved in fitting out their new office and moving in. This is applicable to the relocation for 30 300 tsubo office. Time Table of Office Relocation Calendar Period Work Narrowing Down the Candidates and Making a Short List 1 7 months before 2-4 weeks Negotiate & Q&A with the landlords/agents Discuss project at several internal board meetings Submit application (letter of intent) 2 6 months before 2-4 weeks Submitting an Application (Letter of Intent) Negotiate the terms and conditions Final decision Negotiate the wording and provisions 3 5 months before 4 months before 4-8 weeks Signing the Lease Agreement for the New Office Submit termination notice to the current building owner (Please check if there is any penalty for early termination.) Start to plan/design/estimate the new office Call designers/project managers and ask for proposal Review the proposals Decide the designer/project manager Negotiate, revise, & finalize the plan 4 3 months before 4-6 weeks Placing a Firm Order for the New Office Fitting-out Work (Lead time for ordering materials & goods) 5 2 months before 2-4 weeks Electric/Mechanical Work Starts Cabling & electric work under the floor Installing/adjusting lighting, air conditioning, fire-preventing system on the ceiling Other mechanical works if necessary 6 1 month before 2-4 weeks Fitting-out Work Putting partitions to make separate rooms and creating reception area Bringing in the office furniture & fixtures Installing a security system 7 1 week before 1 week Moving Final cabling work and final adjustment 8 Opening Day Opening 2-4 weeks Opening the New Office Restoration work on the previous premises 15 TOKYO OFFICE MARKET 2010

Item General Idea of Relocation Cost Cost Cost simulation according to the candidates Layout simulation according to the candidates Security deposit for the new contract Brokerage commission to the broker Amount equal to 6-12 months rent Amount equal to 1 month s rent Designing & project management: (Sometimes partial advance payment is requiried when order is placed.) @10,000-30,000 yen/tsubo Electric/mechanical work: IT cabling work (using existing PBX) or Telecom system (using existing PBX) IT cabling work (installing new PBX) or Telecom system (installing new PBX) @40,000-80,000 yen/tsubo @20,000-30,000 yen/employee or @20,000-30,000 yen/employee @30,000-100,000 yen/employee or @70,000-100,000 yen/employee Architectural work Office furniture Security Renewing printed materials: @60,000-120,000 yen/tsubo @70,000-130,000 yen/tsubo @10,000-20,000 yen/tsubo @5,000 yen/employee Moving cost per person: @10,000-20,000 yen/tsubo Restoration work: @50,000-150,000 yen/tsubo (Refund of the deposit after compete evacuation.) 1 tsubo = 3.3 sq m = 35.58 sq feet TOKYO OFFICE MARKET 2010 16

Important Terms The following are some of the terms unique to the Japanese office rental market that you may find useful to know. 1. Floor Area (Menseki) Space in Japan is usually expressed in square meters (m 2 ), but the term tsubo is also common (1 tsubo = 3.305785 sq m or about 35.58 sq feet). Floor space is usually measured from wall center to wall center. However, prospective lessees should be careful when comparing offices, as rental contracts often differentiate between two types of space. One type refers only to the space occupied exclusively by the tenant (senyo menseki) while the other refers to both exclusive tenant space and common space (kyoyo menseki) such as corridors, restrooms and elevator halls. 2. Deposit Money (Hosho-kin or Shiki-kin) Before tenants start occupying any rental accommodation in Japan, they are required to pay the building owner a non-interest-bearing deposit. [In most cases the payment is requested to be made on the day of the lease signing]. This gives the new tenant credibility, while the owner generates a financial reserve out of which any tenant-incurred losses are paid. The owner will return the deposit after the delivery by the lessee of the leased premises to the lessor. Most rental contracts stipulate that the deposit money will be raised in proportion to a property s rent when the rent itself is increased. 3. Rent (Chin-ryo) As soon as a tenant delivers belongings or begins office remodeling, rent payments must begin. Rent is usually paid for the coming month on the last day or by the 25th day of the month preceding it. In theory, rents can be raised if dramatic changes in economic circumstances occur, and often contracts contain such a warning. In practice, however, rents are not increased until the rental contracts fall due for renewal. 4. Common Area Maintenance Charges (Kyoeki-hi, Kanri-hi) In addition to rent, tenants are usually asked to pay a monthly common area maintenance charge that covers the cost of utilities for common space such as lobbies, halls and restrooms, as well as the cost of building maintenance and security services. Items covered by the fee vary from building to building, so prospective tenants should confirm in advance whether the fee covers cleaning and air-conditioning and/or heating costs. 5. Repair Fees (Shuzen-hi) The property owner is obliged to pay for structural repairs to the building such as those in common areas, and repairs to equipment and machinery. The tenant is usually asked to pay for office repairs such as repainting or papering of ceilings, walls and floors and other areas; replacing or repair of fixtures, blinds, glass, lighting, switches or electrical outlets; and repairs of tenant-installed partitions, fixtures, and special-use equipment. For any others, please review the contract and the building rules/regulations in advance. 6. Cohabitation and Subleasing (Dokyo Tentai) Japanese lease contracts prohibit cohabitation and subleasing. Tenancy is generally restricted to those whose names appear on the lease contract. Often, though, these rules are waived for a tenant s affiliated companies. The building owner s flexibility on this issue should be determined when the lease is being negotiated. 7. Restoration to Original Condition (Genjo-kaifuku) When a tenant in Japan terminates a lease contract and prepares to vacate, all premises must be restored to their condition at the time that the contract commenced. This restoration is at the tenant s expense and usually includes at a minimum replacement of all floor carpeting, repapering all wallpapered walls, repainting ceilings (and sometimes walls), repairs to all walls, floors and ceilings, and the removal of any fixtures installed by the tenant. Owners and landlords can be counted on to rigorously enforce this. 8. Lease Term (Keiyaku Keitai) Lease terms in Japan generally fall into two categories. The more common is a regular or standard lease that usually runs for two years but can be automatically renewed unless either party wishes to terminate the contract. Under this lease, tenants wanting to vacate before the end of the lease period can usually give written notice, typically six months in advance, and then vacate without incurring penalties. A second type of lease being increasingly adopted by owners of Class A buildings is the fixed term lease. Such leases typically run for 2-3 years, and at the end of the lease period, tenants cannot renew. Tenants wishing to remain in the property must renegotiate a new contract with the owner. Also, tenants wishing to vacate ahead of the lease expiry date must pay a penalty equivalent to the number of months rent remaining in the contract. 9. Notice of Cancellation (Kaiyaku Yokoku) Cancelling a contract prior to expiry usually carries no penalty for lessees in Japan as long as the lessor is notified beforehand and within the time period specified in the contract (usually 6 months). Recently, however, some landlords have demanded penalty payments. 10. Depreciation Fee (Shokyaku-hi) Owners of small-sized buildings often demand that tenants pay a depreciation fee. This is deducted as a percentage from the deposit (usually 10% to 20%) when the contract ends, and the deposit minus the fee is then returned to the lessee. The term depreciation fee is used here, but there is no direct relationship between the fee and building depreciation. 11. Renewal Fee (Koshin-ryo) Most office leases stipulate a two-year contract period, and rental contracts can be renewed upon expiry. It is common for owners of small-sized buildings to demand a renewal fee when rental contracts are renewed, and this fee is usually one month s rent at the rate stipulated in the new rental contract. 12. Construction Involving Building Structure (Kutai-ni-kakawaru Koji) Construction work like that below may affect the building s structure, the property value or other tenants. Such work requires the building owner s express approval. It must be done by contractors the owner designates or approves of, and the tenant bears all construction costs. Some examples: Construction altering the building structure (where pillars, beams and/or ceilings are affected, or where a room partition is extended to the ceiling) Changes in air-conditioning and disaster prevention systems Installation of heavy machinery or equipment Changes in electric equipment where the whole building s power supply system could be affected 13. Commission (Chukai Tesu-ryo) In Japan, at the time of contracting for new space, it is the tenant and not the landlord who pays the introducer or the agent a fee equal to one month s rent. This practice gives the tenant important advantages by ensuring that the agent represents the tenant only, while diligently maintaining the tenant s position and acting in the tenant s best interests in all negotiations. 1 tsubo = 3.3 sq m = 35.58 sq feet 17 TOKYO OFFICE MARKET 2010

