Mitsubishi banks on Shibuya growth

/ EdgeProp |

April 26, 2019 1:00 PM SGT

The Shibuya ward in Central Tokyo is the centre of youth fashion and culture in Japan, and its namesake intersection in front of Shibuya station reflects the profile of modern Japan. The neighbourhood is also a major commercial and business centre, and has benefited from a government-led initiative to rejuvenate the areas surrounding Shibuya station.

Shibuya ward in Tokyo is a major commercial and business centre, and is undergoing a government-led initiative to rejuvenate the areas surrounding Shibuya station

There has been an increase in demand for new hotel developments to meet the expected increase in tourist arrivals leading up to next year’s Olympic Games. This is making it difficult for property developers to secure new sites for residential developments. Excluding the Tokyo Bay area, new residential projects in central Tokyo neighbourhoods will be limited, says Kentaro Sato, director of international residential business (Japan) at JLL.

Investment foothold in Shibuya

For international investors, this means it is likely there are only a handful of new residential developments they can snap up to capitalise on the growth in the city. One new project already on the market is The Parkhouse Urbance Shibuya by international property giant Mitsubishi Estate Residence, a business arm of the Mitsubishi Group conglomerate.

The freehold development is a six-minute walk from Shibuya station and is close to the popular Yoyogi Park. It comprises 84 apartments across 14 floors, and units comprise one- and two-bedders of 337 sq ft to 697 sq ft. The development is expected to be completed by July next year.

The project is about 60% sold and just 31 units are available for sale. However, only 10 units have been allocated for sale to international buyers. So far, most of the international buyers have come from Hong Kong, China, Taiwan, and Singapore, says Sato.

The Parkhouse Urbance Shibuya comprises a total of 84 one- and two-bedroom units (Picture: Mitsubishi Estate Residence)

“This project is centrally located in the vibrant Shibuya area, which is filled with department stores and restaurants. Most residents in this area are young professionals working around the Shibuya area,” says Sato. So far, most local buyers are young couples with no children and who prefer the larger, two-bedroom units, he adds.

Prices range from $730,549 ($2,168 psf) for a one-bedroom unit of 337 sq ft, to $1.58 million ($2,271 psf) for a two-bedroom unit of 697 sq ft. “Japanese developers usually don’t increase the price of units once they have set the price,” says Sato. But developers know that the supply of residential land in prime Tokyo locations will be limited over the coming years, and are aggressively bidding up land prices, expecting to sell new residential units at a much higher price in the future, he says.

Rental yields

New residential developments within the Shibuya ward enjoy close to 3.7% to 3.9% gross rental yields, while the average yields of residential properties in Central Tokyo are 3.5% to 4.0%, says Sato. Meanwhile, according to the 3Q2018 residential report by KEN, a Japanese real estate consultancy, the average occupancy rate in Shibuya is about 96.1%, compared to 95.5% in Central Tokyo.

However, the developer expects that owners will be able to enjoy rental yields of 3.5% to 3.8% for the various unit types, and guaranteed rental yields of 2.8% to 3.0%. This means that a one-bedroom unit of 337 sq ft will rake in a gross monthly rent of about JPY188,000 ($2,275), which translates into a guaranteed rental of JPY150,400.

This guaranteed rental scheme is possible because the developer has engaged two local letting and management agencies which can provide guaranteed rents for five years, at the cost of 20% of rent. The agencies are KEN Real Estate Lease and Mitsubishi Real Estate Services. “Vacancy risk is one of the biggest concerns for international investors, but it will be a great assurance to them to know that these two established companies will guarantee the rent for owners,” says Sato.

Room to grow for investors

The Japanese government unveiled in 2003 infrastructure and urban redevelopment plans worth US$28 billion ($38 billion) for Tokyo and Osaka. On top of these, the Japanese government has invited more foreign companies to invest in areas like Shibuya. “They have lowered corporate taxes, relaxed visa restrictions, and provided language support to skilled foreign employees,” says Regina Lim, head of research for Southeast Asia at JLL Singapore.

In the immediate area around Shibuya station, four new commercial developments are expected to house than 60,000 office workers. This is likely to boost demand for rental housing in the area, says Sato.

One of the commercial towers, called Shibuya Stream, is located beside Shibuya station, and was completed in September last year. The 35-storey building features more than 30 restaurants, concert halls, and a hotel, and also houses Google’s Japanese headquarters.

Another new development is Shibuya Fukuras, a 19-storey office building beside the station. The building will feature a bus terminal, airport transit services, currency exchange facilities and tourist information kiosks on the ground floor.

Other developments in the pipeline include the Shibuya Scramble Square, a mixed-use skyscraper on top of the station. The building comprises 785,000 sq ft of office space that has been fully leased, as well as 344,444 sq ft of retail and F&B space. It is expected to be completed in March next year. Other renovations to Shibuya station are expected to be completed in phases until 2023.

Given that the current market share by international investors for residential properties in Central Tokyo is about 5%, there is still room for this market segment to grow, says Sato.

Mitsibishi Estate Residence has eight other residential developments in Tokyo that are also on the market. They include The Parkhouse Shibuya Nanpeidai and The Parkhouse Urbance Shirokane.

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