Our Company s Five Cornerstones Quality Services Sanko s mission statement is clear: Our aim is to always strive for quality and integrity, maintaining the guiding principle of The Client As Number One. We continually strive to serve our clients with an ever-growing degree of satisfaction and peace of mind. Great Manpower Sanko has over 150 sales people on the ground in Tokyo, visiting properties daily, monitoring market conditions, and negotiating transactions on behalf of clients. At the same time they are constantly adding new data to our database. Largest Database Since there is no open-source database available in the Japanese office market, each agent has to depend on its own information source. Sanko s Database contains over 50,000 property listings in the Tokyo Metropolitan area, representing more than 95% of all available office spaces. This extensive database is updated twice daily with the latest news and information gathered by our large team and information network. Negotiation Strategy Thanks to our extensive market knowledge, excellent reputation, and multitude of senior-level contacts among leading developers and property owners in Japan, Sanko can win you the best deal possible. Our negotiation strategy is simple: we always seek quality, care for people, gather information, and learn from our experience. Market Leader As a market leader, Sanko has secured the top market share every year for over 25 years. Being a leader makes it possible to receive more inquiries, collect more information, obtain better deals, and win bigger market shares. TOKYO OFFICE MARKET 2010 18

Corporate Real Estate Services International Department Ginza Sanwa Bldg., 4-6-1 Ginza Chuo-ku, Tokyo 104-0061 Tel: +81-3-3564-8051 Fax: +81-3-3564-8032 www.sankoestate.com Since 1977, the Sanko Estate team of professionals has helped thousands of foreign firms find the best office space in Japan for their needs and budgets. By accessing the unique Sanko Estate database containing information on over 75,000 buildings throughout Japan, Sanko staff can determine at a glance the status and specifics of more than 95% of all available office space on the market. From first contact through contract signing, Sanko Estate provides prospective tenants with timely information that enables them to consider all options in their search for the perfect property. The intelligence Sanko provides includes market survey data and sector reports, objective assessment of clients officeperformance needs, and thorough costings to help clients measure the relative advantages of moving against remaining at their present address. Sanko s bilingual international team offers a wealth of professional skill and experience in serving the needs of foreign-affiliated corporate clients. Establishment: May 17, 1977 Capital: 100,000,000 License authorized by: Ministry of Land, Infrastructure and Transport, (8) No. 3105 President: Tomohiro Ono Employees: 362 (as of Jan. 2010) Branch Network: Sapporo, Sendai, Tokyo, Nagoya, Osaka, Fukuoka Company Services: Office Leasing Services Advisory Services Acquisitions and Dispositions Services Property Management Services Due Diligence Services Architectural Services Consulting and Market Research Services Enquiries: International Department Risa Tsubokura, General Manager E-mail: contact@sanko-e.co.jp Sanko Estate Unauthorized use of data and information contained in this brochure is prohibited. Printed in Japan